The implications of Rachel Reeves’s long-awaited Budget announcement yesterday are still being digested, particularly in terms of how they will impact the UK’s stock market.
While the markets have been reassured, initially at least, by the broad package of the tax and spend reforms outlined, several of the announcements will be of direct interest to investors.
Markets appeared to respond positively to the Autumn Budget. Gilt yields fell, indicating that bond investors felt the chancellor had credibly increased her fiscal headroom. Meanwhile, the FTSE 100 gained 0.9% and the FTSE 250 gained 1.2%, possibly thanks to the improved outlook for UK GDP in the OBR’s report.
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Looking longer term, there were various measures in the Budget that will have a direct impact on investors in UK stocks and investment trusts.
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Will reducing the cash ISA get people investing?
One of the most controversial topics in the run-up to the Budget was the possibility of reducing the annual cash ISA limit.
Reeves confirmed that the limit for cash ISA contributions would be lowered to £12,000 annually – but that over-65s would be exempt from this reduction and would still be able to put their full £20,000 annual allowance into cash ISAs.
The stated aim of this move is to create a ‘nation of investors’ by encouraging Brits to put more money into stocks and shares ISAs.
“While the reduction in the cash ISA limit may prompt some to consider their options, it is important that savers are supported to make informed decisions,” said Chris Cummings Investment Association.
The reduction in the limit is also expected to be accompanied by an educational campaign that will inform hesitant Brits about the potential benefits of getting started in investing.
“As part of the retail investment campaign, we will explain the benefits of investing to help people build their financial resilience,” said Cummings. “We will also work with [the] government to ensure that the ISA changes… are delivered in a way which is straightforward for both business and consumers.”
Much will rest on this campaign, as research shows that simply reducing the cash ISA limit alone is unlikely to prompt greater investments.
Research from AJ Bell in March showed that only one in five (20%) cash ISA savers would invest in stocks if the cash ISA limit was cut, with half (51%) saying they would put the excess cash into a taxable savings account and 24% saying they would use it to buy Premium Bonds.
“The chancellor clearly recognises the huge benefit of long-term investing and the boost it can provide to people’s finances, but today’s announcement is a missed opportunity to reshape ISAs with the consumer in mind,” said Michael Summersgill, CEO of AJ Bell.
Stamp duty holiday for London listings
The push to get Brits investing more is driven at its core by a worrying decline of the UK stock market. The London Stock Exchange (LSE) has seen numerous delistings this year and is missing out on key IPOs, likely including that of neobank Revolut, as founders seek greater valuations overseas.
In a bid to boost the appeal of domestic listings, Reeves announced an exemption from stamp duty on shares for the first three years after a company lists in London.
At present, shares in UK-listed companies are subject to a 0.5% tax on purchase. This will be lifted for three years after any new company lists on the LSE.
“The introduction of a three-year stamp duty relief scheme for firms listing in the UK is a positive step forward,” said Cummings, but he added that it is “one which should be extended to all listed firms in due course".
VCT tax relief cut
On the less positive side of the ledger, hidden in the small print of the Budget was the revelation that up-front tax relief on shares in venture capital trusts (VCTs) would be cut from 30% to 20% from April 2026.
This tax relief on newly-created shares in VCTs is a strong incentive for investors to buy into these vehicles, and as such is viewed as a key source of funding for early-stage, innovative companies.
“We’ve seen the effect of cutting income tax relief on VCTs before,” said Alex Davies, CEO of Wealth Club. “When VCT income tax relief was cut from 40% to 30% in 2006/07, funds raised by VCTs fell 65% year-on-year.
“2026/27 will be no different – with smaller companies facing a drought in funding in the years ahead,” Davies added.
Other changes announced in the Budget would see reforms to the VCT and Enterprise Investment Schemes allowing VCTs to invest more money into more mature businesses.
“We welcome some of the changes to the Venture Capital Trust (VCT) rules, which, for example, give AIM VCTs the ability to support UK smaller companies for longer in their growth journey,” said Richard Power, head of quoted companies at Octopus Investments.
“However, this is coming at the same time as a reduction in the reliefs investors receive across all VCTs, which is likely to slow down the impact on the growth of this market,” he added. “We’ll be paying close attention to see how this pans out and supporting advisers with the changes from next year.”
Dividend tax hiked
Along with hiking tax rates on income from property and savings, Reeves also announced plans to increase the basic and higher rate of dividend tax from April 2026. This will see basic rate taxpayers pay 10.75% tax on dividend income, and higher rate payers pay 35.75%.
“The UK dividend tax hike – which impacts our home market more than others given its higher payouts – is a clear disincentive for stocks,” said Mark Preskett, senior portfolio manager at Morningstar Wealth. He added that there has so far been no mention of specific UK equity incentives within the proposed ISA reforms.
