Healey’s Budget: a reprieve, not a reform

ISA cuts scrapped and share options boosted, but still no simple ISA and no end to stamp duty

ShareSoc judges every Budget by one test: does it support growth and encourage UK citizens to invest in UK shares? By recent standards this was a light touch – tax rises of around £6bn, on Craig Rickman’s figures at interactive investor, against some £66bn across the previous two Budgets. The Chancellor deserves credit for reversing the ISA restrictions and for expanding employee share ownership. But two opportunities were missed: simplifying ISAs and scrapping stamp duty on shares.

Sensible pragmatism on cash ISAs

The Chancellor deserves praise for listening to industry and investor feedback by abandoning the previously proposed cap on Cash ISA allowances and the associated charge on cash held inside Stocks & Shares ISAs.

ShareSoc welcomes the decision to drop the £12,000 cap on cash ISAs for under-65s and the 22% charge on cash held in stocks & shares ISAs. Both were ill-considered and unworkable. Cash is not the enemy of investing: investors need it between purchases and as a buffer when markets fall. The cap would have raised just £70m by 2031, according to QuotedData – a poor return for a year of upheaval.

More ISAs are not the answer: we need one simple ISA

Tax on savings interest outside a wrapper rises by a further two percentage points from April 2027, to 24%, 44% and 49%, while frozen thresholds pull more savers into higher bands until 2031. A higher-rate taxpayer will pay 44% on interest, 35.75% on dividends and 24% on gains, so rate for rate the system favours using a limited ISA allowance for cash rather than shares – the reverse of what the government says it wants.

Instead of simplifying, the Budget adds a First Time Buyer ISA from April 2029 and a promised Starter ISA, alongside the Cash, Stocks & Shares, Innovative Finance, Lifetime and Junior ISAs – what PensionBee’s Maike Currie calls an “alphabet soup”.

What a tax-advantaged regime needs is simplicity and clarity: one ISA, one allowance, with capital free to move between savings and investments. The nudge from cash to shares should come from education and incentives such as the Starter ISA, not from restricting cash.

Creating new shareholders: share options and Founders’ Relief

Two measures should expand the number of individual shareholders. A new Founders’ Relief taxes up to £10m of lifetime gains at 10%. And from April 2027 the Company Share Option Plan becomes EMI2: the individual limit doubles from £60,000 to £120,000, the exercise window extends from 10 to 15 years, and employees can hold up to £370,000 of tax-advantaged options across EMI and EMI2.

One caution: employees holding a large stake in their employer carry concentration risk, losing their job and their savings together if the business fails. Wider ownership must come with education on diversification.

Dividends, and the SIPP inheritance tax trap

Dividend tax rates were unchanged this time, after last year’s increase, and ISA and SIPP allowances shelter most younger investors. A planned overhaul of the taxation of company distributions from April 2028 deserves watching.

The bigger concern is the loss of the inheritance tax exemption on unused pension funds from April 2027. Above the nil-rate bands, a residual SIPP faces 40% inheritance tax, then income tax at the beneficiary’s marginal rate if drawn after age 75: a combined 64% to 67%. Where the residence nil-rate band tapers away above £2m the combined rate is around 78%, and higher still for a beneficiary in the personal allowance taper. Retirees with large pensions may wish to review when they draw income and whether to make gifts.

Stamp duty: the remaining obstacle to buying British

ShareSoc is disappointed that the 0.5% charge on buying UK shares survives. A Securities Transfer Tax replaces stamp duty and SDRT from late 2027, modernising the collection but not the cost.

The tax applies to UK-listed shares and investment trusts, while overseas shares and open-ended funds are exempt from UK stamp duty. That makes it a self-defeating surcharge on British companies. The AIM exemption and the three-year holiday for new listings already concede the economic case. If the government truly wants UK savers to back UK growth companies, it should stop taxing them for buying British.

Mark Northway, Policy Director, ShareSoc