Will the Budget in March bring tax rises in CGT and Dividend taxes?

A new year is here and so we look forward to what tax savings we can put in place before the end of the financial year at the end of March. And we also can look forward to a budget statement at the same time, and Rishi Sunak has announced already that he is updating us all on all things tax on the 3 March at the Spring Budget.

There have been much speculation over the last year on tax changes coming our way, and some of these suggestions will now most definitely be planned from April, at the start of the new financial year. So what can we prepare for now and over the next 3 to 4 months to mitigate our tax liabilities? Will the Budget in March bring tax rises in capital gains tax (CGT) and dividends? And if so, what will these look like?

Capital Gains Tax (CGT)

If the Chancellor is going to increase CGT from the existing 10% at the basic rate or 20% at the higher rate, and move these in line with the marginal tax rates of 20% basic rate, 40% higher rate and 45% additional rate tax bands, what should you be doing now to prepare for this tax change?

Disposing of assets, such as shares and properties before the end of March should be considered, albeit much harder at this point for residential properties considering the lack of time available to do so. If these disposals do drift into the new financial year, from April 2020, and we do see this likely CGT rate increase, in some cases you could see an additional 35% being charged on an asset disposal. Ouch.

Dividends

We don’t know what Mr Sunak will do with dividend taxation but there are two definite possibilities.

One of these is a national insurance charge on dividends, so an additional tax liability when taking a dividend in your business and extracting profit. The other one is moving dividend taxation in line with the marginal tax rates of of 20% basic rate, 40% higher rate and 45% additional rate tax bands.

If they do either of these tax hikes, then consideration should be given to taking dividends much earlier in the current tax year, which means paying the current 7.5% and 32.5% dividend tax rate much earlier, but it could be a much lower rate versus from new financial year from April onwards.

Let’s talk

Now is a good time to talk your adviser to see what you can do over the next three to four months to mitigate these potential tax rises.

Even if the expected tax hikes do not happen, or change to something we do not expect, planning now means you will be well positioned for the new financial year.