Having seen some of the febrile speculation over the two weeks before Thursday’s announcements by Mr Hunt, I had steeled myself (and indeed done some preparatory calculations) for a 1.25% rise in the dividend tax rates. A further rise (an increase was implemented from 6 April 2022) would have been very damaging to those trading through limited companies rather than as self employed and combined with the rise in corporation tax for companies with profits in excess of £50,000 in April would have presented some real challenges for those tax advisers seeking to support these clients. As it was, the additional rise did not come, but the two reductions in the dividend nil rate band over the next two years will collect more tax from the owners of these businesses – not a huge amount, only £87.50 and then £131.25 a year from those with dividends taxed in the basic rate band, or £337.50 and then £506.25 a year from those who have other income in excess of £50,270 and receive at least £2,000 a year in dividends.
I do worry a little about administration of the tax system. Cutting the dividend nil rate band to £500 in 2024 when the higher rate threshold is also frozen risks pulling a lot of taxpayers into self assessment when they have fairly modest holdings of shares held outside an ISA. Predictions are that a further four million taxpayers will come into higher rate taxation by 2028 due to fiscal drag.
CGT increases were also pretty hotly tipped in early November, but once again, having set those hares running the Treasury didn’t follow through. Interestingly, although not following the advice from the OTS regarding rate increases (recommendation 1 in the OTS first report on capital gains tax ‘Simplifying by design’ dated November 2020), the Treasury did adopt recommendation 5 to reduce the CGT annual exempt amount – again implementing a halving of the amount in both April 2023 and April 2024. The OTS report indicated that without behavioural change this would bring a further 200,000+ taxpayers into self assessment and bring a total of around 325,000 new taxpayers into CGT. However, as the report also reflected, some 25,000 taxpayers realise annual gains very close to the annual exempt amount each year (through managing a portfolio of quoted securities to achieve this); these taxpayers will change their behaviour to realise only gains up to the new lower limit – which means that at some point in the future they may pay significantly more tax on final disposal of their investments – by 2024 up to an extra £9,000 of taxable gains will accrue each year; it is only a pity that credit could not be taken now for this hefty future tax inflow. I guess that is a gift to a future administration!
Home >Articles > Autumn Statement 2022: behavioural change
Autumn Statement 2022: behavioural change
Not quite as bad as I thought!
Having seen some of the febrile speculation over the two weeks before Thursday’s announcements by Mr Hunt, I had steeled myself (and indeed done some preparatory calculations) for a 1.25% rise in the dividend tax rates. A further rise (an increase was implemented from 6 April 2022) would have been very damaging to those trading through limited companies rather than as self employed and combined with the rise in corporation tax for companies with profits in excess of £50,000 in April would have presented some real challenges for those tax advisers seeking to support these clients. As it was, the additional rise did not come, but the two reductions in the dividend nil rate band over the next two years will collect more tax from the owners of these businesses – not a huge amount, only £87.50 and then £131.25 a year from those with dividends taxed in the basic rate band, or £337.50 and then £506.25 a year from those who have other income in excess of £50,270 and receive at least £2,000 a year in dividends.
I do worry a little about administration of the tax system. Cutting the dividend nil rate band to £500 in 2024 when the higher rate threshold is also frozen risks pulling a lot of taxpayers into self assessment when they have fairly modest holdings of shares held outside an ISA. Predictions are that a further four million taxpayers will come into higher rate taxation by 2028 due to fiscal drag.
CGT increases were also pretty hotly tipped in early November, but once again, having set those hares running the Treasury didn’t follow through. Interestingly, although not following the advice from the OTS regarding rate increases (recommendation 1 in the OTS first report on capital gains tax ‘Simplifying by design’ dated November 2020), the Treasury did adopt recommendation 5 to reduce the CGT annual exempt amount – again implementing a halving of the amount in both April 2023 and April 2024. The OTS report indicated that without behavioural change this would bring a further 200,000+ taxpayers into self assessment and bring a total of around 325,000 new taxpayers into CGT. However, as the report also reflected, some 25,000 taxpayers realise annual gains very close to the annual exempt amount each year (through managing a portfolio of quoted securities to achieve this); these taxpayers will change their behaviour to realise only gains up to the new lower limit – which means that at some point in the future they may pay significantly more tax on final disposal of their investments – by 2024 up to an extra £9,000 of taxable gains will accrue each year; it is only a pity that credit could not be taken now for this hefty future tax inflow. I guess that is a gift to a future administration!
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