- ISA, LISA and JISA allowances will stay frozen until 2030.
- Plans for a UK ISA have been scrapped.
- The reduction of tax breaks on AIM quoted stocks confirmed.
- The CGT hike to 24% was not as high as many feared.
- National Wealth Fund presents an opportunity for retail investors.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
“The cloud of confusion hovering over retail investors has lifted with the government holding off from tinkering with ISAs. The Budget announced that ISA, LISA and JISA allowances would stay frozen until 2030. This should help maintain confidence in what is the cornerstone for retail investment in the UK. UK retail investors are enthusiastic holders of UK equities, at HL around 35% of our clients hold UK equities directly with 75% of trades by value taking place on the London market. Maintaining tax free allowances will encourage greater long-term investing and saving and but other nudges are also needed to help encourage more people to take the first steps on their stock market journey.
It’s a relief to see plans for a UK ISA dumped on the scrapheap. It was a well-intentioned idea but was set to lead to unfortunate consequences. The plan was to direct shareholders money into UK-listed companies, but such a move would have added unnecessary complexity and could have a negative impact on UK investors. If they had been nudged into a UK ISA, it would have potentially increased risk by unnecessarily concentrating portfolios. This could be a detriment, especially if there was more volatility in the London markets compared to others. For some people, the complexity may have put them off putting money into equities, given that simplicity is what many investors desire.
The reduction of tax breaks on AIM quoted stocks is a blow for investors in the small-cap market, and although some have clawed back losses given the business property relief was not completely scrapped, trading is likely to remain volatile. Investing in such companies, given how fledgling some are, is a risk, and some investors might have been prepared to take given that IHT wasn’t due on such portfolios as long as they had been held for two years or more. There could be longer-term economic implications here given that this small change might have big repercussions when it comes to creating a nurturing environment for entrepreneurial businesses, which may be counter-productive to the Chancellor’s growth agenda.
The changing CGT landscape creates uncertainty, with wealthier investors, who have maxed out their ISA allowances, now facing increased tax on equity gains. However, the hike to 24% was not as high as many feared it could be. Ultimately this move is a backwards step and may prompt investors to take profits bit by bit by using their allowances to realise gains and parking this money elsewhere.
The UK market is an income king, and enjoys the highest dividend yields among its peers, including the S&P, DAX, CAC 40. But these benefits are being swallowed up by the low level of the dividend tax allowance, which had already been slashed from £5 thousand in 2016, to £500 pounds. The chance has been lost to incentivise investment by increasing this allowance, especially given the government says it wants to encourage investment in UK assets.
The UK remains out of line with other leading nations in the world, given that the stamp duty payable on shares listed in London will remain the highest in the G7. It’s illogical for investors buying UK shares to have to pay our high stamp duty when overseas trades have a lower rate or are stamp duty-free. It means the playing field for UK plc remains uneven, which may hold back vital funds for British based companies hoping to grow, given that the 0.5% tax will still be payable by investors.
The Chancellor made a series of announcements about her National Wealth Fund. While it has lofty ambitions to attract inward investment from the big beasts of global finance, opportunities need to be created for armies of smaller retail investors, who together would be a significant force for good in helping boost growth. Opportunities to invest in growth companies are few and far between with retail investors left out of most the stock market flotations. As plans for the Fund develop, we look forward to building out opportunities for retail investors.”
