Chancellor John Healey will deliver his first Budget this week, with limited room for manoeuvre after changes to income tax, VAT, corporation tax and employee National Insurance, as well as capital gains tax (CGT) more recently, have been largely ruled out.
The measures that remain open to change, including stamp duty, ISAs and pensions, have direct implications for how investors save, hold and sell their assets.
Compared to last year, there have been fewer leaks ahead of this Budget, and speculation has been lower too. Below, Trustnet presents the wishes of tax advisers, wealth and fund managers for the Budget, spanning from the more to the least likely.
Simpler, more stable rules
Sean Bannister, head of tax at Edwin Coe, expected a relatively technical Budget, given how many levers the chancellor had already ruled out. A key problem he flagged is the complexity of the system, which has itself become a problem for taxpayers and businesses.
“Every new relief, exemption or adjustment creates additional rules that taxpayers and businesses have to understand,” he said. “What businesses and investors really want is some certainty. They need to know what the tax environment is going to look like over the next few years so they can make decisions with confidence. A simpler, more stable system would be a very welcome starting point.”
Rob Morgan, chief investment analyst at Charles Stanley Direct, had the same argument for savings products and asked the chancellor to refrain from further ISA or pension changes.
The £20,000 ISA allowance and the £268,275 cap on the tax-free pension lump sum were both frozen, which reduced their value in real terms each year.
“Pensions and ISAs have been subject to almost constant speculation and periodic reform over the past decade,” Morgan said. “Leaving rules and allowances unchanged in the Autumn Budget would provide much-needed stability and allow people to plan their financial futures with greater confidence.”
Households, advisers and providers are still adapting to the lower cash ISA limit for under-65s and to the inclusion of unused pension wealth in the inheritance tax regime from April 2027.
“At a time when the government wants people to save more, invest more and take greater responsibility for funding their own retirement, the last thing the system needs is another round of complexity and tinkering,” he added.
No new taxes on wealth
For Morgan, the ruling out of a further rise in CGT was a sign that the Treasury is weighing behavioural responses as well as headline rates. Higher rates could lead investors to defer sales and reduce the overall tax take, so he also urged the chancellor not to tighten CGT indirectly, for example by removing the uplift on death, which he said could leave inherited assets facing inheritance tax of up to 40% followed by CGT of up to 24% on sale.
“Such a change would affect families who have undertaken legitimate long-term estate planning, create practical difficulties in establishing original acquisition costs that may date back decades and risk discouraging asset disposals and investment activity,” he said.
Bannister focused on the prospect of an annual wealth tax.
“Many entrepreneurs have substantial wealth tied up in their businesses but very little cash available personally,” he said. “Taxing that wealth before it has been realised could create enormous difficulties and encourage people to relocate.”
Worryingly, his conversations with entrepreneurs now frequently include the question of leaving the UK, particularly ahead of a business sale.
“These aren’t necessarily people who want to leave,” he said. “Many have built successful businesses here, have strong personal, professional and commercial connections to the UK and would prefer to stay. But when they’re approaching a significant business sale or liquidity event, the tax implications of remaining in the UK become increasingly difficult to ignore.”
Rathbones made a similar case in its Building Prosperity report. It recommended that the chancellor reject an annual wealth tax and avoid further CGT rises without reforming the tax base.
Growth and the public finances
Camilla Stowell, wealth CEO at Rathbones, said the answer to the chancellor’s constraints must not be to keep asking businesses and individuals to pay more.
“Economies need to grow out of high debt burdens and that means backing the people, businesses and investment that create jobs, generate tax revenues and build prosperity across the country,” she said.
To get finances back on track, borrowing costs are the place to look at, according to Will Tamworth, manager of Artemis UK Smaller Companies and Artemis UK Future Leaders.
“If government borrowing costs were the same in the UK as they are in Italy over the long term, that would save £30bn a year,” he said. “You could spend £30bn more or tax £30bn less just by getting to Italy’s borrowing costs.”
Italian 10-year government bonds yield 4.6% versus the UK's at 5.4%.
Directing existing incentives towards the UK
Gareth Channon, manager of Aurora UK Alpha, questioned why the Treasury subsidised pension savings that were invested overseas. He said most of that money was going into US technology stocks such as Nvidia.
“I just don’t see that we need to have a tax deduction for overseas investment,” he said. “If you made it only for UK investments, it would make the UK market a lot more attractive.”
Ken Wotton, manager of the Strategic Equity Capital trust, said the subsidy ran to tens of billions of pounds a year and that directing it towards domestic companies was legitimate. He said capital flowing out of the UK was putting pressure on AIM, which he said had supplied scale-up capital to growth companies for 30 years.
“They’ve contributed billions and billions of pounds to the UK economy, and yet because of this flight of capital away from the UK – and allocations by pension funds and wealth management companies away from the UK towards the US – that’s starting to wither. It would be a national disgrace if we allowed it to happen,” he said.
Tamworth agreed, noting that redirecting some of the existing tax breaks on ISAs and pensions to encourage investment in UK markets would not cost any significant money.
Scrapping stamp duty on shares
Having more domestic liquidity would also allow more companies to list in London, Channon noted, with Morgan adding that abolishing stamp duty reserve tax (SDRT), generally charged at 0.5% on purchases of UK-listed shares, would help achieve that.
“The UK is increasingly an outlier among major financial centres in imposing a transaction tax on share purchases,” Morgan said and noted that the chancellor’s predecessor, Rachel Reeves, introduced a three-year SDRT holiday for newly listed companies last year.
“If removing SDRT is considered beneficial for newly-listed companies, there is a strong case for applying the same logic across the wider UK equity market,” he said.
Housing and Stamp Duty Land Tax
Rathbones also called for reform of Stamp Duty Land Tax (SDLT) to encourage housing mobility. It estimated that this could increase transactions by 16%, support almost 11,000 additional homes a year and lift GDP by around 0.2%.
The floated idea of a new Help to Buy-style scheme could help first-time buyers, but should sit within a wider growth agenda, according to Tamworth.
“It’s a small step that might help, but you need more of a focus on economic growth,” he said. Channon would welcome such a scheme too, as it would benefit UK housebuilders.