Hands off our investments – or risk wiping £4 billion off UK stock market

Hands off our investments – IG urges Chancellor to leave pensions, CGT and dividend tax alone or risk wiping £4 billion off UK stock market

• IG analysis shows small two percentage point hike in both dividend and capital gains tax (CGT) could slash £4bn off FTSE
• Cutting pension tax-free lump sum to £100k would reduce annual contributions by £300m
• IG calls on government to leave pensions, CGT and dividend tax alone to protect retail investors and the UK stock market

The Chancellor could wipe billions of pounds off the UK stock market with even modest changes to key retail investor taxes, according to new analysis from investing and trading platform IG as part of its new ‘Hands off our investments’ campaign.

The research finds that ahead of next month’s Autumn Budget, a two percentage point increase in dividend tax and capital gains tax – often considered easy revenue targets – could knock £4bn off the value of the FTSE. IG’s analysis draws on established economic research on the link between tax changes and equity values, combined with UK investor ownership data from the Office for National Statistics (ONS).

IG’s advanced economic modelling also examined the impact of reducing the pension tax-free lump sum. Using published estimates from the Institute for Fiscal Studies on savers’ responsiveness to tax incentives, the analysis finds that cutting the lump sum to £50,000 could reduce annual pension contributions by around £800m, while a smaller reduction to £100,000 would still result in a £300m fall in contributions.

As part of its Hands off our investments campaign, IG is urging the government to leave three key investor-focused tax policies untouched:

• No reduction in the pension tax-free lump sum – currently £268,000
• No increase to dividend tax – currently £500 tax-free; then 8.75% for basic rate, 33.75% for higher rate, and 39.35% for additional rate taxpayers
• No increase to capital gains tax – currently £3,000 annual exempt; then 18% for basic rate taxpayers and 24% for higher rate taxpayers

IG warns that tinkering with these taxes risks undermining the Chancellor’s efforts to build a nation of investors.

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.”

About the campaign – Hands off our investments

IG is calling on the government to follow through on its pledge to create a nation of investors by leaving them alone in this year’s Autumn Budget.​ We are asking the Chancellor for:​ no capital gains tax hike on share sales, no dividend tax hike​ and no raid on the pension tax-free lump sum. If the government wants to create a nation of investors, it must put its money where its mouth is – not raid people’s nest eggs.​

About the research in the press release

Pension tax-free lump sum analysis

IG’s modelling draws on evidence from the Institute for Fiscal Studies (IFS, 2024) on how savers respond to changes in tax incentives, combined with data on UK pension contribution levels. The analysis estimates that cutting the pension tax-free lump sum to £50,000 could reduce annual pension contributions by around £800 million, while a smaller reduction to £100,000 could still lead to a £300 million fall.

Dividend and capital gains tax analysis

The market impact assessment uses findings from peer-reviewed economic research published in the Journal of Financial Economics on how capital gains tax changes influence share prices, alongside Office for National Statistics data on UK equity ownership. Together, these sources indicate that a two percentage point rise in both dividend and capital gains tax could reduce the value of the FTSE by approximately £4 billion.