Fear among retail investors is building in the face of this week’s Budget, with Chancellor Rachel Reeves’ rumoured changes to capital gains tax and inheritance tax hanging over the heads of individual stockpickers.
While capital gains tax currently sits at 20 per cent, speculation has spread that it could be hiked when the government lays out its fiscal plans on Wednesday, leaving investors paying a heftier charge on the profit from their shares.
Only 350,000 people pay capital gains tax – around 0.65 per cent of the UK. However, amateur traders are likely to be among those most exposed to any change. Laith Khalaf, head of investment analysis at AJ Bell, said he had found retail investors were on “red alert” to any changes to the levy.
“It’s generally considered to be more likely that any changes will be made from the new tax year, i.e. from the 6 May 2025, rather than immediately – as this will give people time to trade at lower tax rates, knowing what changes will be introduced,” added Rupert Lovesy, head of client engagement and advice at Castlefield.
Another panic that has been sweeping the City is the abolition of inheritance tax relief on AIM stock, due to fears that billions could be pulled out of the junior market in response.
While there are signs that the government has begun to back away from any changes to AIM thanks to continued backlash from the City and UK smaller companies, investors are still on edge that it is in “the Chancellor’s crosshairs,” said Khalaf.
Rumours of plans to change the Stocks and Shares ISA have also begun to float around the City, with Hargreaves Lansdown’s Susannah Streeter stating it was “vital” to keep retail investors “enthused about investing” by maintaining the tax free wrappers.
“Some clients have expressed concern that the new government may reduce the tax relief benefits of pensions, in particular the 25 per cent tax-free cash element,” added Lovesy.
Other changes that could be made to pensions include implementing inheritance tax on pensions and adding national insurance tax to employer contributions to pensions.
However, Lovesy argued that with the growing need for people to save for retirement, and the unexpected knock-on effects from pension changes in previous governments, Reeves would be unlikely to wade into the complicated quagmire of pension regulations that could disrupt savings rates.
Ultimately, the Budget could end up impacting swathes of the market and affecting the portfolio of any retail investors, leaving them shuffling their stocks in an attempt to avoid any Budget backlash.
“There has been speculation bookmakers and punters might find themselves on the end of higher gambling taxes, and housing provision is often an area chancellors like to meddle in, which would have repercussions for the housebuilding sector,” added Khalaf.