Hargreaves Lansdown warns against capital gains tax rise

Hargreaves Lansdown has warned against a potential increase in capital gains tax ahead of the UK Budget, amid speculation that some investors could face rates of up to 45% rather than the current maximum of 24% on most gains.

Anna Macdonald, the investment platform’s investment strategy director, said further tax changes risked discouraging investment when the economy needed growth. She also called for the removal of stamp duty on UK shares to improve the domestic market’s appeal.

What happened

Macdonald set out the company’s concerns in an interview with City AM, arguing that increasing capital gains tax would disrupt investors’ decisions without necessarily improving the government’s fiscal position.

Capital gains tax is currently charged at 18% or 24% on most gains, including those from shares, funds and residential property, depending on the taxpayer’s tax band. The speculation centres on potentially bringing those rates into line with income tax bands of 20%, 40% and 45% for some taxpayers.

A wider restructuring of the levy has also been discussed as a possibility. Neither an increase nor a broader reform is presented as a confirmed Budget measure in the report.

Macdonald argued that the Treasury’s own projections pointed to an increase being counterproductive. The report did not provide figures from those projections or specify which proposed changes they assessed.

Her intervention extends a position already expressed by Hargreaves Lansdown chief executive Matt Benchener, who has previously opposed higher taxation of investments in the UK.

The background

The warning comes against a tightening fiscal backdrop. Economists cited in the report expect the chancellor’s £23.6bn of headroom recorded in March to have diminished following the conflict in the Middle East.

That would leave spending reductions or tax increases as options for meeting the fiscal rules. No updated headroom estimate was given, leaving the scale of any required adjustment uncertain.

The spending pressures identified in the report include commitments to nationalise Thames Water and remove VAT from energy bills. At the same time, manifesto pledges not to increase VAT or income tax rates limit the government’s choices over where to raise additional revenue.

There is also a recent precedent for tax changes intended to support investment in British companies. Former chancellor Rachel Reeves introduced a three-year stamp duty exemption for newly listed UK businesses in last year’s Budget.

That exemption did not remove the 0.5% charge on purchases of other established UK shares. Macdonald wants the relief extended beyond new listings by scrapping the duty on UK shares altogether.

What people are saying

Macdonald acknowledged the difficult state of the public finances but said capital gains tax increases and other wealth taxes were not the right response. Her argument distinguished between measures that attract public support and those that best support economic activity.

“Let's not penalise investors for investing in the market and taking a risk,” she said.

On stamp duty, she argued that taxing purchases of established British shares while exempting new listings created an inconsistent incentive. In her view, the charge encourages UK investors to direct money towards overseas stock markets instead.

The London Stock Exchange is already contending with companies leaving the market and a loss of prospective initial public offerings. Macdonald linked her call for reform to the need to preserve the wider ecosystem supporting listed businesses, rather than treating share transaction taxes solely as a revenue source.

What happens next

The report names John Healey as chancellor and gives 28 October as the date of his first Budget. That announcement is the next stated point at which the government’s tax plans are due to become clear; the report provides no implementation timetable for any capital gains tax change.

In the meantime, Macdonald urged investors to avoid hasty decisions based on Budget speculation. She pointed to previous years when rumours prompted people to withdraw their tax-free cash lump sums, using that experience to caution against acting before policy is announced.