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Autumn Budget 2021: dividend tax rises and capital gains deadline extended

You'll pay more on shares held outside an Isa or Sipp

Autumn Budget 2021: dividend tax rises and capital gains deadline extended

In today’s Budget, Chancellor Rishi Sunak confirmed that dividend tax would rise by 1.25 percentage points from 6 April 2022 to tackle the current social care crisis. 

Meanwhile, the Chancellor made no changes to capital gains tax and inheritance tax rates. However, the length of time people have to report and pay capital gains tax after selling property has doubled.

Here, we explain what the dividend tax hike means for you and what the 2022-23 rates and allowances are for capital gains tax and inheritance tax.

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Dividend tax rates in 2022-23

The government revealed in September that it would increase dividend tax by 1.25 percentage points from 6 April 2022 to fund health and social care.

This has been confirmed in today’s Budget.

The tax hike means investors will have to pay more on the income they get from owning company shares. See the table below for how much you’ll pay depending on your tax band.

Income tax band Dividend tax rate 2021-22 Dividend tax rate 2022-23
Basic rate 7.5% 8.75%
Higher rate 32.5% 33.75%
Additional rate 38.1% 39.35%

To work out your potential tax bill, use our dividend tax calculator.

You won’t have to pay dividend tax on the first £2,000 you receive in dividend income – also known as the tax-free dividend allowance.

Also, you don’t pay dividends tax on shares held in a stocks and shares Isa, junior Isa, lifetime Isa or self-invested pension plan (Sipp).

Capital gains tax reporting deadline changes

Capital gains tax (CGT) is the tax you pay on the profit when you sell something that has increased in value.

The rate you pay depends on your income level and the type of asset. If you’re a basic-rate taxpayer, you pay 10% on assets and 18% on property. If you’re a higher-rate taxpayer, it’s 20% and 28%, respectively.

These rates remain unchanged from the year 2021-22. The government said in March 2021 that these rates would be frozen until 2026.

The annual CGT allowance – the amount of profit you can make on an asset before tax is payable – also remains frozen at £12,300.

However, the government announced it was extending the deadline for people to report and pay CGT on property from 30 days to 60 days. This is by recommendation of the Office of Tax Simplification which said in May 2021 that the 30-day deadline was challenging for taxpayers.

If you’re considering selling a property and want to find out how much CGT you could pay, read our guide.

It’s worth bearing in mind that most people don’t have to pay CGT. In the tax year 2019-20, there were 265,000 CGT taxpayers, less than 1% of the number of people who pay income tax.

CGT doesn’t apply to assets held within an Isa or Sipp. You won’t have to pay CGT if you sell your main residence.

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Inheritance tax unchanged

The inheritance tax nil rate band remains frozen at £325,000 until April 2026. If your estate is worth more than this, you’ll pay 40% in inheritance tax.

In the tax year 2018 to 2019, only 3.7% of UK deaths resulted in inheritance tax needing to be paid, according to the latest figures.

To work out how much inheritance tax may need to be paid on your estate, use our inheritance tax calculator.

You can pass assets onto your spouse or civil partner without paying inheritance tax, effectively doubling the amount you can pass on tax-free.

Corporation tax surcharge cut for banks

Earlier this year, Rishi Sunak revealed plans to raise corporation tax from 19% to 25% as of 1 April 2023 to help reduce the country’s huge debt pile.

He also announced a review of the Bank Corporation Tax Surcharge in light of this increase.

In the Autumn Budget the Chancellor announced that, as a result of this review, it is cutting the rate of tax on banks’ profits to 3% from April 2023, down from 8%. He also revealed challenger banks won’t pay the surcharge unless their profits exceed £100m, up from £25m.

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