What Rachel Reeves’ tax hikes mean for UK assets
U.K. Finance Minister Rachel Reeves delivered her long-awaited Autumn Budget on Wednesday, which included a swathe of tax hikes that will impact most of the British population. CNBC rounded up the headline announcements for investors and spoke to market watchers about the implications for U.K. assets. Stocks and bonds Among the raft of measures announced Wednesday was a three-year exemption from stamp duty — a 0.5% tax investors pay when buying U.K. stocks — for shares of newly listed companies. David Smith, portfolio manager at Henderson High Income, said that while the move was welcome, the government “could be more ambitious to boost the attractiveness of the U.K. market.” “Currently, the UK’s 0.5% stamp duty charge is an outlier among major global financial centers such as New York and Frankfurt,” he said. “It is a cost that not only reduces the value of savings but also increases the cost of equity capital for U.K.-listed companies, potentially leading to lower valuations.” However, the overall policy mix unveiled on Wednesday left many investors feeling optimistic about the outlook for tradeable U.K. assets. Benjamin Jones, global head of research at Invesco, argued U.K. stocks currently offer “a wealth of opportunities.” “Compared to other regional equity markets, U.K. stocks are still trading on lower multiples meaning there is still far less optimism priced into U.K. domestic share prices,” he said. “The budget is not pleasant, but it is not Armageddon. It doesn’t change much in the way we should think about investing but clears some of the uncertainty we think has been holding back household spending and investing, and companies investing and hiring.” The budget is not pleasant, but it is not Armageddon Global head of research at Invesco Benjamin Jones When it comes to U.K. government bonds — known as gilts — Evangelia Gkeka, senior analyst for fixed income strategies at Morningstar, said the budget reinforces a “cautious yet constructive” outlook for investors. On Wednesday, gilt yields seesawed as the contents of the budget were accidentally leaked early by the Office for Budget Responsibility. The yield on the benchmark 10-year gilt was last seen trading 5 basis points higher at 4.479% — but Gkeka argued that yields had shown modest movements around the budget “in the grand scheme of things.” “This stability is positive for investors, reflecting a more predictable market environment and provides attractive entry points for long-term exposure to elevated real yields,” she said. Savings and investments Tax breaks on savings are also being reformed in a bid to incentivize investment in the U.K. market. Currently, British savers can save up to £20,000 ($26,441) a year in an ISA — a type of bank account — without paying tax on any earned interest. From April 2027, this will be slashed to £12,000 for people under the age of 65, in a bid to encourage young people to invest rather than save. Sally Conway, savings expert at Shawbrook — a British lender that listed on the London market last month — said cutting the cash ISA allowance delivers a blow to many savers. “For those focused on financial resilience and building a cash nest egg, reducing the tax-free room they have to save will make that job harder,” she said. “It will be more important than ever for people to review how their money is split between cash ISAs, standard savings accounts and, where appropriate, investment ISAs. Shopping around for competitive rates, using a mix of easy access and [fixed-term] products, and ensuring emergency savings sit in the most appropriate accounts can help soften the impact of this change.” Reeves also announced Wednesday that existing taxes on savings interest will rise by 2 percentage points in 2027. The vast majority of U.K. taxpayers do not pay savings tax, but for those who are liable, income tax for savings income will be 22%, the higher rate will be 42%, and the additional rate will be 47%. Meanwhile, taxes on dividends will rise in April next year. Investors in the basic and upper income tax bands will see duties on dividends increase by 2 percentage points, to 8.75% and 35.75%, respectively. Property The government is creating a new separate tax rate for property income, which is already subject to income tax. From April 2027, the property basic rate will be 22%, the higher rate will be 42%, and the additional rate will be 47%. Aside from increasing taxes on property income, a so-called “Mansion Tax” is set to be introduced in England from 2028. Homes worth more than £2 million will be liable for a new surcharge between £2,500 and £7,500 a year, depending on the valuation given to the property. An estimated 150,000 households could be impacted by the Mansion Tax, according to Fidelity. Oliver Loughead, wealth manager at RBC Brewin Dolphin, advised those set to be impacted by the Mansion Tax to carefully consider their choices. “Downsizing could become a more practical option — but it still shouldn’t be an automatic decision,” he said. “Start by calculating the expected annual cost of the tax versus the financial and lifestyle impact of moving. In some cases, the tax may be smaller than the stamp duty, selling fees and disruption involved in downsizing. [But] if your property is significantly above the threshold and you already feel over-housed or want to release equity, downsizing can meaningfully reduce your long-term expenses.” Meanwhile, Nick Mann, private client property partner at law firm Collyer Bristow, warned the new tax could have unintended consequences for the U.K.’s wider real estate market. “It is likely to put off some buyers who will now look to purchase below £2 million, therefore creating a two-tier market above and below £2 million,” he said. “Whilst the market below [the threshold] will be buoyant, it will have a significant impact on slowing the market for properties valued above £2 million, particularly in London and the southeast [of England].” Pensions Private pensions are also subject to the tax hikes, with tax breaks on salary sacrifice pension contributions set to be reduced from 2029. Currently, workers who are enrolled in salary sacrifice pension schemes can pay some of their earnings into a private pension before tax is deducted from their paycheck — leaving them with less taxable pay. When the changes are brought in, any salary sacrifice pension contributions over £2,000 a year will be liable for National Insurance — a form of tax on income. Charlene Young, senior pensions and savings expert at AJ Bell, said the bigger blow will be delivered to employers. Companies already saw their National Insurance bills hiked in last year’s Autumn Budget , which businesses warned would weigh on the labor market. “While salary sacrifice currently helps workers save up to 8% employee NI on the cost of their pension contributions, the savings on offer are bigger for employers,” Young said in a note. “There is no upper threshold for employer NI, so they will face a 15% charge on the full value of sacrificed contributions over the £2,000 cap. Some generous employers have previously rewarded employees by sharing all or some of their saving, but it’s likely the added costs to payroll will lead to reward schemes being watered down or withdrawn.” Frances Li, founder and director of London-based Biscuit Recruitment, labeled the changes to pension savings “a hit to mid-career professionals.” “Now they face a difficult choice: Save for the future or protect their take-home pay. We may start to see employees lower pension contributions just to stay afloat month to month,” she said. “A professional earning £45,000 to £55,000 could find that a promotion leaves them only marginally better off once tax, NI and pension limits are factored in. That’s already shaping how some candidates approach their career decisions.”
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