Scrap Stamp Duty to Revive UK Stock Market

Have you ever wondered why investing in UK companies feels like running with a weight tied to your ankle? It’s not just market volatility or global competition—it’s a sneaky tax that’s quietly draining enthusiasm from the London Stock Exchange. The 0.5% stamp duty on UK share purchases is under fire, with industry leaders arguing it’s a relic holding back retail investors and stifling economic growth. In my view, this outdated tax is like a stubborn gatekeeper, discouraging everyday people from backing British businesses. Let’s dive into why scrapping it could be the game-changer the UK stock market desperately needs.

Why Stamp Duty Is Holding Back UK Investing

The UK stock market, once a global powerhouse, is struggling. Companies are fleeing the London Stock Exchange (LSE) for greener pastures, particularly in the US, where valuations are higher and investor enthusiasm is palpable. A key culprit? The stamp duty tax, a 0.5% charge slapped on every purchase of UK shares or investment trusts. Unlike most major economies, the UK taxes equity investments this way, even within ISAs and pensions, which are supposed to be tax-friendly vehicles. It’s a self-inflicted wound, and the numbers tell a grim story.

Last year, 88 companies either left the LSE or moved their primary listings elsewhere, while only 18 new firms joined. That’s a net loss that screams trouble. This year, the trend continues, with high-profile names like Wise and Flutter Entertainment jumping ship to the US. The lack of initial public offerings (IPOs)—just 18 in 2024, the lowest since 2010—further shrinks the market. Why does this matter? A shrinking stock market means less capital for UK businesses, fewer jobs, and a weaker economy overall.

This tax is an outdated barrier that penalizes investors for supporting British companies.

– Investment platform executive

The Case for Scrapping Stamp Duty

Investment experts are sounding the alarm: the 0.5% stamp duty is a disincentive for retail investors. A recent survey found that 72% of retail investors would pour more money into UK shares if the tax were removed. Compare that to just 7% who said a lower cash ISA allowance would spur them to invest more. Clearly, stamp duty is the bigger roadblock. By eliminating it, the government could unleash a wave of enthusiasm for UK stocks, encouraging everyday investors to take a chance on domestic companies.

Why is this tax so problematic? For one, it’s applied even within tax-advantaged accounts like ISAs and pensions, undermining their appeal. Imagine saving for retirement, only to be nickeled-and-dimed every time you buy a UK stock. It’s frustrating, and it pushes investors toward foreign markets where such taxes don’t exist. In my experience, small costs like these add up, quietly eroding returns and discouraging active participation in the market.

• Penalizes UK investors: The tax applies only to UK shares, making foreign investments more attractive.
• Reduces liquidity: Stamp duty discourages frequent trading, which hurts market vibrancy.
• Outdated system: Most G7 countries don’t impose similar taxes on equity trades.

A Boost for the London Stock Exchange

Removing stamp duty could breathe new life into the LSE. By making UK shares more affordable, it would likely attract more retail investors—those everyday folks who want to grow their wealth but feel priced out. The LSE’s decline isn’t just about companies leaving; it’s about a lack of new blood. Fewer IPOs mean fewer opportunities for investors to get in on the ground floor of exciting new businesses. A tax-free environment could change that, creating a virtuous cycle of investment and growth.

Think about it: if you’re an investor, would you rather pay an extra 0.5% every time you buy a UK stock or invest in a market where that cost doesn’t exist? The answer’s obvious. The UK needs to level the playing field with global competitors like New York, where tech giants and high valuations draw companies like moths to a flame. Scrapping stamp duty is a bold but necessary step to make London competitive again.

Abolishing this tax could spark a retail investing boom, revitalizing the UK economy.

The Economic Ripple Effect

Beyond the stock market, scrapping stamp duty could have far-reaching economic benefits. More investment in UK companies means more capital for growth, innovation, and job creation. The government’s own projections estimate that stamp duty on shares will generate £5.1 billion annually by 2030, up from £4.2 billion today. But that’s pocket change compared to the £310 billion raked in from income taxes. Sacrificing this relatively small revenue stream could unlock much larger gains by boosting the broader economy.

Here’s where it gets interesting: encouraging retail investment isn’t just about wealthy traders. It’s about empowering everyday people—teachers, nurses, small business owners—to build wealth over the long term. A thriving stock market benefits everyone, from the companies raising capital to the employees they hire. Perhaps the most exciting part is the potential to shift the UK’s savings-first mindset toward an investing culture, something other countries have embraced with great success.

Targeted Reforms: Start with ISAs and Pensions

If scrapping stamp duty entirely feels like a leap, experts suggest starting small. One idea is to exempt UK share purchases within ISAs and pensions from the tax. This would cost the government an estimated £120 million annually—a drop in the bucket compared to overall spending. Yet, it could significantly boost retail investing by making these accounts truly tax-free, as advertised. It’s a logical first step that aligns with the government’s goal of encouraging investment.

Another targeted reform could focus on investment trusts. These vehicles already face stamp duty on the shares they hold, so taxing investors again when they buy into trusts is double-dipping. Exempting them would level the playing field with other investment options, like OEICs, which don’t face the same tax burden. Small and mid-cap stocks, often the backbone of the UK economy, could also be exempted to encourage investment in domestically focused businesses.

Opening the Door to IPOs

Another way to revitalize the UK stock market is to give retail investors better access to IPOs. Historically, new listings have been the playground of institutional investors, leaving everyday folks on the sidelines. But when retail investors do get a chance, the demand is overwhelming. Take the recent Raspberry Pi IPO, which saw massive interest from retail investors. Why not make this the norm? Regulatory changes to include more retail participation could spark excitement and bring fresh capital to the market.

It’s worth asking: why are retail investors often locked out of these opportunities? The system feels rigged in favor of big players, which only deepens the sense that the UK market isn’t welcoming to the average person. Opening up IPOs could be a game-changer, creating buzz and encouraging more people to dip their toes into investing.

When retail investors get a shot at IPOs, the enthusiasm is undeniable. We need more of that energy.

– Financial market analyst

Rethinking Cash ISAs

While stamp duty is a major hurdle, some experts argue the UK’s obsession with cash ISAs is another drag on the stock market. Since their introduction in 1999, cash ISAs have delivered just one-seventh of the real returns of stock market investments, after accounting for inflation. Yet, subscriptions to cash ISAs are rising, while stocks and shares ISAs are losing ground. Why? People feel safer parking their money in cash, even if it means missing out on long-term growth.

One bold proposal is to phase out cash ISAs entirely, redirecting that £20,000 annual allowance toward stocks and shares. This could nudge savers toward investing, especially if paired with stamp duty removal. Another idea is to offer tax relief on UK shares held in ISAs for at least three years, similar to existing enterprise investment schemes. These moves could shift the UK’s financial culture from cautious saving to confident investing.

A Call for Bold Action

The UK stock market is at a crossroads. Without intervention, it risks fading into irrelevance as companies and investors look elsewhere. Scrapping stamp duty, opening up IPOs, and rethinking cash ISAs are practical steps that could turn the tide. In my view, the government has a golden opportunity to show it’s serious about growth by making the UK a more attractive place to invest.

Will the chancellor seize this moment? Rumors suggest a review of ISAs might be announced soon, but stamp duty reform could have an even bigger impact. By removing this outdated tax and empowering retail investors, the UK could spark a renaissance in its stock market, fueling economic growth for years to come. The question is: will bold action win out, or will caution keep the UK stuck in neutral?

The UK stock market’s future hangs in the balance. Scrapping stamp duty isn’t just about saving investors a few pounds—it’s about sending a signal that the UK is open for business. Let’s hope policymakers listen before more companies head for the exits.