Introduction
Picture this: You’ve built a tidy stock portfolio, and suddenly the taxman wants a bigger slice. That’s the nightmare scenario UK investors are facing as Chancellor Rachel Reeves hunts for cash to plug a £20bn budget hole.
Trading platform IG just released a warning that’ll make your wallet wince: hiking dividend and capital gains tax by just two percentage points could vaporise £4bn from London’s stock market. And that’s before we talk about what might happen to your pension pot.
Here’s why this matters and what it means for your money.
The Tax Hike That Could Tank the FTSE
Labour promised not to touch income tax, national insurance, or VAT. Great news, right? Well, that’s pushed the Treasury toward other revenue streams—and retail investors are squarely in the crosshairs.
IG’s research shows that even modest increases to dividend tax and capital gains tax could wallop the UK’s leading index. When investment returns shrink after tax, stocks become less attractive. Fewer buyers mean lower valuations. It’s Economics 101, but with your portfolio as the guinea pig.
Michael Healy, IG’s managing director, put it plainly: “If we want to build a nation of investors, we cannot make it less attractive to invest.”
The irony? The government says it wants more Brits investing in UK stocks, not less. Yet here we are, potentially pricing people out of the market they’re trying to boost.
Your Pension Lump Sum Is Also on the Chopping Block
It gets worse. The tax-free pension lump sum—currently capped at £268,275—might be getting slashed too.
The Institute of Fiscal Studies ran the numbers. Cut that lump sum to £50,000, and pension contributions could drop by £800m annually. Even a gentler reduction to £100,000 would cost the system £300m.
Why does this matter? Because people plan their retirement around that tax-free cushion. Yank it away, and you’re actively discouraging long-term saving. Not exactly the vibe you want when the country’s struggling with a pensions crisis.
What This Means for UK Investors
Let’s be blunt: these aren’t just hypothetical policy tweaks. They’re potential wealth killers for millions of everyday investors.
Higher capital gains tax means you keep less profit when you sell winning stocks. Higher dividend tax means your passive income shrinks. And a smaller pension lump sum? That’s retirement planning thrown into chaos.
IG’s message to the government is crystal clear: “Keep your hands off our investments. Britain needs long-term investors, not short-term tax grabs.”
The November Budget will reveal whether Reeves listens or goes ahead with what critics are calling a self-inflicted wound on UK markets.
The Bottom Line
The UK government faces a genuine fiscal challenge, but raiding retail investors’ pockets might backfire spectacularly. You can’t encourage a culture of investing while simultaneously making it less profitable.
If you’re holding UK stocks or planning your retirement, keep your eyes on the November Budget. What happens next could reshape your financial future—for better or worse.
Want to stay ahead of UK market moves? Bookmark this page and check back for updates as Budget Day approaches.
FAQ
Q1: Will capital gains tax definitely increase in the UK?
A: Nothing’s confirmed yet, but speculation is mounting. Labour ruled out raising income tax, VAT, and national insurance, leaving CGT as a likely target to fill the £20bn budget gap.
Q2: How much could my investments lose if dividend tax rises?
A: IG estimates a two percentage point hike to both dividend and capital gains tax could wipe £4bn off the FTSE 100 alone. Individual impact depends on your portfolio size and investment strategy.
Q3: What’s the current tax-free pension lump sum?
A: Right now, you can take 25% of your pension pot tax-free, capped at £268,275. The government may reduce this to £100,000 or even £50,000 to raise revenue.
Q4: Why is the government targeting investors instead of other groups?
A: Labour promised not to raise the “big three” taxes (income tax, NI, VAT) during the election campaign. That’s left CGT, dividend tax, and pension perks as easier political targets—even if economically questionable.
Q5: When will we know about these tax changes?
A: The Chancellor delivers the Autumn Budget in November 2025. That’s when we’ll get confirmation on whether these tax hikes actually happen and by how much.
DISCLAIMER
Effective Date: 15th July 2025
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