Conservatives warn about Labour’s plans to punish millions with new investment taxes

Today [Tuesday 5^th August] the Conservatives have issued a new warning about the triple whammy of taxes British investors could face at the next Budget – raising further fears about the declining competitiveness of the British economy under Labour.   

Rachel Reeves is facing a multi-billion pound blackhole, created by Labour's choice not to reform the unsustainable welfare system.  This comes as a survey published by the Institute of Directors found business confidence was the lowest since records began. 

Angela Rayner has called on Reeves to take action on investors and wealth creators and so far, the Chancellor has failed to rule out this tax raid. The measures on the table include scrapping the £500 tax free dividend allowance, removing inheritance tax relief entirely on AIM shares, and increasing dividend tax rates.  

According to analysis, scrapping the dividend allowance would cost investors £325 million a year. 

And scrapping the exemption would also drag an estimated 5.22 million more people into paying dividend tax – hitting hard working people who are just starting to save hard. 

If Reeves wields the axe on investors in the Autumn then dividend tax rates could also match the rates of income tax, increasing it across the board and representing billions of pounds worth of tax hikes for the British public.  

Finally, if Labour are to go ahead with abolishing inheritance tax relief on AIM shares, following the Chancellor's decision to halve the relief at the last Budget, then an estimated 240,000 investors could face new raids on their estates.  

The growing uncertainty faced by investors, and the limbo Labour is leaving them in, ahead of the next Budget risks further damaging confidence in the British economy – and without concrete guarantees from the government that these measures will not be on the table it could lead to further brakes on the growth this government has pinned its hopes. 

Sir Mel Stride MP, Shadow Chancellor of the Exchequer, said:  

“We know Rachel Reeves is putting her plans together for yet more tax rises to fill the black hole she has created in the public finances. The government need to urgently rule out these tax hikes on savers and investors before speculation causes further economic harm. 

“Labour don't understand how business works and how to create growth. More taxes on investment, entrepreneurship and saving are the last thing our economy needs right now.” 

Andrew Griffith MP, Shadow Business and Trade Secretary, said: 

“Once again, the British public are faced with more punishing tax rises from this Labour government.  

“The British economy needs confidence, it needs certainty, and it needs investment – but so long as Labour refuse to rule out this punishing raft of new taxes then investors will continue to be put off and growth will continue to falter.  

“Labour must do the right thing for the country and rule out these taxes. Only the Conservatives will stand up for sound money and low taxes.” 

ENDS 

Notes to Editors: 

Labour have created a substantial unfunded black hole in the public finances because of their choices: 

• After the £40 billion tax raid on business in the Autumn Budget, Rachel Reeves said she would ‘not coming back' with more taxes or more borrowing – a promise she is preparing to break. Speaking to business leaders Reeves said: ‘I'm really clear, I'm not coming back with more borrowing or more taxes'. However, when asked whether she was prepared to rule out tax rises after the welfare U-turn, Rachel Reeves said: ‘I'm not going to, because it would be irresponsible for a chancellor to do that. We took the decisions last year to draw a line under unfunded commitments and economic mismanagement. So we'll never have to do something like that again. But there are costs to what happened' (The Guardian, 4 July 2025, link; BBC News, 25 November 2024, link; GB News, 11 June 2025, archived). 

• Labour's welfare U-turns could leave a £9.3 billion hole in the public finances which they will fill with more borrowing and tax rises. Starmer caved to backbench pressure - scrapping changes to the PIP eligibility criteria will cost £4.5 billion in 2029-30; reversing the Winter Fuel Payment will cost £1.25 billion a year and scrapping the two-child benefit cap would cost £3.5 billion in 2029-30, creating a blackhole of £9.3 billion blackhole (HMT, Spring Statement 2025: Policy Costings, 26 March 2025, link; HMT, Press Release, 9 June 2025, link; The Resolution Foundation, Press Release, 12 May 2025, link). 

• Paul Johnson, former director of the IFS, warned that increasing taxes is Rachel Reeves' only option. JOHNSON: ‘Chancellors should have three levers to pull to manage the nation's finances: tax, spend and borrow. This chancellor does not have three levers. There is no scope for more borrowing and, it seems, none for less spending. That leaves tax' (The Times, 2 July 2025, link). 

Business confidence has fallen to record lows: 

• The Institute of Director's (IOD) Economic Confidence Index found that business confidence has hit its lowest ever since the index's introduction, surpassing the lows seen at any point during the pandemic. The IOD's Economic Confidence Index hit -72 in July 2025, falling from -53 in June, to hit its lowest ever level since the index started in 2016, falling below the low of -69 at the beginning of the pandemic in April 2020. The survey found that 80.6 per cent of business leaders are pessimistic about the economies prospect over the next 12 months, 40.7 per cent of which are ‘very pessimistic', and that 85 per cent of business leaders think government policy will not be successful in driving up economic growth (IOD, Economic Confidence Index, 1 August 2025, link). 

Labour could scrap the dividend allowance in a £325 million tax raid on investors: 

• Angela Rayner called for the government to scrap the dividend allowance. The leaked memo from Angela Rayner to Rachel Reeves said: ‘3. Remove the dividend allowance Tax is not paid on dividend income that falls within your income tax Personal Allowance. There is also a £500 dividend allowance each year. You only pay tax on any dividend income above this. It was reduced from £2,000 to £500 over the past few years but removing it altogether would be worth £325 million a year, according to HMRC data' (The Daily Telegraph, 22 May 2025, link). 

• According to HM Treasury, abolishing the dividend allowance would raise £325 million in 2028-29. According to HM Treasury, changing the dividend allowance by £100 yields a change in revenues of £65 million. The dividend allowance is currently £500 therefore scrapping it would raise £325 million (HMRC, Official Statistics, 24 June 2025, link). 

• Scrapping the dividend allowance would drag millions of investors into dividend tax. Of FTSE350 firms, an estimated 221 pay ‘continuous dividends', equivalent to 63 per cent. An estimated 14 million individuals in the UK own stocks or shares. To create a low-end assumption, it can be assumed that 63 per cent of those holding a stock and share hold one that pays dividends, therefore 8.82 million people own shares that pay dividends. This is a low end assumption because it assumes these individuals do not have diversified portfolios, which would increase the likelihood of an individual holding a share that pays dividends. Currently, 3.6 million people are subject to tax on dividend income, therefore removing the allowance could drag an estimated 5.22 million people would be dragged into paying dividend tax (Dividend Data, FTSE 100 Dividend History and FTSE 250 Dividend History, accessed 25 July 2025, link; Finder, Investing Statistics, 30 January 2025, link; AJ Bell, Dividend Tax, accessed 25 July 2025, link). 

Labour could scrap inheritance tax relief on AIM shares, increasing inheritance tax on 240,000 investors estates: 

• Angela Rayner called for the government to remove Inheritance Tax Relief for AIM shares. The leaked memo from Angela Rayner to Rachel Reeves said: ‘2. Remove Inheritance Tax (IHT) Relief for AIM Shares completely Shares designated as ‘not listed' (notably AIM shares) receive 50% relief (reduced from 100 per cent relief at Autumn Budget). Removing the relief completely for AIM shares could raise between £100m-1 billion per year.' (The Daily Telegraph, 22 May 2025, link). 

• Scrapping inheritance tax relief on AIM shares would impact an estimated 240,000 investors. At the Autumn Budget the Chancellor reduced inheritance tax relief on qualifying AIM shares from 100 per cent to 50 per cent, meaning that you inherit a certain AIM share you have to pay 20 per cent inheritance tax on it. In Autumn Budget 2024 documents it said: ‘The government will also reduce the rate of business property relief to 50 per cent in all circumstances for shares designated as “not listed” on the markets of a recognised stock exchange, such as AIM. This will affect around 0.3 per cent of estates each year'. The population of Britain is 68.3 million, therefore 204,900 individuals hold AIM shares until death (ONS, Population estimates for the UK, 8 October 2024, link; HMT, Autumn Budget 2024, 30 October 2024, link; FTAdviser, Budget, 31 October 2024, link). 

Labour could increase dividend tax rates costing investors billions: 

• Angela Rayner called for the government to move Dividend Taxes closer to Income Tax. The leaked memo from Angela Rayner to Rachel Reeves said: ‘7. Move higher and additional rate Dividend Taxes closer to Income Tax: Both the higher and additional rates of dividend taxes are set lower than income tax - Higher rate: 33.75% (vs. 40%); and (iii) Additional rate: 39.35% (vs. 45%). Whilst HMT would need to consider the implications for investment, it is worth considering whether closing this gap could raise significant income and provide a logical alignment of the tax system' (The Daily Telegraph, 22 May 2025, link). 

• Increasing dividend tax rates to match those of income tax would cost investors billions. The analysis below is an illustrative example of the impact of matching dividend tax rates with income tax rates. According to AJ Bell, the revenue from dividend tax in 2024-25 is £17.8 billion. The data used below is from 2022-23, since when the number of individuals eligible for dividend tax has fallen. In this illustrative example, the cost to investors of matching rates is approximately £5.1 billion. The below analysis does not account for behavioural change (HMRC, Property, interest, dividend and other income: tax year 2022 to 2023, 12 March 2025, link; AJ Bell, Dividend Tax, accessed 25 July 2025, link). 

                 i.Dividend revenue taken from HMRC for 2022 to 2023 (HMRC, Property, interest, dividend and other income: tax year 2022 to 2023, 12 March 2025, link). 

               ii.This is the current dividend tax rate by band (GOV.UK, Tax on dividends, accessed 25 July 2025, link). 

             iii.This is the current income tax rate by band to which dividend tax would be equalised under Angela Rayner's plans (GOV.UK, Income Tax and Personal Allowances, accessed 25 July 2025, link). 

             iv.This is the estimated dividend tax revenue for 2022-23 based on current dividend tax rate and 2022-23 dividend incomes (HMRC, Property, interest, dividend and other income: tax year 2022 to 2023, 12 March 2025, link). 

               v.This is the estimated potential revenue if dividend tax is increased to match income tax rates.