Losses could be greater still if investments perform well. The analysis above is based on a dividend payout of 4pc, which is the average yield from the broader stock market.
There is no change to the tax due on dividends over £5,000, as they were subject to tax previously. Likewise, portfolios yielding 4pc and worth £50,000 will have dividend payouts of below the £2,000 threshold. And it is not just dividends from shares that are taxed.
Income from “open-ended” funds and investment trusts that trade on the stock market are all counted as dividends.
‘Trojan horse’
When George Osborne, the former chancellor, introduced the dividend allowance in April 2016, he also raised the tax due on income above the allowance. Previously, basic-rate taxpayers paid nothing, higher-rate payers were charged 25pc and additional-rate 30.56pc.
After the allowance launched basic-rate payers were charged 7.5pc, higher-rate 32.5pc and additional-rate 38.1pc.
“The dividend allowance now looks like a Trojan horse that was used to smuggle higher rates of dividend tax into the system,” said Laith Khalaf of Hargreaves Lansdown, the fund shop.
“Ordinary investors are now vulnerable to paying much more tax on their dividends unless they use tax shelters to protect their income-producing funds and shares.”
He added: “Tax shelters are now investors’ best line of defence against the encroachment of dividend tax. The higher Isa allowance allows investors to shelter more of their wealth from the taxman, if they make full use of their allowances.”