The Government estimates its abolition of the schedule 19 stamp duty reserve tax on investment funds could boost retirement pots by 1.3 per cent.
In this year’s Budget Chancellor George Osborne said the 0.5 per cent special stamp duty reserve tax, which applies to collective investment schemes when investors sell units that are then re-issued within a two-week period, will be scrapped on 1 April 2014.
The Government says the move will save the asset management industry £145m in the 2014/15 tax year, £145m in 2015/16, £150m in 2016/17 and £160m in 2017/18.
Asset managers have consistently flagged schedule 19 as one of the main obstacles to establishing new funds in the UK and one reason the country is increasingly losing business to international rivals such as Dublin and Luxembourg.
Labour has attacked the move as an attempt to “subsidise the richest” and says it showed the wrong priorities. It has promised to reinstate the tax if elected in 2015.
Conservative MP George Freeman asked the Treasury what calculation it had done on the impact of the tax in a written parliamentary question.
Treasury financial secretary Sajid Javid says the Government actuary’s department had made an independent assessment of the tax.
He says: “They calculate that a typical 22-year-old currently earning average weekly earnings and investing the equivalent of 10 per cent of gross income each year over a 45 year period would see a fund value £11,200 greater at retirement as a result of these changes.
“This is equivalent to approximately a 1.3 per cent uplift in their total fund at retirement. In current money terms that is equivalent to an additional £4,600.”