Government accused after slashing tax-free dividend allowance

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The Government has been accused of delivering a "hammer blow" to Britain's business owners after slashing the tax-free dividend allowance by 60%.

Chancellor Philip Hammond announced a major reduction in the total amount of dividends company directors and shareholders can receive from businesses without having to pay taxes, from £5,000 to £2,000.

Mr Hammond said the move was meant to "address the unfairness" around the dividend tax advantage, which he claimed was "an extremely generous tax break for investors with substantial share portfolios".

He added: "About half the people affected by this measure are director/shareholders of private companies.

"The rest are investors in shares with holdings worth, typically, over £50,000 outside ISAs."

But Robert Pullen, a senior manager at London accountant Blick Rothenberg, said it was part of a package of measures in the spring Budget that is likely to hurt Britain's broader business community.

"The changes to self-employed NIC (National Insurance Contribution) rates and the dividend allowance do not reconcile with the statement to encourage and support entrepreneurs and innovators.

"When combined with the business rate changes, business owners will rightly feel targeted," Mr Pullen said.

He added: "Two years after a crippling 7.5% increase to dividend tax rates, the more than halving of the £5,000 dividend 0% band to £2,000 is a hammer blow to small business owners."

The accountancy firm has calculated that the cut will cost £225 for taxpayers on the basic rate, £975 for those on the higher rate, and £1,143 for those on the additional rate.

The measure is expected to boost receipts from self-employed workers by £900 million per year from 2019-2020, according to the Office for Budget Responsibility (OBR).

However, it said the total will "primarily" come from owner-directors of companies who have "significant amounts of dividend income".

Changes to the tax-free dividend allowance will come into effect in April 2018.