Investors are pulling significant funds from UK stocks, responding to potential inheritance tax changes.
- In October, withdrawals from UK stocks surged to £300 million, up from £80 million in August.
- Mid-sized UK stock funds saw £30 million withdrawn in September, highlighting growing market uncertainty.
- Small company shares, typically used for inheritance tax relief, are being sold off amid tax change fears.
- Market analysts note rising investor anxiety as the Budget announcement approaches.
The UK equity market is currently experiencing significant withdrawals by investors, mostly due to fears of upcoming changes to inheritance tax regulations. This month, investors withdrew a substantial £300 million from UK stocks, a marked increase from the £80 million withdrawn in August. This trend reflects a growing apprehension regarding potential tax changes in the forthcoming Budget.
Funds that focus on medium-sized UK stocks, which had previously enjoyed steady inflows, recorded a £30 million outflow in September. This indicates a shift in investor sentiment, driven by concerns over possible impacts on their assets from adjustments to inheritance tax exemptions.
Shares in smaller companies, often utilised by wealthier investors to minimise inheritance tax liability through business relief, are being heavily divested. As these shares currently benefit from tax exemptions, fears of changes in this relief are prompting investors to act before the Budget is announced.
Neil Birrell, chief investment officer at Premier Miton, has observed heightened activity amongst smaller private investors who are increasingly worried about the implications of changes to inheritance tax. ‘There’s very little liquidity around, and that’s pushing share prices down,’ he stated. The lingering uncertainty has undeniably cast a negative aura over the UK equity markets, affecting overall sentiment.
According to Market analyst Mark Preskett from Morningstar, financial advisors are witnessing escalated nervousness among their clients about potential tax modifications. ‘Some clients are anxious about potential tax adjustments, leading to more redemptions in recent months,’ he remarked. Stocks in small and medium-cap companies, which have significant exposure to domestic economic activities, remain particularly vulnerable to any decisions emerging from the Budget that might influence local markets.
Fund managers have felt the impact of these investor movements, with Liontrust facing over £1 billion in net outflows in the last quarter, and Brooks Macdonald attributing £100 million in outflows to declining investor confidence. As the Budget announcement looms, pressure mounts on UK equity markets, as investors strive to avert possible risks linked to speculative tax reforms.
The apprehension surrounding potential inheritance tax changes continues to exert pressure on UK equity markets, reflecting broader economic concerns.
