The £5,000 tax-free dividend allowance was cut to £2,000 from April 2018. This change will impact investors with portfolios that generate more than £2,000 of dividend income where the investments are held outside ISAs or pensions. This means that making full use of tax-efficient wrappers such as ISAs is likely to become more important for those investors who want to reduce their exposure to tax.

Making full use of available allowances

If you’ve taken full advantage of the ISA limit of £20,000, there are other strategies you can consider. If you’re married and your spouse isn’t using their ISA allowance, you can give assets to them without generating any type of tax charge. They can then put those assets into an ISA. If they aren’t using their own dividend allowance, you could also give them assets that generate dividends up to that figure.

You could also hold dividend-producing investments within your ISA portfolio, and prioritise growth-targeted investments outside your ISA.

If you’d like to develop a tax-efficient investment strategy, do get in touch.

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.

Tax treatment depends on individual circumstances. Tax treatment, rates and allowance are subject to change.

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