The last few years have been a wild ride for investors, to say the least.
But while global uncertainty continues, some things do remain certain - and taxes are very
much one of those things.
There are some major changes in 2023, so in this video I’ll explain what those are and
how you can make the most of some tax-free options.
Spoiler alert, it might have something to do with ISAs.
Take a look.
There are two main tax changes investors should brace themselves for this year.
The first relates to dividend income and the second to capital gains tax.
Starting with dividends.
For the last 5 years, the tax-free allowance on dividends has been £2,000.
But from 6 April, 2023, that allowance halves to just £1,000.
And it doesn’t stop there, that new balance is due to halve again in April 2024, to just
£500.
It’s a similar story for capital gains tax.
In the tax year ending 5 April 2023, if you made up to £12,300 from selling your shares
you wouldn’t pay any capital gains tax on that profit.
(Assuming you hadn’t made gains from selling other assets like art or a second property
during the tax year).
But from the new tax year starting 6 April 2023, the annual tax-free allowance for capital
gains is pretty much being sliced in half, reducing from £12,300 to just £6,000.
And, again, in April 2024 it’s due to halve once more to a tax-free allowance of just
£3,000.
It’s no secret that tax is complex and everyone should get their own advice about legitimate
ways to bring down a tax bill, such as offsetting losses.
But if you think you’ll be one of the many people affected by these changes, it could
be worth considering a stocks and shares ISA for your investments if you don’t have one
already.
With a stocks and shares ISA, you’re allowed to deposit £20,000 each year and you don’t
pay tax on any gains you make.
So, if your shares are held in a stocks and shares ISA, you wouldn’t have to pay dividend
tax or capital gains tax on your investments if you’ve deposited no more than £20,000
total each year.
It’s worth noting that capital gains tax and dividend tax in Scotland are calculated
on the UK income tax thresholds, not the Scottish income tax bands.
Let’s say you’re a basic-rate taxpayer and you earn £2,000 in dividends on shares
that aren’t held in an ISA.
If you earn this amount before 6 April 2023, you wouldn't pay any dividend tax.
If you earn the same amount between 6 April, 2023, and 5 April 2024, you’d pay £87.50,
and in the following tax year, it would be £131.25.
When it comes to capital gains tax, if you were a basic-rate taxpayer and made £12,300
profit from selling your investments, including shares that aren’t held in an ISA, you wouldn’t
have to pay any capital gains tax before 6 April, 2023.
If you earn the same amount between 6 April, 2023, and 5 April, 2024, you’d pay tax of
£630, and in the following tax year, your tax bill would be £930.
If you’re a higher or additional rate taxpayer, you can find out what you’d have to pay
by clicking this link here which takes you through to our full guide.
In the scenarios I just mentioned, under current tax rules you’d pay zero dividend tax or
CGT if those shares were held in a stocks and shares ISA.
For more information check out our full guide covering the tax changes on finder.com by
clicking this link here.
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