Jeremy Hunt slashes dividend allowance in blow for investors

Chancellor Jeremy Hunt today announced his plan to cut the dividend allowance from £2,000 to £1,000 next year. On top of this, the tax-free dividend limit will be further slashed to £500 as of April 2024 under current plans. These tax changes were announced as part of Mr Hunt’s Autumn Budget and will primarily affect those with shares.Shareholders in companies are entitled to a distribution of profits, which is known as a dividend.No tax needs to be paid on any dividend income that falls within someone’s Personal Allowance, which is the amount of income a person can earn each year without paying tax.Taxpayers also get a dividend allowance each year and they only pay on any income above the threshold.It should be noted that no tax needs to be paid for dividends which originate from shares in an ISA.READ MORE: Britons urged to consider ‘simple’ boiler hack that could cut energy bills by £112 a year New tax blow for Britons with shares – will you be slapped with 39% tax rate? (Image: GETTY)Originally, the dividend allowance was introduced by the Government to help people save in 2017. The dividend allowance began at £5,000, but it has been frozen at £2,000 for the past five years.Despite this, the £2,000 allowance covered the majority of an individual savers’ dividend income. As a result of Mr Hunt’s decision to cut the allowance, more people will pay tax on their dividends.How much are you taxed on dividends?The amount of tax someone pays on dividends above the allowance is dependent on their income tax bracket. For example, basic rate taxpayers pay 8.75 percent dividends over the allowance, while higher rate taxpayers pay 33.75 percent.Anyone in the additional rate tax band pays 39.35 percent. In order to determine someone’s tax band, they need to add their total dividend income to any other income.DON’T MISSPIP claim: The top 5 medical conditions giving £627 a month from DWP – check eligibility [INSIGHT]’I now get money every month!’ Woman, 65, shares way she found extra money for retirement [INSIGHT]NS&I is increasing interest rates on savings accounts up to 3.7% – millions set to benefit [UPDATE]Shaun Moore, a financial planning expert at Quilter, broke down how people will be affected by this drastic tax change.Mr Moore said: ‘For a basic rate taxpayer, the reduction in the dividend allowance to £1,000 will mean they will end up paying £87.50 more in tax.’Similarly, if you are a higher rate taxpayer this rises to £337.50 more in tax and £393.50 if you are an additional rate taxpayer.’From April 2024, a basic rate taxpayer will pay £123.75 more, increasing to £506.25 and £590.25 for a higher rate and additional rate taxpayer respectively.’READ MORE: Attendance Allowance: 6 myths that stop millions of pensioners claiming up to £370 a month  How will income tax thresholds change? (Image: EXPRESS.CO.UK)Outside of this, the Chancellor also confirmed plans for the annual exemption for capital gains tax.Mr Hunt has chosen to halve the tax-free allowance and halved it from £12,300 to £6,000, with it set to drop to £3,000 in April 2024.These tax rises are part of the Government’s wider plan to balance the books following the pandemic and amid the cost of living crisis.The pending changes to the dividend tax allowance will be implemented from April 2023.