Investors ditched funds ahead of capital gains tax changes
Kyle Caldwell examines the latest funds data, which shows that investors moved to sell ahead of the CGT regime becoming more unfavourable.
8th November 2024 09:16
by Kyle Caldwell from interactive investor
Investors moved to sell funds ahead of the capital gains tax (CGT) regime becoming more unfavourable, data from the Investment Association (IA) shows.
The fund industry trade body said that in September £3.2 billion exited funds, reversing the previous three-month trend of positive inflows, with £806 million invested in August, £1.4 billion invested in July, and £1.3 billion invested in June.
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Miranda Seath, director, market insight and fund sectors at the IA, said speculation ahead of the Budget that CGT would rise was a factor in those steep outflows.
Seath said: “In September, investors turned their focus towards the impending Budget as speculation grew around how much the government would need to borrow and the tough decisions they would take on tax.
“It was clear that capital gains tax rises were almost inevitable, and this looks to be a contributing factor to a surge in outflows across equities, which has upended the tentative recovery of flows into the asset class in previous months.”
As was widely predicted in the Budget, the rates payable on sales of shares were hiked. They have been increased (from 31 October 2024) from 10% to 18% on anything (when added to income for the year) that falls below £50,270, and from 20% to 24% at the higher rate.
This means the CGT regime has been equalised across all assets, as sales of residential properties are already taxed at 18% and 24%.
The move will increase the tax bills of those who sell investments outside tax wrappers, such as individual savings accounts (ISA) and pensions,
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Ahead of that CGT change, outflows in September were heaviest in equities, as investors pulled £2.4 billion. This marked a significant rise on the £424 million outflow in August.
Global equities were particularly impacted, seeing their first outflow in six months. A total of £908 million was pulled from global funds in September.
The only region to remain in inflow was North America, with net retail sales of £101 million, down from £527 million in August.
Outflows from UK equities remained consistent with previous months, with UK funds reporting outflows of £961 million.
Elsewhere, bond fund flows turned negative with outflows of £116 million, following an inflow of £1.8 billion in August.
Corporate bond funds bucked the trend in being the best-selling sector in September, attracting £904 million.
In second and third places in the sector rankings were Volatility Managed and North America, with respective inflows of £244 million and £146 million.
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