Revealed: what the reduction in tax-free allowances could mean for you
In Jeremy Hunt’s recent autumn statement, one of the biggest changes announced is the sharp reduction in the Capital Gains Tax (CGT) annual exempt amount and the Dividend Allowance between 2023 and 2025.
The new policies are expected to generate an additional £1.38 billion for the Treasury in 2027/2028, but what might it mean for your own finances?
If you want to know how this could affect you in the coming years, read our summary of the possible changes below.
Capital Gains Tax
CGT is payable on the profit that you make from the sale of assets like a second home, antiques, non-ISA investments, or art (if it comes to more than £6,000). You only pay CGT on the profits that are above the annual exempt amount.
The annual exempt amount for CGT is currently £12,300, but Jeremy Hunt has announced that this will be reduced over the next two years. This means that you are liable to pay CGT on a lower amount of profit from eligible sales.
The allowance for an individual will reduce from £12,300 in 2022/2023 to £6,000 in 2023/2024, and further to £3,000 in 2024/2025.
CGT rates, however, will remain the same.
If you are a higher- or additional-rate taxpayer, you will pay 20% on the gains you have made, or 28% if you sold a residential property.
If you are a basic-rate taxpayer, and the profit you have made on the sale as well as your taxable income fall within the basic-rate tax band, you will pay 10% on the gains you have made or 18% on residential property gains.
Dividend Tax
Dividend Tax is payable on any income you make from dividends that is above your Dividend Allowance.
In 2022/2023, the Dividend Allowance – the amount you can earn from dividends before you are liable to pay Dividend Tax – is £2,000. Following the changes announced in the autumn statement, the allowance will be reduced to £1,000 in 2023/2024 and then to £500 in 2024/2025.
Just like the changes to CGT, though, the rates of Dividend Tax will remain the same:
Basic-rate Dividend Tax is 8.75%
Higher-rate Dividend Tax is 33.75%
Additional-rate Dividend Tax is 39.35%.
If you take an income from dividends or you are a business owner and pay yourself using dividends, even though the rates of tax won’t change, the amount that you can earn before you pay tax is reduced, so you may end up paying more tax than in previous years.
If dividends make up all or most of your income, remember that you also have a Personal Allowance of £12,570, and must only pay Income Tax on anything you earn that is above this amount.
Get in touch
If you are worried about how the changes to CGT annual exempt allowances and Dividend Allowance will affect you, we can help. Email theteam@fortitudefp.co.uk or call us on 01327 354321.
Please note
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.