Over the next two years, the HM Treasury is expected to collect £2 billion in tax and penalties on capital gains and dividends. According to recent reports, this will likely affect as many as a million savers with bills of up to £2,000 over the next two years. 

Considering that the £2 billion figure is in addition to taxes on capital gains and inheritance – which have emerged due to the freezing of tax band thresholds – the next few years could be even more of a grind for savers amid the cost-of-living crisis. Planning for the near and distant future with sound, independent financial advice is more important than ever. Here’s why. 

What’s Happened?

The UK public and press were first made aware of the £2 billion tax raid through the accounting firm Azets, which highlighted a hidden Treasury tax grab in the Chancellor’s April budget

According to the same study, the source of this raid comes down to two recent changes in capital gains allowances and income tax thresholds. 

On 6th April, the dividend and capital gains allowances were halved, while the income tax threshold was frozen back in March 2021 – initially for five years, but now extended to seven years. This dropped the top rate from £150,000 to £125,140, leading to a total tax hit of £13.1 billion and 2.5 million more people paying 40% tax by 2024. 

How Will This Affect You?

In the words of John Hiddleston, the associate director at Azets, significant numbers of people who weren’t paying tax on their savings “are going to have to do so in the next year”. 

Similarly, thousands of people are likely to be taxed even if they shouldn’t be. This is because it is an obligation to notify the HMRC about liability, but because those affected won’t have submitted a tax return before, the HMRC won’t issue the notice to do so, meaning they will not be aware that they have tax liability in the first place. 

Penalisation will also be a problem, specifically for those with modest shareholdings and assets who are unaware of the new changes, or the penalisations that can occur should they inadvertently fail to pay.

Changes To Capital Gains Tax

To explain the changes on a step-to-step basis, the first to be aware of is the lowering of capital gains tax exemption. In this case, the annual exemptions are going down from £12,300 to £6,000 later in the year, with a further drop of £3,000 in 2024/25. This means that more people are going to be paying capital gains tax.

Changes To Dividend Allowances

Regarding dividend allowances, as mentioned before, the rate has already fallen by 50% during April of this year – from £2,000 to £1,000. In April 2024, this is set to fall again from £1,000 to £500, meaning more people will be paying tax on dividends.

Changes To Income Tax Threshold

By freezing the income tax personal allowance at £12,570 until 2028, the Treasury has frozen the point at which individuals start paying higher tax rates. This means that more people will be moving into higher tax brackets over the next few years, with these individuals also paying taxes on a larger proportion of earners. As a result, there are set to be 3.2 million new taxpayers, with 2.5 million more paying a higher rate. 

What Should You Do?

If you’re reading up on the latest news and wondering about how the raid will affect you, the best thing you can do is get clarity on your own situation. To do this, you will need to seek independent financial advice from experts in the field. 

While there are reasons and positives behind the decisions being made, they will still change the tax landscape, meaning your finances are likely to be implicated. In cases like this, it is crucial to attain expert knowledge from people who have no vested interest – a key reason for opting for independent advice –  who know about the changes and understand how to apply an efficient, positive strategy in response.

The FCA does not regulate tax planning