Dividend-hungry private investors will be raring to snap up the £2 billion slice of Lloyds bank shares that the Government is planning to offer them next spring. Laith Khalaf, of Hargreaves Lansdown, the wealth manager, said: “Wild horses wouldn’t drag investors away from this share sale, especially given the discounted price and the offer of one bonus share for every 10 bought. Lloyds is already the most popular share held by our clients, including many retired people who have taken advantage of the new pension freedoms to invest rather than buy an annuity.”

One of the main reasons Lloyds is now looking attractive to private investors is that the bank is starting to recover its status as a dividend giant, after years of making no payouts following the financial crisis of 2008. It is expected to yield 3.5 per cent this year, 5 per cent in 2016 and a chunky 6.6 per cent in 2017. This compares well with the 1.65 per cent yield on the best easy access savings account and the 1.7 per cent available on a 10-year Government bond.

However not all experts are so enthusiastic. Russ Mould, of AJ Bell, the stockbroker, argues that growth is likely to be limited, as the UK is a mature and tightly regulated market, and cost-cutting can only take the bank so far. He said: “The bulk of any returns from the stock is therefore likely to come from its dividend yield and anyone looking to buy Lloyds therefore needs to be confident that analysts’ forecasts for a payout of around 3.9p per share in 2016 – equivalent to a yield of 5 per cent on the current share price – are both realistic and sustainable.”

The Government has said investors applying for less than £1,000 of shares will be given priority. Someone investing £1,000 could expect a £50 initial discount, a dividend totalling £50 in 2016 and a further £100 in bonus shares after holding the initial investment for 12 months.

The most tax-effective place to tuck away Lloyds shares is in an individual savings account (isa) or self-invested personal pension (sipp). Anita Monteith, of the Institute of Chartered Accountants in England and Wales (ICAEW), said: “There is no income tax to pay on any dividends from the shares and no capital gains tax (CGT) payable on any rise in the value of the shares.”

She added: “Isas are now such a flexible investment that it is really a no-brainer to put your shares into one if you have not already used up your annual allowance, currently £15,240.”

However small investors buying modest amounts of Lloyds shares may not gain any extra benefit from putting their holdings into an Isa or Sipp. From next April the Government will not tax the first £5,000 of annual dividend income so, assuming you had no other dividend-paying investments, you would need to be holding more than £100,000 of Lloyds shares before you started being taxed on your dividends. In the same way any gains you made on a modest investment of, say, £5,000 or £10,000 in Lloyds would almost certainly, at least in the first few years, be absorbed by your annual CGT allowance, currently at £11,100.

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