Chancellor Rachel Reeves risks slashing billions in value from the UK stock market with even small changes in the upcoming Autumn budget, experts warn.
A two-percentage point increase in dividend tax and capital gains tax, often viewed as easy tax revenue targets, could knock some £4billion from the value of the FTSE, according to analysis from investment platform IG.
Meanwhile, there are fears the Chancellor will move to cut the tax-free pension lump sum, which currently allows people to take 25 per cent of their pension fun at 55.
Already, there has been a surge in people taking out their lump sum over concerns they might lose it, despite having no plan off how to use or manage the funds.
Slashing the tax-free lump sum could have a devastating effect on the size of pension contributions, IG has warned.
It said a reduction in the lump sum maximum allowance to £50,000 could reduce annual pension contributions by a collective £800million, while a reduction even to a £100,000 allowance would see contributions fall by £300million each year.
IG says changing these taxes risks undermining the Government’s aim to promote a culture of investing in the UK
Currently, over-55s can withdraw up to a maximum of £268,275 when they take their lump sum from their total pot.
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.’
The Chancellor will unveil the Autumn Budget on 26 November, with the Government hoping to fill a hole in the country’s finances worth tens of billions of pounds.
IG is calling for the Government to leave the pension tax-free lump sum intact, and says dividend tax should be held at its current £500 tax-free level, then 8.75 per cent for basic rate taxpayers, 33.75 per cent for higher rate payers and 39.35 per cent for additional rate taxpayers.
Capital gains tax, it says, should be kept at 18 per cent for the basic rate, and 24 per cent for higher rate payers, with the annual allowance fixed at £3,000.
Last year, rumours swirled that Reeves would hike capital gains tax, speculation that turned out to be true as the Chancellor upped rates on selling shares to 18 per cent for basic rate taxpayers and to 24 per cent for higher rate payers.
IG says changing these taxes risks undermining the Government’s aim to promote a culture of investing in the UK.
Healy added: ‘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.’
Recent reports suggest that Rachel Reeves could also be gearing up to reduce the cash Isa allowance in the coming Budget, with the Chancellor said to be considering halving the allowance to £10,00 from its current £20,000 level.
IG says the Chancellor should consider scrapping the Isa altogether to further promote investing for UK savers.
The platform warned that a majority of savings accounts don’t beat inflation, therefore the Government should not incentivise people to hold more than £12,500 in cash.
Last year, almost ten times as many cash Isas were opened compared to stocks and shares Isas.
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