Capital gains tax allowance cut to £3,000 and dividend allowance to £500

The capital gains tax allowance will be reduced to £3,000 from April 2024, and the dividend allowance to £500, Which? reported on 30 December 2023¹. Both are halved for the second year running: the capital gains allowance stood at £12,300 in 2022-23 and £6,000 in 2023-24, and the dividend allowance at £2,000 in 2022-23 and £1,000 in 2023-24¹. The capital gains figure has not been this low since 1981-82³.

The allowances apply to gains and dividends above the tax-free amounts. Above the allowance, gains on a property that is not your main home are charged at 18% or 24%, the higher rate cut from 28% in the Spring Budget, where the gain added to income exceeds £50,270; gains on other assets are charged at 10% or 20%³. Hargreaves Lansdown estimated that 635,000 more people who own shares in a company paid dividend tax in 2023-24, and Which? said this is now likely to increase³.

Sources: Which?¹

The same April changes include Isa rule changes. From 6 April 2024 savers can open and pay into multiple Isas of the same type in a single tax year, replacing rules that allowed money to be paid into only one of each type per year¹. The annual Isa allowance remains £20,000, and investments held in an Isa grow free of income tax and capital gains tax¹. The Bank of Scotland notes that the rules changed from April 2024 so that multiple Isas of the same type can be paid into each tax year⁴.

Why it matters for households

Anyone who sells an asset outside an Isa or pension, including shares, funds and second homes, has a smaller buffer before tax is due. A gain of £6,000 that would have been tax-free in 2023-24 leaves £3,000 of taxable gain in 2024-25, and the same halving applies to dividends above the allowance. The change takes effect from the start of the 2024-25 tax year on 6 April 2024¹.

The cut affects people who hold investments outside tax wrappers and those selling property that is not their main home. Which? notes that transferring assets to a legal partner who has not used their allowance or is in a lower tax band can reduce a capital gains bill, and that losses from the same or a previous tax year can be offset against gains³. The capital gains tax guide sets out what is taxed and the rates, and the dividend tax guide covers the allowance and rates. Reporting and paying capital gains tax explains how gains are declared, and selling a second property covers homes that were not a main residence. Using capital losses explains the claim deadline, and gifting assets covers transfers between people. The tax on investments guide sets out how Isas and other wrappers differ.

What happens next

The reduced allowances apply for the 2024-25 tax year, which began on 6 April 2024¹. The Isa rule change also took effect from 6 April 2024¹. No further changes to these allowances have been reported.