Investors will for the most part be relieved at the measures chancellor John Healey announced in his first Autumn Budget on 28 October.
Healey rowed back on controversial ISA changes and, in welcome news to investors, avoided a further hike to dividend income tax.
Bond investors have responded positively, if mutedly, to the Budget. Yields on 10-year gilts were little-changed on 28 October, the day of the Budget, but they opened the following day 0.9% lower.
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“For investors, the message was one of stability, with few major surprises to unsettle financial markets,” said Tom Stevenson, investment director at wealth manager Fidelity International. “This was a Budget designed first and foremost not to rock the boat. And that is exactly what the chancellor’s most important audience – the bond market – was looking for.”
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Some of the changes announced, though, will have a material impact on how Brits go about organising their portfolios.
ISA pivots
One of the most notable announcements, which had been trailed before Healey’s speech, was the reversal of his predecessor Rachel Reeves’s decision to cut the annual cash ISA allowance for under-65s from £20,000 to £12,000.
While the aim of getting more people investing rather than saving was admirable, there’s no denying that this was an unpopular policy. For the sake of preserving simplicity within the ISA system, Healey’s decision to reverse Rachel Reeves’s proposal to cut the deposit limit seems logical – especially given the prospect of the new ‘Starter ISA’ to take its place.
There is next to nothing known about this for the moment. The Budget document simply says:
The government will now go further, working with the investment industry to explore a new ISA incentive for people investing in a stocks and shares ISA for the first time. The detailed design will be developed with industry.
So we’ll wait and see what this ends up looking like, but a carrot approach to encourage investing seems preferable to a stick approach to discourage saving.
Simplicity in the implementation will be key, with some people warning against the introduction of another type of investment ISA.
“We applaud the chancellor’s decision to scrap the cash ISA changes,” said Richard Wilson, chief executive at investment platform Interactive Investor (ii). “That said, we will await details on the Starter ISA before concluding he is not replacing tinkering… with more tinkering. One ISA only please.”
Dividend tax untouched – but a further tax hike on property income
If you were worried that more increases to dividend income tax were on the way, you can breathe a sigh of relief. Healey resisted the temptation to further hike levies on income from investment dividends.
But property investors will have to endure a further two percentage point increase in tax on their income (on top of increases announced last year by Reeves) from April 2027. Any savings held outside an ISA will also be subject to the same uplift.
Encouraging entrepreneurship?
Part of Healey’s speech stressed the importance of encouraging the nation’s entrepreneurs, and this translated into measures aimed at creating a more supportive tax regime for them.
A new Capital Gains Tax Founders’ Relief scheme will be introduced from 6 April 2027, offering a reduced 10% capital gains tax rate on up to £10 million of lifetime gains for qualifying business founders. Healey also announced an additional £20.4 billion of support for the National Wealth Fund and British Business Bank, and the value of the Trading Allowance will also be tripled from £1,000 to £3,000 per year.
While this won’t have a direct impact on investors, the hope is that it will create a more vibrant, innovative domestic economy for British investors to invest in.
Missed opportunities
Despite attempts to encourage growth in the UK economy, Healey missed the chance to correct one of its biggest drawbacks for investors.
John Owen, chief executive of the Investment Association, an industry body representing the UK’s asset managers, views the Budget as a “missed opportunity” to remove stamp duty on UK-listed shares.
“The UK’s chilling tax on shares makes investing in British businesses more expensive and acts as a direct disincentive to invest in them,” said Owen. “At a time when the UK is fighting to attract and retain listed businesses, we should be removing barriers to investment, not maintaining them. For a government that says it is serious about growth, it is high time that this counterproductive tax was abolished.”
There was also no change to tax thresholds, which have been frozen since 2022 and will remain so until April 2031.
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