Reeves’ tax grab could ‘wipe £4bn out of the stock market’
One of the UK’s leading trading platforms has warned Chancellor Rachel Reeves that raising retail investor taxes could wipe billions off the stock market, undermining government attempts to boost domestic investing and strengthen the London market.
According to research from trading platform IG, a two percentage point increase in both dividend and capital gains tax (CGT), often viewed as easy revenue targets for the Treasury, could knock £4bn off the value of London’s leading index.
The warning comes as speculation surrounding capital gain tax hikes grows, as the government repeated its commitment to not raise income tax, national insurance or VAT at the Labour party conference.
This has left the Treasury scrambling to find other sources of capital to fill a £20bn fiscal black hole.
Hiking dividends and CGT can make UK investments less profitable after tax, ultimately decreasing the stock’s valuation and making the FTSE less attractive to investors.
Michael Healy, 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.
“If we want to build a nation of investors, we cannot make it less attractive to invest.”
No pension tax tampering
IG also warned reducing the 25 per cent tax-free lump sum, totalling £268,275, from pensions could lead to a fall in pension contributions.
According to estimates from the Institute of Fiscal Studies, analysis found that cutting the lump sum amount to £50,000 could reduce annual pension contributions by around £800m.
Meanwhile, a smaller reduction to £100,00 would result in a £300m fall in contributions.
The trading platform is urging the government not to tamper with the three tax policies in the November Budget, including no reduction to the lump sum or increases to capital gains tax or dividend tax.
Healy said: “We’re asking the government to keep their hands off our investments.
“Britain needs long term investors, not short term tax grabs.”