Boost for London market as three-year stamp duty holiday on IPOs confirmed

The Chancellor has confirmed a three-year stamp duty holiday on shares bought in new UK flotations in a move showing Britain is “backing its markets”, according to the London Stock Exchange.

In a raft of measures to boost investment in UK shares, Rachel Reeves said that from November 27, investors will be exempted from paying the tax – currently at a rate of 0.5% – on shares in companies that are newly-listed in the UK for the first three years following its initial public offering (IPO).

But the Chancellor also revealed an unexpected increase in dividend tax, rising by 2% for basic and higher rate taxpayers next year, which experts warned “undermines the drive to increase investing in Britain”.

On the IPO shares stamp duty holiday, the Government said it was looking to “ensure UK capital markets competitiveness, and that they support firms to raise the capital they need to grow and invest”.

It comes amid fears London is losing out to overseas rivals, with a raft of firms having defected abroad in recent years, such as gambling firm and Paddy Power owner Flutter, which switched its main listing to New York.

Dame Julia Hoggett, chief executive of the London Stock Exchange, said the stamp duty decision was a “clear acknowledgment of the vital role equity markets play in driving investment, innovation and job creation”.

“It is also an important first step in removing the distorting effects of this duty which has historically disincentivised investment in UK companies, especially for retail investors,” she said.

She added it sends the “right signal that the UK is backing its markets and creating the right conditions to actively incentivise economic activity to remain in the UK”.

The Budget saw Ms Reeves build on earlier so-called Leeds Reforms aimed at building a retail investment culture in the UK, with a change to the individual savings account (ISA) limit that lowers the cash element to £12,000 with the remaining £8,000 not redirected into stocks and shares.

It also saw the announcement of new Investing in Britain online hubs, which are set to launch in 2026 and will be developed by firms to signpost consumers to ways to invest in UK companies.

However, the shock increase in dividend tax received a cool response.

The rate of dividend tax will rise from 8.75% to 10.75% for basic rate taxpayers and 33.75% to 35.75% for higher rate taxpayers, according to Hargreaves Lansdown.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “This tax attack on dividends flies in the face of the Government’s desire to encourage investors to hold UK equities.

“Given that the London market is home to so many good income stocks, it means particularly harsh tax treatment if they hold any of these investments outside an ISA or Self-invested Personal Pension.

“It risks persuading investors to take their money elsewhere, or putting them off investments entirely.”