Capital gains and dividends tax changes in the 2022 Autumn Statement
Tax-free allowances for dividends and capital gains will see sharp cuts, effectively increasing people's tax bills.
Those who own investments outside an Isa, or are planning to sell a second home or other valuable asset, could pay more.
Chancellor Jeremy Hunt has announced that the amount you can earn from dividends without paying tax will be cut to just a quarter of its current value over the next two years.
The amount you can earn tax-free from capital gains will be cut to less than a quarter of its current level.
While tax rates on both dividends and capital gains aren't increasing, any increases in the value of dividends and other assets in future years means tax bills will likely rise.
Dividend tax
The annual tax-free dividend allowance will be reduced from £2,000 to £1,000 for the 2023-24 tax year, and reduced again to £500 for 2024-25.
| Dividends tax allowance 2022-23 | Dividends tax allowance 2023-24 | Dividends tax allowance 2024-25 |
|---|---|---|
| £2,000 | £1,000 | £500 |
If you own shares in a company and receive dividends as a regular income from it, you will likely be affected by this tax measure. Dividends from funds and investment trusts are also subject to dividend tax.
The government expects this measure will generate an extra £940m in 2027-28.
Dividend tax rates, however, will remain the same:
| Income tax band | Dividend tax rate |
|---|---|
| Basic rate | 8.75% |
| Higher rate | 33.75% |
| Additional rate | 39.35% |
As chancellor, Rishi Sunak originally announced an increase to dividend tax rates. Kwasi Kwarteng then pledged to scrap the rise in his mini-Budget – this is one of the few policies that Jeremy Hunt's Budget has maintained.
If your only income is from investments, then you can also use your tax-free personal allowance before you start paying tax on dividends.
Dividend tax won't apply to investments held within a stocks and shares Isa, junior Isa, lifetime Isa or pension.
- Find out more: how to find the best stocks and shares Isa
Capital gains tax
In the Budget, the government also announced a reduction in capital gains tax (CGT) allowances.
The annual CGT allowance, which is the amount of profit you can make from the sale of an asset before you are taxed, has been halved for 2023-24 and halved again for the following tax year.
| Type of capital gains tax allowance | Capital gains tax allowance 2022-23 | CGT allowance 2023-24 | CGT allowance 2024-25 |
|---|---|---|---|
| Individual | £12,300 | £6,000 | £3,000 |
| Couple's allowance | £24,600 | £12,000 | £6,000 |
The government aims to raise £440m in 2027-28 with this policy.
Most people will not need to worry about paying capital gains tax, as it does not apply to your main home or car. It affects second properties, investments, and other valuable non-essential assets, like expensive wine or antiques.
Married couples and civil partners can transfer assets to each other CGT-free, so they can effectively double their annual allowance.
Capital gains tax rates will remain the same:
| Tax band | Tax rate for property sale | Tax rate for other asset sale |
|---|---|---|
| Basic rate | 18% | 10% |
| Higher rate | 28% | 20% |
People who are impacted by CGT can deduct costs from the sale of an asset – for example, in the sale of a property, there would be solicitor and estate agent fees associated.
You can also deduct losses you make in each tax year from your gains, and as a result be charged less CGT.
Like dividend tax, CGT doesn't apply to assets held in a stocks and shares Isa, junior Isa, lifetime Isa or pension. However, losses on assets held in an Isa can't be set against capital gains elsewhere.
- Find out more: capital gains tax rates and allowances
What do the capital gains tax allowance cuts mean for me?
Here's an example using a fictional second home owner:
Linda has a taxable income (what’s left after deducting the personal allowance) of £24,000 a year and owns a second home currently worth £300,000, having originally bought that property for £275,000.
We've calculated how much tax Linda would pay if she sold her second home in the current tax year, with the reduced CGT allowance in 2023-24, or with the further reduced allowance of 2024-25.
The effect of reduced tax-free allowances
We've assumed Linda's property increases in value by 5% each year.
- Find out more: Autumn Statement 2022 key points
