The removal of stamp duty should “materially improve the prospects of the UK market”, according to a thematic research paper from Peel Hunt.
In the research, Stamp Out Stamp Duty, Peel Hunt stated the removal of stamp duty would increase demand for UK shares, encourage companies to list in the UK, and increase the relative attraction of UK equities for pension funds.
Additionally, stamp duty removal would increase capital gains tax and inheritance tax, and boost fund flow into UK markets which would, in turn, enable companies to access the market for growth investment.
While the paper acknowledged that removing or reducing stamp duty would have a “direct impact” on tax revenue, it argued this would be “more than offset” by increases in other taxes.
“A regular flaw in Treasury/Office for Budget decisions on tax revenue is to overly weight the ‘lost revenue’, but to under-weight the harder to calculate gained revenue,” the research added.
However, while there are benefits, the research noted stamp duty is a “significant amount of tax revenue” and so favoured a more “targeted approach”.
Importance
Peel Hunt explained why stamp duty matters, characterising it as a “cost on trading”.
This is particularly relevant to active traders and, given that they drive liquidity, this means the UK market is “unattractive” for these participants.
Instead, traders are more likely to prioritise markets with low or no costs, such as the US, which encourages ownership of overseas business rather than domestic investment.
Furthermore, stamp duty directly impacts on shareholder returns and depresses returns for pensions investing in UK equities, encouraging a move into overseas equities or other assets.
Peel Hunt’s research also looked at the trends of stamp duty over the years, pointing out that revenue from stamp duty on shares peaked in 2000 at £4.7bn.
After a depressed period, there was a brief recovery with elevated trading levels during Covid, but there was a marked reduction in 2023.
The £3.3bn of tax revenue from stamp duty generated in 2023 equated to 0.3 per cent of total tax revenue.
Given the flow of trading to the US, driven by the weighting of tech companies, depth of market and lower costs, there is also a trend of larger companies moving listing.
The research added UK markets need “material stimulus” to reverse the current “malaise”, stating that, while regulatory reform is helpful, it is not the answer.
Instead, Peel Hunt stated that initiatives to drive demand and fund flow are required.
Stamp duty reform is essential but the research clarified that it should be done alongside other initiatives such as encouraging retail investors and reversing the pension fund withdrawal from UK equities.
tom.dunstan@ft.com
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