- 12.1 million households can afford to invest more. Over half of this group (6.4 million) don’t invest at all*.
- If you’d put £7,000 into a stocks and shares ISA invested in a global tracker 10 years ago, it would be worth £13,682 more than if you had saved it over the same period.
- If just a million of these households had taken this approach, collectively we’d be £13.7 billion better off.
- The UK doesn’t invest enough. In 2022, FCA figures show 21% of people held shares.
- The Budget needs to remove barriers to investment, not create new ones by attacking allowances.
- HL will raise these issues in our Budget submission, which will examine how to support investors to boost growth in our economy and improve their own long-term resilience.
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“The Budget risks widening the investment gap, if a drive to raise revenue at all costs eclipses the vital need to boost investment to support growing businesses. The government needs to fight the temptation to go for a tax grab, and keep its hands off ISA and pension allowances, so investors can do the right thing for their own future, and support UK companies at the same time.
We already know that not enough people in the UK have embraced investment. Only around a fifth hold stocks and shares, despite the fact they offer far more potential growth than cash savings. The HL Savings & Resilience Barometer found that 12.1 million households for whom investment makes eminent sense are hoarding cash instead.
If you put £7,000 into a savings account paying a typical rate, over the past 10 years, it might have grown to be worth £8,084. However, if you put it into a stocks and shares ISA invested in a global tracker, it could be worth £21,766 – so it could be worth £13,682 more simply by investing rather than saving.
ISAs and pensions take tax out of the equation, and the current allowances meet the needs of millions of middle earners. When people are considering branching out into investment, they already have to get to grips with a whole new world, so the last thing they need is for tax to become another blocker – and another thing to get their head around. If the ISA allowance is cut, it would send the wrong signal, risking more potential investors closing the door to these opportunities.
Would-be investors who are worried about allowances can act now to protect themselves for this year at least. If they have the money available, and were planning to invest, they can do so sooner rather than later, ahead of the Budget, so they can secure their allowances while they know where they stand.
However, they shouldn’t have to worry. The government could put their minds at rest right now, and confirm there won’t be changes to these allowances, to ensure investors don’t end up being driven by their tax concerns rather than their investment needs.
Capital gains tax risks
UK retail investors are enthusiastic holders of UK equities, and those with larger portfolios, and investments outside ISAs and pensions, will have an eagle eye on plans for capital gains tax.
CGT has varied significantly over the years, and at the moment, manages the double whammy of not taking inflation into account and only benefitting from a £3,000 allowance – the lowest tax-free allowance since the early 1980s. There’s room for change, but how gains from these shares are taxed is likely to drive investor behaviour and so needs to be carefully considered.
When considering changes to taxation of capital gains, it’s worth looking at the wider picture. It’s far from the only tax on investment. There’s 0.5% stamp duty on buying shares (one of the highest rates in the G7). Then there’s dividend tax, which is even more of a burden now that the tax-free allowance has been slashed to £500. Meanwhile, profits made by the company that’s being invested in are also subject to corporation tax.
Hargreaves Lansdown believes that the taxation environment should be built to encourage investment for the long term, supporting investment in growing businesses and returns for investors, to boost long term resilience. What we don’t want to see is an arbitrary upping of the headline capital gains tax rate, which could simply put people off investment, and stop them from selling current assets.
Other factors, such as restoring allowances for capital gains and dividends, and consideration of the stamp duty rate, should build confidence in investing. Boosting the position of investors could offset the need to over-complicate CGT in an effort to account for inflation or how long the assets have been held.
There are separate issues around tax on gains from property or land, which need to be considered differently from investments that boost business growth in the UK.”
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown:
“With only 38% of households on track for a moderate retirement income (Source: HL Savings and Resilience Barometer) it’s clear that there’s much still to be done to boost retirement adequacy. Pension allowances and tax reliefs act as powerful incentives to encourage people to save for the future and it is important that any changes to the system are approached in a holistic manner that encourages people to save for their future.
People may not have much money to set aside for retirement earlier in their career -they may have student debt to repay, a young family to care for or mortgages to manage. However, as they get older and some of these pressures lessen, they are in a position to fill these gaps, and making the most of the pension allowances and tax relief on offer can play a huge part in them doing so.
Planning for retirement is a long-term project and it is vital that the system provides the stability that people need make these plans with confidence. Any knee-jerk reactions risk undermining this confidence, as people fear how their savings will be treated. This can be evidenced in the confusion many people felt around whether Labour would reintroduce the Lifetime Allowance should they win the election.
Any review of pensions tax relief should be within the wider context of the pensions review as it will directly impact adequacy and could have wider consequences for confidence in saving.”
*The HL Savings & Resilience Barometer calculates those who have more than enough emergency savings, and no arrears, who could afford to move some of their savings into investments.
