Investors have raised a record £2.71 billion in funds in ONE MONTH to beat the Budget’s capital gains tax hike
Investors withdrew a record amount from equity funds ahead of the autumn budget, with every category of funds seeing outflows in October.
Investors sold a net £2.71 billion of assets, with sales orders up 36 percent compared to September, according to data from Calastone’s global fund network.
The outflow came as investors sought to avoid a rumored increase in capital gains taxes. The increase, which took effect immediately, increased capital gains tax from 10 to 18 percent for basic rate taxpayers, and from 20 percent to 24 percent for higher rate taxpayers.
Despite the significant outflow of funds ahead of the budget, which followed the September outflow for the first time since October 2023, Calastone said this stopped completely on autumn budget day.
Tax efficient: many fund investors sold their investments only to buy them back within Isas
Edward Glyn, head of global markets at Calastone, said: ‘Fears of a capital gains tax in last week’s Budget spurred investors to book their profits and deliver a lower tax bill long before the Chancellor stood up in the House of Commons.
‘The unrest in September caused the early birds to flee first, but in October investors flocked to the exits.’
The Budget made CGT rates for investors the same as those paid by second home owners. The tax-free amount of £3,000 remained unchanged. Investors can deduct losses on the sale of investments from gains on others.
In total, investors sold £17 billion this month, a sixth more than the previous high. UK assets saw the biggest sell-off, at £988 million – the fourth worst month on record. Meanwhile, a further £733 million was sold in the UK equity income fund market.
In addition, UK investors pulled £135 million from US equity funds, making October the first month of outflows in more than two years.
The figures cover more than 85 percent of the fund market.
Calastone said the main motivation for investors to sell was to book profits for tax purposes.
After Budget sales orders fell 40 percent overnight, compared with October 29, as capital gains tax increases took effect immediately, the data showed.
Glyn said: ‘There were no major catalysts in global markets that could lead to a rout in October; indices fell in the second half of the month in response to rising bond yields, but there were no alarming moves.
‘Instead, the sharply higher selling by investors here in Britain suggests that the net outflow was driven by the motivation to book profits after the strong market gains this year.
‘Additionally, October’s robust buying activity indicates that investors were also happy enough to reinvest much of the proceeds from their sales back into funds.
‘The surprising change in behavior between October 29 and Budget Day is a clear indication that tax was the main motivation for all these activities.’
While sell orders soared in October, buy orders also saw a 20 percent increase compared to September. This shows that although investors were keen to sell ahead of the tax changes in the Budget, many bought back their investments within tax packages such as Isas and Sipps.
This process, also known as a Bed and Shares Isa, involves investors selling investments from a general investment account and buying them back within a stocks and shares Isa.
After sales orders were halted on budget day, purchases continued, Calastone said.
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