The Chancellor could wipe billions of pounds off the UK stock market with even modest changes to key retail investor taxes, according to new analysis from investing and trading platform IG as part of its new ‘Hands off our investments’ campaign.
The research finds that ahead of next month’s Autumn Budget, a two percentage point increase in dividend tax and capital gains tax - often considered easy revenue targets - could knock £4bn off the value of the FTSE. IG’s analysis draws on established economic research on the link between tax changes and equity values, combined with UK investor ownership data from the Office for National Statistics (ONS).
IG’s advanced economic modelling also examined the impact of reducing the pension tax-free lump sum. Using published estimates from the Institute for Fiscal Studies on savers’ responsiveness to tax incentives, the analysis finds that cutting the lump sum to £50,000 could reduce annual pension contributions by around £800m, while a smaller reduction to £100,000 would still result in a £300m fall in contributions.
As part of its Hands off our investments campaign, IG is urging the government to leave three key investor-focused tax policies untouched:
• No reduction in the pension tax-free lump sum - currently £268,000
• No increase to dividend tax - currently £500 tax-free; then 8.75% for basic rate, 33.75% for higher rate, and 39.35% for additional rate taxpayers
• No increase to capital gains tax - currently £3,000 annual exempt; then 18% for basic rate taxpayers and 24% for higher rate taxpayers
IG warns that tinkering with these taxes risks undermining the Chancellor’s efforts to build a nation of investors.
Michael Healy, UK Managing Director at IG, said: “The government has been clear about its ambition to shift the UK away from a savings-first mindset and encourage more Brits to invest, supporting the stock market and growing their wealth. That goal would be seriously undermined if any of the tax areas we’ve highlighted are targeted in next month’s Autumn Budget. If we want to build a nation of investors, we cannot make it less attractive to invest - whether that’s in an ISA, outside of an ISA, or in a pension. We’re asking the government to keep their hands off our investments: no raids on pensions, no hikes to dividend tax, and no increase to capital gains tax. Britain needs long-term investors, not short-term tax grabs.”
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