The rules will come into force in April 2016 and replace the current dividend tax credit, along with changes to the headline rates of dividend tax.

Under the new rules, no tax is payable on the first £5,000 of any dividend income, which is a boost for the majority of small investors, but will hit owner managers.

However, this would require a significant change in current preferred practice where owner managers frequently use a low salary/high dividend profit extraction model to pay themselves instead of keeping more retained profits within the company. This could happen in light of the proposed reduction in corporation tax rates to 18% per 2020.