The Chancellor has reduced the amount of the capital gains tax exemption and halved the dividend allowance today, which will deal a ‘severe blow’ to UK entrepreneurs and investors.
In the autumn statement, Jeremy Hunt said the government would reduce the dividend allowance from £2,000 to £1,000, with a further 50 per cent cut from April 2024 meaning investors will now pay taxes on dividends at a rate based on their broader income.
Entrepreneurs who pay themselves via dividends should also be hammered by the measures announced by Hunt today.
A reduction in the capital gains tax threshold from £12,000 to £6,000 is expected to hit those with their money outside of ISAs and pension tax wrappers, who will now pay a higher rate of tax on their statements.
Analysts say the dividend tax cut would stifle investment and dampen returns at a time when ministers are expected to encourage investors to back British businesses.
“A dividend tax that would amount to just £500 of income by 2024 could discourage investment at a time when it is badly needed to help the economy grow, and for millions of investors looking to do more with their money to stay ahead. the pernicious effects of inflation,” said Sam North, an analyst at trading firm eToro.
He added that the reduction in allocation could lead to “unintended results” like people putting more money from “typical FTSE income pouring into other growth-oriented – and generally riskier – investments. – somewhere else”.
Analysts at Bowmore Asset Management said changes to capital gains tax and dividends were a “double whammy” on investors.
“While high net worth individuals are unlikely to feel much pain from this, for many small investors this increase in tax on dividends and capital gains will be significant,” said Charles Incledon, director of the customer base.
“Cuts to this income could lead to a real squeeze on the finances of many small investors, especially those who are retired and dependent on dividend income from their stocks. Bad news considering we have a cost of living crisis right now.
By city AM
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