Government’s £4.4bn gain on ‘shares tax’ puts investors on edge
Investors have stepped in to provide the government with a cheap fix after receipts from the ‘share tax’ grew to £4.4bn amid fears it was harming London’s capital markets.
Rachel Reeves has spoken about her desire to boost the UK’s retail investment culture as part of her drive to deliver higher growth and yield more in the way of tax receipts.
But investment giants have said that the tax has come at the cost of the London Stock Exchange’s attractiveness, with one relatively small change that would help Britons be more encouraged to invest.
The government currently applies a 0.5 per cent tax when investors buy shares, including for stocks and shares ISAs.
AJ Bell’s Dan Coatsworth said a tax exemption for ISAs would only cost the government £120m based on calculations of total stamp duty paid by AJ Bell customers over the last 12 months, a figure which he described as a “rounding error” for the government and help UK listed businesses grow at a faster pace.
“Reeves should review the impact of stamp duty on UK shares – a tax which explicitly disincentivises investment in British companies at a time when government policy is aimed at doing precisely the opposite,” Coatsworth said.
“While the multi-billion-pound annual cost of scrapping stamp duty across the board might make the Chancellor wince, creating a specific carve-out for ISAs to support her retail investing drive could be achieved at a fraction of this cost.”
Several investment firms have raised concerns the tax is making the UK less competitive as more heavyweight companies like Wise snub listings on the London Stock Exchange.
Competitors in Europe apply lower taxes while the US does not have any transaction tax on share, putting New York ahead of London as a more attractive destination.
London-based Bowmore Asset Management’s chief investment officer Jonathan Webster Smith said the stamp duty “saps liquidity” and damages the UK’s standing.
“There is a valid concern about the number of UK companies leaving the London Stock Exchange for the US and the low number of IPOs. The government should urgently address that by removing the stamp duty.”
Share tax cut would ‘nudge’ more investors
Lord Mayor Alastair King called on ministers earlier this year to consider lowering or scrapping the tax.
“It just cannot be logically correct that, as it stands, we do not pay tax on purchases of shares in international vehicle companies such as Tesla, but we are taxed for investing in a British brand like Aston Martin,” he said.
Investment platform Hargreaves Lansdown also intervened a few months ago when it said a cut to stamp duty would “nudge more people into investing”.
“It’s clear there are deep wells of extra funding that could be deployed to help provide capital for businesses to grow and help bolster personal finances at the same time,” Susannah Streeter, head of money and markets at Hargreaves Lansdown said.