England (Commonwealth Union) _ Once the reduction in the yearly tax-free allowance for capital gains and dividend taxes is implemented in 2023, private investors will suffer the brunt of Chancellor Jeremy Hunt’s search for funds to repair the estimated £55 billion black hole in the UK’s public budget. The dividend tax exemption will be cut in half starting in 2019, from £2,000 to £1,000, and then to £500 starting in 2024. In contrast, the yearly capital gains exemption will decrease from £12,300 to £6,000, and then to £3,000 starting in April 2024.
A portfolio with at least £12,000 in annual capital gains will lose about £1,200 as a result of the reduced capital gains tax exemption, claims Jeremy Croysdill, director of wealth planning at Brown Shipley. Given the decrease in the dividend allowed, he added, “An income portfolio yielding at least £2,000 in dividends will lose nearly £300 a year for a higher rate taxpayer.” According to Myron Jobson, senior personal finance analyst at Interactive Investor, “private investors are bearing the brunt of the measures, and there are more losers than winners from the statement.”
According to Sam North, a market analyst at eToro, the reduction in dividend taxes may deter investment and have a “distortionary effect” on how individuals invest in the UK. According to him, a lot of private investors depend on dividend income to cover their retirement expenses and safeguard their hard-earned cash. “Reducing the limit might have unforeseen results, such as consumers shifting more of their funds away from the conventional FTSE income-paying firms and into alternative growth-focused – and often riskier – investments elsewhere.” Jobson agreed and noted that some wealthy investors who have maximized their tax-free limits may be compelled to invest in riskier assets as a result of the fall in the tax-free allowance. Cuts to this income may put a “serious stress” on the finances of many small investors, especially those who are elderly and rely on dividend income from their shares, he said, noting that this will not simply affect the UK’s wealthiest incomes.
