Analysis conducted by Peel Hunt suggests that eliminating stamp duty on shares could have a significant positive impact on the struggling stock market in the UK. Peel Hunt predicts that such a move would lead to increased investment inflows and encourage more companies to list in London.
According to Peel Hunt analyst Charles Hall, the UK currently imposes one of the highest levels of tax on stock transactions, making stamp duty a “pernicious tax” that is adversely affecting UK equity markets. While the UK levies a 0.5% stamp duty on shares, trading venues in the US, Germany, and Australia do not impose such a tax.
Hall argues that the exemption of cryptocurrency, ETFs, contract-for-differences, and spread-betting transactions from stamp duty further drains liquidity from equities and favors these alternative instruments. He suggests that removing stamp duty should be part of a series of reforms aimed at revitalizing the UK capital markets. Hall believes that although the short-term effect would be a reduction in tax revenue, it would ultimately lead to enhanced economic activity and generate increased tax revenue from other sources.
Peel Hunt’s analysis reveals that a 10% increase in demand for UK shares would add £250 billion ($315 billion) of value to the domestic market, benefiting UK-based shareholders significantly. Additionally, the removal of stamp duty would make London a more attractive listing destination for companies and would boost the appeal of British equities to pension funds.
However, it is important to note that stamp duty on shares generated £3.3 billion in revenue for the UK government last year, accounting for just 0.3% of total UK tax revenue. Nonetheless, with investors withdrawing a record $28.8 billion from UK equity funds in 2023 and domestic pension funds diversifying their portfolios away from UK-listed stocks, there is increasing pressure on Chancellor of the Exchequer Jeremy Hunt to take action to bolster the UK stock market.
One proposal under consideration is the introduction of a tax-free savings account, known as a British ISA, to encourage investment in domestic stocks. Hall suggests that initiatives like the British ISA, coupled with stamp duty reform, could be beneficial. He proposes a targeted approach, such as eliminating stamp duty on small and midcap stocks while significantly reducing it for larger companies.
In conclusion, removing stamp duty on shares is seen as a crucial step towards revitalizing the flailing stock market in the UK. While there are considerations regarding tax revenue, the potential benefits of such a move in attracting investment, encouraging listings, and improving the appeal of British equities cannot be understated. The government will need to carefully consider these factors as it explores strategies to boost the UK stock market’s fortunes and regain investor confidence.
1. What is stamp duty on shares?
Stamp duty on shares is a tax imposed by the UK government on stock transactions. Currently, the UK levies a 0.5% stamp duty on shares.
2. How does stamp duty affect the UK stock market?
Analysis conducted by Peel Hunt suggests that stamp duty negatively affects the UK stock market by draining liquidity from equities and favoring alternative instruments, such as cryptocurrency, ETFs, contract-for-differences, and spread-betting transactions. Removing stamp duty could have a positive impact on the struggling stock market by encouraging investment inflows and more companies to list in London.
3. How much revenue does stamp duty on shares generate for the UK government?
Stamp duty on shares generated £3.3 billion in revenue for the UK government last year, accounting for just 0.3% of total UK tax revenue.
4. What are some proposed solutions to boost the UK stock market?
One proposed solution is the introduction of a tax-free savings account, known as a British ISA, to encourage investment in domestic stocks. Additionally, Peel Hunt suggests a targeted approach to stamp duty reform, such as eliminating stamp duty on small and midcap stocks while significantly reducing it for larger companies.
5. What are the potential benefits of removing stamp duty on shares?
Removing stamp duty on shares could attract more investment, encourage listings in London, and improve the appeal of British equities to pension funds. Peel Hunt’s analysis suggests that a 10% increase in demand for UK shares could add £250 billion ($315 billion) of value to the domestic market.
– Equity markets: Markets where shares of stock are bought and sold.
– Stamp duty: A tax on stock transactions imposed by the UK government.
– Liquidity: The ease with which an asset can be bought or sold in the market.
– Cryptocurrency: Digital or virtual currency that uses cryptography for security.
– ETFs: Exchange-Traded Funds, which are investment funds that trade on stock exchanges.
– Contract-for-differences: Financial derivatives that allow traders to speculate on the price movements of an asset without owning the underlying asset.
– Spread-betting: A form of gambling, mainly on financial markets, where participants place bets on the price movement of an asset.
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– London Stock Exchange