Entrepreneurs and investors hit by dividend and capital gains tax changes

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, comments on the Chancellor’s Autumn Statement (17 November 2022), which shows entrepreneurs and investors hit by dividend and capital gains tax changes.

Key points from Statement:

• • The dividend allowance will be cut from £2,000 to £1,000 next year and then to £500 from April 2024.
  • It means that by 2025, anyone receiving dividends of above this amount, will pay tax on them at a rate depending on how much other income they receive.
  • The Annual Exempt Amount for capital gains tax will be cut from £12,300 to £6,000 next year and then to £3,000 from April 2024.

Susannah Streeter says:

“Entrepreneurs are being penalised with the increase in taxes on both capital gains and dividends, and those people who have diligently invested over the long term to build up their financial resilience will no doubt feel unfairly swiped by this grab from profits.

“But as the cost-of-living crisis rages, affecting those on low incomes the worst, it also needs to be recognised that many owners of assets like shares or property have benefited from a huge upswing in values over recent years, while wage earners have seen their incomes stagnate.

“So, taking a greater slice on money they make on their investments is being viewed as a fairer way of evening up the playing field, rather than clawing more money from pay packets.

“However, there is a risk that the government may still end up receiving less in tax because investors hoard assets.

“Tinkering with the capital gains tax exemptions will only penalise a minority of taxpayers but is still set to reap significant sums for the Treasury, which will which is why these measures have been swooped on.

“It means investors who hold money in funds or shares outside a pension or an ISA will face a greater tax burden.

“This rise is a stark reminder of the value of ISAs in protecting investors from having to consider CGT or dividend tax, so anyone who hasn’t exploited their ISA allowance to protect these investments may be inspired to do so.

“For buy-to-let investors who own property as part of a limited company these changes could be a triple whammy, coming on top of rises in corporation tax. They will not only have to pay more tax on dividends on profits from rent but now that CGT has been aligned with interest rates and they sell up, they could be faced with a hefty bill in just one hit. 

“This could discourage them from selling, causing parts of the housing market to potentially seize up.

“With house prices already facing a significant correction, if even more potential sellers try and avoid selling at what they perceive as a loss, fresh paralysis will add further uncertainty to a highly sensitive market.”

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay