The tax-free dividend allowance is to be slashed from £5,000 to £2,000 from April 2018, the Chancellor has said.
Since its introduction in April 2016, the allowance – which means no tax to pay on dividend payments – has helped small business owners who pay themselves an income this way from their firm, as well as largely benefiting better-off investors with shares portfolios.
Now, following what Philip Hammond called "unfairness" around the tax advantage – concern that many people were using it to pay less income tax, as well as it being a benefit to the already well-off – the lower rate is to be introduced.
However, dividend income received on shares held in a stocks and shares ISA will still be tax-free.

Budget 2017: Other key stories
- New NS&I Investment Bond will pay 2.2%
- Self-employed face class 4 national insurance hike
- New tax-free childcare scheme to launch next month – what we know so far
- Cost of mobile roaming outside the EU set to rise
- Airbnb rentals may no longer qualify for tax break as Government plans 'Rent a Room' overhaul
- Technical education students to receive maintenance loans from 2019
- Smokers to be hit by new 'floor price' tax on cigarette packs
What are dividends?
Dividends are a bit like interest on a savings account. If a company makes a profit, it gives some of it back to you – it could be on a regular basis or as a one-off. And just as you have a personal savings allowance for interest on savings, you also have a dividends allowance each tax year – currently £5,000 – where dividend income you receive is tax-free.
Any dividends received above this allowance will be taxed – at 7.5% for basic-rate taxpayers, 32.5% for higher-rate taxpayers and 38.1% for additional-rate taxpayers.
Have your say
This is an open discussion but the comments do not represent the views of MSE. We want everyone to enjoy using our site but spam, bullying and offensive comments will not be tolerated. Posts may be deleted and repeat offenders blocked at our discretion. Please contact fbteam@moneysavingexpert.com if you wish to report any comments.