In the 2016 spring budget, alongside an increase in the rates of tax applicable to dividends effective from 6 April 2016, a 0% band was introduced in relation to the first £5,000. Phillip Hammond has now cut this to a much lower band of £2,000 with effect from 6 April 2018.
The rationale for this is to prevent shareholder directors who are perceived as being in receipt of higher reward (and arguably higher levels of risk keeping them awake at night!) from receiving an unfair advantage. However, this may well impact on those who have invested for their retirement and who, prior to the increase in dividend tax from 6 April 2016, paid no further tax on dividend income if they were basic rate taxpayers. The £5,000 at 0% allowed many to remain outside the tax net and outside the self assessment system. Will more basic rate taxpayers now need to account for 7.5% on dividend income in excess of the new £2,000 from April 2018?