The tax-free allowance for dividend income is now only £500. Remember when the allowance was £5000?

HMRC forecasts just under 3.6 million people will pay tax on their dividends this tax year, almost double the number who paid three years ago.

As part of this change, many small shareholders and basic rate taxpayers are now paying tax on their dividends.

Here are some simple ideas on how to reduce or avoid tax on your dividends.

1. Transfer your shares to a Stocks & Shares ISA or, if you have one, a SIPP.
2. If your spouse or civil partner has spare allowances or pays tax at a lower rate, transfer your shares to them.
3. Change your portfolio to shares that grow in value rather than pay dividends. The growth may ultimately be subject to Capital Gains Tax when you sell, but you get to choose when.
4. While the dividend allowance has been cut drastically, you can still receive £500 in dividends each year without paying tax on them.

Keep in mind that:

• Transfers between spouses or civil partners are free from capital gains tax. You simply change the ownership of the investments to a spouse or civil partner rather than selling them and handing them over in cash, which would potentially raise a capital gains tax liability.
• Other share transactions including transfers to other family members may trigger a capital gains tax liability but can sometimes be held over.
• You can set up an ISA with up to £20,000 in cash and buy investments within it, You can then add to it annually.
• You can stagger share disposals of a number of years to maximise the use of the £3000 annual tax-free allowance.
• Shares that have not grown in value will not trigger a capital gain and can safely be sold tax-free.
• SIPPS are less flexible than ISAs because you cannot access your money until you hit age 55 (rising to 57 from 2028). However, dividends in a pension can accumulate in the account without being subject to tax.