Chancellor Jeremy Hunt has upped the tax burden on City workers through changes to dividend and capital gains treatment in his 17 November Autumn Statement.
The income tax threshold for the 45p rate will fall from £150,000 to £125,140, while the dividend allowance will fall from £2,000 to £1,000 next year and to £500 from April 2024, Hunt said.
The threshold for dividend earnings was previously reduced from £5,000 to £2,000 in 2018, with reports ahead of the announcement suggesting it could be lowered further still. The Treasury was also reportedly modelling a 1.25 percentage point increase to the current 33.75% rate for higher earners.
Meanwhile, the annual capital gains exemption will fall from £12,300 to £6,000, and then to £3,000 from April 2024.
Hunt’s speech made no mention of Treasury discussions ahead of the statement to hike capital gains tax from 28% to 40% for residential property and increase the current 20% paid on share disposals.
The chancellor said that the tax increases were based on two principles: “We ask those with more to contribute more” and “we avoid the tax rises that damage growth”.
“Entrepreneurs are being penalised with the increase in taxes on both capital gains and dividends, and those people who have diligently invested over the long term to build up their financial resilience will no doubt feel unfairly swiped by this grab from profits,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown said.
“But as the cost-of-living crisis rages, affecting those on low incomes the worst, it also needs to be recognised that many owners of assets like shares or property have benefited from a huge upswing in values over recent years, while wage earners have seen their incomes stagnate,” she added.
A freeze on other income tax thresholds was also extended, bringing more taxpayers into the higher brackets due to the impact of inflation and salary rises, generating more revenue for the Treasury through so-called fiscal drag.
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Banks got a reprieve, however. Former chancellor Kwasi Kwarteng U-turned on his predecessor Rishi Sunak’s plans to cut the bank surcharge tax rate from 8% to 3%, but Hunt wanted to push ahead with the cut, according to multiple reports ahead of the statement.
As the government looks to drive through a new post-Brexit regulatory framework in its Financial Services and Markets Bill, Hunt praised the Bank of England’s work on inflation.
“The Bank of England has done an outstanding job since its independence and has my wholehearted support,” Hunt said, confirming the government will not change its remit.
Bloomberg reported that Hunt was nearing an accord with regulators over the future of the Solvency II rules that govern insurance and pension firms’ capital buffers. The government believes it could release billions for investment by changing the EU-derived rules, but has been locked in terse discuss with watchdogs wary of introducing more risk into the financial system.
Hunt said an update would shortly be provided on Solvency II in his speech.
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