The Chancellor announced changes to the Dividend Allowance in today’s Budget.

Philip Hammond said the allowance allows each director/shareholder to take £5,000 of dividends out of their company tax free, over and above the personal allowance.

“It is also an extremely generous tax break for investors with substantial share portfolios,” he said.

“I have decided, therefore, to address the unfairness around director/shareholders’ tax advantage, and at the same time raise some much needed-revenue to fund the measures I shall announce today, by reducing the tax-free dividend allowance from £5,000 to £2,000 with effect from April 2018.

“About half the people affected by this measure are Director/Shareholders of private companies.”

Les Cameron, head of Technical at Prudential, said: “The previous dividend allowance of £5,000 allowed investors to hold around £150,000 of equity-based portfolios tax free. Today’s announcement of a reduction of this allowance to £2,000 will slash the size of the portfolio that can be held tax efficiently by over 50%.

“As a result we expect to see an increase in the use of tax-efficient wrappers such as ISAS, pensions and investment bonds as investors seek to mitigate their increased tax exposure.”