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8 March 2017
The Chancellor of the Exchequer, Philip Hammond, today (8th March 2017) cut the amount in dividends that investors can receive tax-free from £5,000 to £2,000 as he delivered his Spring Budget.
Chris Price, investment specialist at investment management and stockbroking firm Redmayne-Bentley, said:
“The usual pre-briefing comments in last weekend’s media suggested that this Budget would not contain fireworks, and on the whole this proved correct. The Chancellor quoted the Office for Budget Responsibility (OBR) figures to state that the economy will grow by 2 per cent in the next financial year before slowing in the following year and then rising steadily thereafter. Inflation is forecast to peak in the current year at 2.4 per cent, before falling back to 2 per cent in 2019. Public sector borrowing figures are expected to be better than those quoted in last November’s statement, with borrowing peaking in the next financial year at £58.3bn.
“The recent uproar against business rates has led to funds being provided to help small businesses in particular, but the digital companies (e.g. Amazon, ASOS) will see their level reviewed prior to next revaluation (five years away) as they have been seen as beneficiaries of the upcoming changes.
“Pub companies are one of the winners of this Budget, as there is no increase in alcohol duty (on top of that already announced) and a large number of pubs will receive discounts on their rates charges. Other winners include: transport and roads, as money is dispensed to the regions to help alleviate bottlenecks; schools; and North Sea oil and gas. Funds have also been directed to a number of research projects in science and innovation. On International Women’s Day, Mr Hammond announced monies towards charities and campaign supporting women and a fund to help people back into work after career breaks.
“In any Budget, if there are winners, there must be losers. Whilst affirming previous pledges on corporation tax rate and income tax threshold levels (£12,500 personal allowance and 40 per cent tax rate at £50,000 by 2020), the Chancellor’s announcements hit the self-employed. Noting the disparity between an employee and one who is self-employed earning broadly the same amount, he has announced that National Insurance contributions for self-employed workers will rise by 1 per cent in 2018 and a further 1 per cent in 2019. The “unfair discrepancy” between total tax paid by an employed worker, and one who has set up their own company, has resulted in the tax-free dividend for directors/shareholders allowance being reduced from £5,000 to £2,000. This is likely to have an impact on investors with portfolios over £60,000, based on an approximate average yield of the FTSE 100 of 3.5 per cent, as they are likely to breach this threshold. However, it will encourage further investment into ISAs where the maximum investment level rises to £20,000 in April 2017, as within this wrapper there are no taxation issues and may further improve pension savings.”
“This was not a Budget to get excited about, but given the uncertainties that Brexit may create, this should not come as a surprise. From an investment perspective, it is unlikely to move the dial with falling corporation taxes being a positive for the companies, while the fall in the tax-free dividend allowance was probably the only genuine surprise.”
Please remember that investments and income arising from them can fall in value and you may lose some or all the amount you have invested. Tax treatment depends on the specific circumstances of each individual and may be subject to change in the future.
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