From April 2024, both the capital gains tax (CGT) and dividend tax allowances will halve. Many people will need to pay more tax on different income streams as a result – but how exactly will this affect you and your business?
At HW Associates, we’re always on the lookout for the latest measures that could have implications for our clients. Join us as we break down the changes and what they mean for you, offering our expert advice along the way.
What’s changing: The basics
The capital gains tax-free allowance is the maximum profit you can make on the sale or disposal of an asset before incurring a CGT charge. Slashed from £12,300 to £6,000 for 2023/24, this allowance will reduce further to just £3,000 on 6 April 2024.
On the same day, the dividend allowance will halve from £1,000 to £500. This will affect an estimated 4.4 million individuals in 2024/25, who could be around £155 worse off on average because of the change.
Impact of the CGT allowance change
The Government’s decision to trim the CGT allowance could have an impact on your investment returns.
If you have a large real estate portfolio or you’re planning to sell an asset soon, these changes could result in a higher tax charge, forcing you to recalculate your strategies.
Impact of the dividend allowance change
Dividend income has long been a tax-efficient friend to company directors and shareholders, but the impending shifts in tax policy are set to shrink the tax-free allowances. As a result, business owners who rely on dividends as part of their income may need to rethink their financial game plan.
What the changes could mean for you
Now, let’s get personal. How do these changes affect you and your business?
Limited company directors and shareholders:
Limited company directors and shareholders often rely on dividends for income. A reduction in the dividend tax allowance could mean it’s time for a financial health check.
If you’re a director or shareholder of a limited company, you may need to reconsider how you extract profits from your business. A professional tax adviser can help ensure that you pay yourself in the most tax-efficient way possible.
Self-employed business owners
Depending on the nature of your self-employment, the CGT changes might have you reevaluating your business structure and sales processes. Our advice? Explore tax-efficient alternatives to keep your hard-earned cash in your business.
Exploring other capital allowances available to your business could also help optimise your tax position.
Investors
With the CGT allowance taking a hit, it may be time to review your investment portfolio. Navigating these changes may require professional support to ensure you get the best return on your investment.
How to cope with the changes
We understand that the prospect of higher taxes can feel like a financial storm brewing on the horizon, but don’t panic! Here are some coping strategies to help you weather the tax turbulence:
- Review your business structure: By assessing your business structure, you can uncover opportunities for tax efficiency. Be sure to find the best fit for your business model, to ensure you’re set up for success.
- Get your timings right: If you’re planning on selling an asset soon, it may be worth expediting the sales process to take advantage of the more generous CGT allowance for the 2023/24 tax year.
- Explore tax-efficient investments: With changes to CGT around the corner, a good investment strategy will become paramount. Work with a tax adviser to identify tax-efficient investment opportunities tailored to your financial goals.
- Diversify your income streams: Relying solely on one income stream can be risky, so now might be the time to explore other potential income streams and minimise the impact of reduced tax allowances.
Optimise your tax position
Change has always been the single constant in the financial world, but with the right guidance, you can turn these challenges into opportunities to grow.
At HW Associates, we’re not just number-crunchers; we’re your partners in financial success. If you need help navigating the tax changes then understand we are here to help and get in touch today.