Chancellor Healey made his feelings clear in this budget, and that’s bad news for investors who have favoured an ‘old-fashioned’ approach.
- Income from property and cash is now taxed at up to 49%
- It makes a ‘risk-averse’ combination of cash and buy to let a more difficult option
- The Chancellor’s new friends are technology entrepreneurs
Chancellor Healey certain knows his friends and his enemies. In the end, the 2026 Budget was not the attack on wealthy people that many had feared, but it certainly mattered how people generated and held their wealth. It was good news for technology entrepreneurs, but there are now serious disincentives to the old-fashioned approach of relying on cash and buy-to-let property.
This combination used to be the portfolio of choice of risk-averse investors. Property prices never went down, rental income tended to rise, and there were all sorts of appealing allowances such as mortgage interest relief. Combined with a holding in cash, it appeared a sensible and pragmatic way to structure retirement income.
However, for successive governments, private landlords have been an easy target. Allowances have been eroded, then the tax rate has gone higher and higher. It is now 4% higher than income from any other source. Landlords on the top rate of tax will be paying 49% on their profits from April next year. This is on top of stagnant house prices.
Cash savers are also under the cosh. Cash savings held outside an ISA also attract a tax rate of up to 49%. For many savers, this will bring their tax rate below the level of inflation, meaning they are losing money in real terms. This traditional approach to constructing retirement income now looks reckless rather than risk-averse.
This is sensible from an economic point of view. The focus on property as a source of wealth, alongside large holdings in cash, is not a helpful way for anyone to invest. It does nothing to improve the productive capacity of the economy, create jobs or build businesses.
The Chancellor’s new friends are technology entrepreneurs. Anyone building fast-growing businesses can rely on government largesse. A new Capital Gains Tax Founders’ Relief will give a reduced 10% Capital Gains Tax rate on up to £10 million of lifetime gains. However, it is likely to be limited to those that fulfil two out of three criteria: 25% annual turnover growth across three consecutive years, 25% average annual headcount growth over the same period, or £1.5 million of qualifying R&D expenditure. There are also generous visa rules for skilled scientists and engineers.
There was also a nod to some distinctly ‘old economy’ businesses, including leisure, hospitality and retail businesses (though, importantly, not vape shops or adult gaming). The Chancellor hasn’t forgotten who put him in power.
This pattern is likely to continue, with governments trying to steer investors away from property and cash, and towards more productive investment areas. It makes for a difficult conversation with clients who still believe this is a risk-averse way to hold their assets.
