Whereas currently that pensioner pays no tax on the dividends, when the dividend allowance is introduced, they will have to start paying tax on £1,000 of their dividend income.
Last year Mr Osborne introduced a new dividend tax, which will come into effect in April and see tax payers have a new tax-free dividend allowance of £5,000 a year after which tax is to be charged at new rates that are 7.5 per cent higher than the current levels.
Britain's 4.8 million self-employed came under the spotlight as never before this week as Philip Hammond hit the higher-earning of them with National Insurance increases and drastically watered down a dividend allowance of which they were big potential beneficiaries.
Instead of the present situation where we are allowed to receive up to £5,000 of income from shares and stock market funds tax-free, the annual dividends allowance will be slashed by 60% to just £2,000 from April 6.
For dividend income above this allowance, basic-rate taxpayers will pay 7.5pc, while higher-rate taxpayers will pay 32.5pc tax and those who pay the additional rate of 45pc will face 38.1pc tax.
Hammond also courted unpopularity with Conservative supporters by cutting the tax-free allowance on dividends for directors and shareholders from £5,000 a year to £2,000, a decision that will affect more than 2 million taxpayers.
The Canadian government is simplifying the matter by an update to the tax code whereby all foreign dividends will be taxed at 15% no matter what kind of account holds the security, or whether it is dividend income or a depletion allowance.
"Actually, an awful lot of [investment] funds haven't been able to buy Lloyds shares at all while they haven't been paying a dividend, so actually, just the allowance of those potential shareholders on to the [share] register again is going to be a pretty good thing," he said.
If the allowances were given to people (equivalent to Rep. Chris Van Hollen's Cap and Dividend proposal that sells the allowances to companies and then returns the proceeds to consumers as a per capita dividend), then we could avoid this whole debate, and Congress would look like heroes with a new form of stimulus package.
Hammond also announced that he was addressing similar benefits enjoyed by people who are directors and shareholders, by cutting the tax-free allowance on the dividends they take out of their companies from £5,000 to £2,000 from April next year.
However, the moves may not prove to be as costly to people drawing dividends as assumed, as the announcement of the lower allowance presents taxpayers with the opportunity of lowering their bills by drawing dividends in advance.
