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With the introduction of the £5,000 ‘tax free’ Dividend Allowance from 6 April 2016, there has been a dividend regime benefiting those receiving relatively small amounts in dividends. But there’s change on the way which is not such good news. From 6 April 2018, the dividend allowance falls from £5,000 to £2,000, impacting personal and family companies where a large part of the profits is extracted as dividends.
The cut to the dividend allowance will affect dividend-paying shares and investment funds held outside Individual Savings Accounts (ISAs) or pensions. Be aware of your ISA entitlement: £20,000 for 2017/18.
Those with dividend income from shares-based investments could consider strategies to minimise the effects of the change – eg by maximising ISA income (see Tax efficient investments). Dividend growth is tax free within an ISA wrapper.