Chancellor looking at CGT and dividend allowance reductions

Chancellor looking at CGT and dividend allowance reductions

The tax structure on capital gains and dividends could be altered to raise money to fill the £40bn hole in public finances, according to reports.

Chancellor Jeremy Hunt is looking at raising the dividend tax rate, cutting the tax-free allowance for dividends and changing the tax-free allowances for the capital gains tax.

The news has been reported by the Financial Times, BBC, The Times and The Telegraph.

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The Treasury is modelling a 1.25 percentage point increase in dividend tax across each tax band, raising the ordinary rate to 10 per cent, the upper rate to 35 per cent, and the additional rate to 40.5 per cent. 

The tax-free dividend allowance may be reduced from £2,000 to £1,000, which could raise £455mn.

The measures are all being considered by Hunt ahead of the Autumn Statement on November 17, and no decisions are said to have been taken.

The UK has a £40bn hole in its public finances, and the Treasury is said to want to raise a further £10bn in case the economy fares worse than expected in the next year.

The fiscal statement later this month comes in the wake of former chancellor Kwasi Kwarteng’s “mini” Budget, which led to chaos in financial markets and was promptly unwound by Hunt shortly after he replaced Kwarteng.

The statement will contain a forecast from the Office for Budget Responsibility, the absence of which in the “mini” Budget caused consternation.

The Bank of England warned yesterday that the UK could be facing its longest recession on record, after it raised interest rates by 0.75 percentage points.

In its guidance, the BoE laid out two possible scenarios for the UK’s economy, with the first predicting interest rates will rise to 5.25 per cent and the UK will be in a recession for at least two years.

This would mark the longest recession in nearly 70 years.