Wealth taxes and a British ISA consultation: what the election could do for investors –

• Over the weekend, attention turned to investment and wealth – and the potential for new wealth taxes.
• 11% of people say they’d be more likely to vote for a party that pledged to cut tax on investments.
• Overall, 31% of investors think a Conservative government would be better for their investments, while 27% think Labour would. 23% don’t know.
• Meanwhile, the consultation on the British ISA will close on Thursday UK ISA consultation – GOV.UK (www.gov.uk). Both Labour and the Conservatives have said they are committed to it.
• We want to see any changes to the ISA regime to be designed to simplify it, and ensure it encourages behaviours that are positive for investors.
• Quite aside from this consultation, there are some key policies that could deliver real benefits for investors.

All figures from an Opinium survey of 2,000 people, April 2024

Susannah Streeter, head of money and markets, Hargreaves Lansdown:

“Over the weekend, attention turned to investment and wealth. There was much discussion as to whether or not Labour would introduce new wealth taxes. Coming on the back of the Conservative’s cuts to the dividend tax and capital gains tax thresholds – both effectively raising wealth taxes – some of this speculation could sound the alarm bell for investors. It doesn’t just raise concerns for the super-rich, but for people with defined contribution pensions, or those who are putting money away to help protect them later in life.

Conservative ISA reforms have focused on improved digital reporting which should make it easier to transfer ISAs, as well as the proposed British ISA, where the intention is for an extra £5k allowance for investing in UK securities.

Labour has so far put out more forward-looking detail on financial services and the party has not proposed any new wealth taxes at this stage. It has been keen to emphasise it’s committed to considering the British ISA and wants to see investment in UK equities boosted. Simplifying the ISA regime, encouraging more use of stocks and shares ISA, and a campaign for retail ownership are all on the agenda for Labour. Keir Starmer said for Labour ‘our number one mission is wealth creation’.

It adds to the debate over investment and the tax regime, which hits a significant milestone this week, as the consultation on the British ISA closes on Thursday. There’s still a long way to go before a UK-focused tax wrapper would be implemented, and many more discussions to be had on the best ways to encourage UK investment, or indeed whether the ISA regime is the right place for this product. Retail investors are already enthusiastic backers of British equities.  An ISA is the first product people look to for their savings and investment. Any changes to the ISA regime should be focused on simplifying it and encourage more investment.

Quite aside from this consultation, there is an opportunity for the political parties to make their case for retail investment. So far, voters are divided on whether Labour or the Conservatives would be better for their investments. Some 31% think a Conservative government would be better for their investments, while 27% think Labour would, and 23% don’t know.

Some 11% say they’d be more likely to vote for a party that pledged to cut tax on investments. Unfortunately for them, with so many tax pledges on the table, this one may not make into the manifestos. However, it’s not just tax that can make a difference. There are a number of policies that could ensure the election leaves investors significantly better off.

Tweaks to the Lifetime ISA

The LISA is already making a real difference to those saving for a first property or for retirement, but it could do so much more. Targeted changes could enable it to provide a more attractive way for self-employed people to save for the long term. By raising the maximum age for opening and contributing to 55, it would make the Lifetime ISA more relevant to the self-employed, 70% of whom missed out because they were too old when it launched in 2018. By reducing the penalty for any self-employed LISA holders accessing their pot before age 60 to 20%, it would enable the government to recover their bonus, without imposing a penalty. As a result, it would make the LISA more attractive to this group, who typically have variable cash flow and lack the confidence to put money away for the long term.

Better communication

At the moment, when you invest, firms have to give you comprehensive key information documents, which aren’t particularly accessible. The FCA has suggested an option which would allow this information to be provided in more digestible chunks. There’s also the opportunity to consider where in the process risk warnings are given. By focusing on the outcomes and how people respond – and ensuring risks are understood – it could mitigate the risk of putting investors off by presenting risk warnings early and often. A similar approach could be used in reviewing the prospectus regime.

Better guidance

An awful lot has been said about the need for financial firms to be able to improve the guidance they offer people, without crossing the line into regulated financial advice. At the moment, they can’t personalise it, or use it to drive people towards specific outcomes. We’ve got some way down the line in revisiting this – including the FCA and Treasury suggesting a new category of targeted support, so providers could make recommendations based on what ‘people like you’ should do. We want to see the new government bring this to a conclusion.

Improving access to markets for retail investors

Between 1996 and 2020, our clients were excluded from 88% of all primary market transactions, which means that despite the fact that retail investors represent around 10% of shareholders for UK markets, they are rarely able to participate in IPOs. We want to see the outcome of the Hill and Austin reviews implemented, so that companies have to consider retail investor participation in capital raising – and justify any exclusions.

There is still a need to allow for investment into Long Term Asset Funds from within a Stocks and Shares ISA, giving people appropriate access to private assets and infrastructure investments. This would be a valuable step forward, so once a Chancellor is installed in Number 11, we want this to remain firmly on their to-do list.

We also want to see more work on the back of the Flint Digitisation Taskforce. This proposed using technology to support dialogue between companies and retail investors who own a stake in them. It would be a great step for investors who want to become more engaged. However, it needs careful consideration in order to avoid overwhelming those who want to invest, rather than becoming activist investors.”