24th January 2024
Preparing for Future Tax Changes
Back in November 2022, Jeremy Hunt announced a number of tax changes that were to be gradually introduced in the 2023/24 tax year and then the 2024/25 tax year. The main changes he made were a reduction in the Capital Gains Tax (CGT) Allowance (i.e., the maximum tax-free profit you can take in a tax year) and a reduction in the Dividend Allowance (i.e., the amount of dividends you can earn tax-free in a year). The CGT allowance was £12,300, which then dropped to £6,000 from 6th April 2023, and then a further reduction to £3,000 from 6th April 2024. The Dividend allowance was £2,000, which then fell to £1,000 in this tax year, with a subsequent further drop due from 6th April 2024 to £500.
These reductions could have consequences mainly for individuals who hold investments outside of an ISA, Pension, or Investment Bond. This could be shares or collectives where it is possible to make a profit and earn dividends from these investments. For example, if you hold £30,000.00 in shares or a collective providing a dividend yield of 3%, then this will mean that you will earn dividends of approximately £900.00. From 6th April 2024, this dividend income would cause you the obligation to fill out a self-assessment tax return for the 2024/25 tax year because you would have earned dividends over the dividend allowance.
The same applies to taking a profit from an investment such as shares or a collective in the 2024/25 tax year. If the gain you make is over £3,000.00, then this will also cause a self-assessment tax return requirement. For some individuals, they have large portfolios within shares and collectives that make it difficult to avoid these tax traps. However, it is important that the individual is aware of these reductions and can also plan for the potential tax they could need to pay.
Currently, the rates for Capital Gains tax are as follows:
Basic rate taxpayers:
- 18% on gains from residential property
- 10% on gains from other chargeable assets (i.e., shares or collectives)
Higher/Additional rate taxpayers:
- 28% on gains from residential property
- 20% on gains from other chargeable assets (i.e., shares or collectives)
Currently, the rates for Dividend tax are 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate).
We encourage our clients to make use of their various allowances so they do not need to be concerned with the Capital Gains Allowance and the Dividend Allowance. Having your money mainly in ISAs and Pensions can help an individual avoid concerns about exceeding these allowances because all Capital Gains and Dividends are earned without the requirement to report them.
If you have any concerns about the above, please do not hesitate to contact your Financial Adviser or call us on 01628 480200.
The opinions expressed in this update are those of A&J Wealth Management Limited only, as at 17th January 2024, and are subject to change.
The content of this publication is for information purposes and should not be treated as a forecast, research, or advice to buy or sell any particular investment or to adopt any investment strategy. It does not provide personal advice based on an assessment of your own circumstances. Any views expressed are based on information received from a variety of sources which we believe to be reliable but are not guaranteed as to accuracy or completeness. Any expressions of opinion are subject to change without notice.
Past performance is not a reliable indicator of future results. Investing involves risk and the value of investments, and the income from them, may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.
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