- Pensions, dividends and capital gains could all be targeted on 26 November
Speculation over a fresh tax raid on investors and savers at the upcoming Budget in November is weighing on Britain’s financial services sector.
The chief executives of UK investment platforms and asset managers have this week flagged the ongoing impact of rumours that pensions, dividends and capital gains are all potential targets of Rachel Reeves’ upcoming Budget.
And fresh analysis suggests even a relatively modest adjustment to these taxes could wipe billions off UK stocks and lead to damaging outcomes for consumers.
AJ Bell boss Michael Summersgill warned ‘uncertainty around government policy continues to cause disruption.
He said mounting speculation over pension taxation ‘creates damaging uncertainty for customers and advisers’, adding that AJ Bell would continue to campaign ‘for a government commitment to stability on pension tax incentives’.
It came as a survey from Nucleus, a service provider for UK financial advisers, found three in five savers were worried Reeves would cut the level of tax-free cash currently available from pensions in the 26 November Budget.
City bosses have warned Rachel Reeves against a personal tax raid
At present, those aged 55 and above can generally take up to 25 per cent of the value of their pension tax-free, up to a maximum of £268,275.
Andrew Tully, technical services director at Nucleus said: ‘Last year’s speculation of potential changes to tax-free rules saw many investors take lump sums from their pensions, with some trying to reverse those actions when no such rule change materialised.
‘There’s a real sense of déjà vu here. Speculation can harm confidence and lead to potentially self-destructive behaviours.’
St James’s Place boss Mark FitzPatrick cited ‘heightened speculation around the forthcoming Autumn Budget‘, amid ‘a more uncertain picture for UK consumers’.
Earlier in the week, Quilter chief executive Steven Levin flagged ‘heightened press speculation regarding personal tax changes that may impact households’ carefully constructed retirement plans’.
He warned the Chancellor that any ‘meaningful changes’ should only be implemented ‘after due consultation and with appropriate transitional arrangements’.
Failure to do so could damage ‘consumer confidence in long-term savings and investment plans that are essential to good retirement outcome’, according to Levin.
While potential pensions changes have captured headlines, Reeves may opt to target taxes on dividends and capital gains tax – two levies that are often considered easy routes for the Treasury to boost revenues.
Analysis conducted by trading platform IG suggests a two percentage point increase in dividend tax and capital gains tax could knock £4billion off the value of the FTSE 100.
Investors are entitled to £500 tax-free on dividends, after which they face a 8.75 per cent basic rate, 33.75 per cent higher rate, and 39.35 per cent for additional rate taxpayers.
CGT, which is charged on profits when selling an asset that has increased in value, is levied on gains over an individual allowance of £3,000, rising to £6,000 for couples, with a basic rate and higher rate of 18 and 24 per cent, respectively.
Assets held in Isas and pensions are currently exempt, but IG says its figures are based on the ‘established economic research on the link between tax changes and equity values’.
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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