Hunt lights a bonfire of tax allowances in raid on capital gains and divis

‘More people have to file a return’

ENTREPRENEURS and selfemployed workers will pay hundreds of pounds extra to the taxman every year after Chancellor Jeremy Hunt slashed tax-free allowances on dividends and capital gains.

The amount people can earn in dividends without paying tax will be cut by three-quarters over the next two years.

The tax threshold will fall from £2,000 to £1,000 in April next year and then drop again in 2024 to £500.

There has been a sharp increase in the taxing of dividends, with the allowance falling 90 per cent since 2018, when it stood at £5,000.

More than 2.6million investors, selfemployed workers and limited company landlords, who already pay tax on dividends, will be hit by the allowance cut.

Small business owners typically use profits to pay themselves using a combination of both salary and dividend payments because it is more tax efficient.

Landlords can also use limited company structures to take dividends from rental profits. Pensioners who rely on dividends for income will also lose out.

Dividend tax rates are based on someone’s highest income tax rate but are not paid on investments made via an Isa or pension fund. Basic rate taxpayers will pay an additional £87.50 in tax on dividends from April, rising to £123.75 in 2024, wealth manager Quilter said.

A higher-rate taxpayer will be £337.50 worse off next tax year and £506.25 out of pocket from the following year.

Last month, Mr Hunt reinstated a 1.25 percentage point rise in dividend tax rates, introduced in April but scrapped by Kwasi Kwarteng in September.

Genevieve Morris, of tax adviser Blick Rothenberg, said: ‘It’s a Budget of tax simplification – simply reduce and ultimately phase out every tax allowance. It will also bring more and more people into having to file a tax return at a time when they are already struggling to process current volumes.’

Exemptions from capital gains tax (CGT) are being cut. Households will have to pay tax on an extra £9,300 of profits from selling assets from 2024.

The threshold above which the tax is paid will fall from £12,300 to £6,000 next April and then will be halved once more to £3,000 in April 2024.

CGT is levied on profits made from selling an investment, such as properties that aren’t your main home, company shares, and most possessions worth more than £6,000 other than a car.

Profits made on shares in an Isa and pension funds are exempt from CGT. The fall in allowances will cost property owners thousands in extra taxes.