Investors withdrew a record amount from equity funds ahead of the Autumn Budget, with every category of funds seeing outflows during October.
Investors sold a net £2.71billion in holdings, with sell-orders increasing 36 per cent compared with September, according to data from Calastone’s global funds network.
The outflows came as investors looked to avoid a rumoured increase in capital gains tax. The hike, which came in with immediate effect, saw capital gains tax increased from 10 to 18 per cent for basic rate taxpayers, and from 20 per cent to 24 per cent for higher rate taxpayers.
Despite the significant fund outflows ahead of the Budget, which followed outflows in September for the first time since October 2023, Calastone said they stopped completely on the day of the Autumn Budget.
Tax efficient: Many fund investors sold their investments only to repurchase them within Isas
Edward Glyn, head of global markets at Calastone, said: ‘Fears of a capital gains tax grab in last week’s budget spurred investors to book their profits and crystallise a lower tax bill well before the Chancellor rose to her feet in the Commons.
‘Unease in September meant the early birds took flight first, but by October investors were flocking for the exits.’
The Budget equalised CGT rates for investors with those paid by second-home owners. The £3,000 tax-free allowance was left unchanged. Investors can deduct losses on the sale of investments from the gains on others.
In total, investors sold £17billion over the month, a sixth more than the previous high. UK assets saw the largest sell-off, at £988million – their fourth worst month ever. Meanwhile, the UK-skewed equity income funds market saw a further £733million in selling.
On top of this, UK investors withdrew £135million from US equity funds, making October the first month of outflows in more than two years.
Its figures cover more than 85 per cent of the funds market.
Calastone said the key motivation for investors to sell was to book gains for tax purposes.
After the Budget sell orders dropped by 40 per cent overnight, compared to 29 October, as capital gains tax hikes took immediate effect, the data showed.
Glyn said: ‘There were no major catalysts in global markets to spur a rout in October – indices drifted lower in the second half of the month in response to rising bond yields, but there were no alarming moves.
‘Instead, sharply higher selling by investors based here in the UK suggests the net outflow was driven by a motivation to book profits after strong market rises this year.
‘Moreover, October’s robust buying activity indicates that investors were also happy enough to reinvest much of the proceeds of their sales back into funds.
‘The startling change in behaviour between 29 October and Budget Day is a clear indication that tax was the main motivation for all this activity.’
While sell orders surged during October, buy orders also saw an increase of 20 per cent compared with September. This shows that although investors were keen to sell before Budget tax changes, many were repurchasing their investments within tax-wrappers like Isas and Sipps.
Also known as Bed and Isa, this process sees investors sell investments from a general investing account and repurchase them within a stocks and shares Isa.
After sell orders halted on the day of the Budget, buying continued, Calastone said.
SAVE MONEY, MAKE MONEY
1% cashback
1% cashback
On debit card spending. Max £15 p/m*
4.05% 6 month fix
4.05% 6 month fix
Prosper rate boost on GB Bank
Free share offer
Free share offer
No account fee and free share dealing
4.84% cash Isa
4.84% cash Isa
Flexible Isa that now accepts transfers
Sipp transfer offer
Sipp transfer offer
Get £100 to £2,000 in cashback
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence. *Chase: Cashback available for first year. Exceptions apply. 18+, UK residents.
