Amid fears of inheritance tax changes, UK investors have pulled £300m from stocks.
- This marks an increase from £80m in August, showing growing concern.
- Mid-sized stock funds saw net outflows of £30m in September after consistent inflows.
- Junior stock market shares, previously a tax relief haven, are now less attractive.
- Market analysts note increased nervousness ahead of forthcoming Budget announcements.
The announcement of the withdrawal of £300m from UK stocks by investors reflects a growing concern over potential inheritance tax changes in the upcoming Budget. In October, this number significantly rose from the £80m withdrawn in August, indicating heightened unease among investors. Funds that primarily specialize in mid-sized UK stocks also experienced significant net outflows in September, losing £30m after months of consistent net inflows. This trend highlights a shifting sentiment as investors cautiously navigate potential economic impacts.
For many wealthy investors, shares in smaller companies listed on Aim, the junior stock market, have long been favored. These shares qualify for business relief, rendering them exempt from inheritance tax. However, the apprehension surrounding possible alterations to this exemption is prompting investors to reconsider their positions before the maiden Budget announcement by Rachel Reeves. Investors, concerned about the impact on their assets, are divesting to safeguard against any unfavorable policy shifts.
Neil Birrell, Chief Investment Officer at Premier Miton, notes increased activity among smaller private investors regarding inheritance tax concerns. “There’s very little liquidity around, and that’s pushing share prices down. Beyond that, there’s a general hesitation to invest in the UK ahead of the Budget,” he commented. This cautious stance has further dampened sentiment within UK equity markets, posing additional challenges for stock performance.
Market analyst Mark Preskett of Morningstar has also observed heightened anxiety among financial advisers’ clients over potential tax adjustments. “Some clients are anxious about potential tax adjustments, leading to more redemptions in recent months,” Preskett remarked. Smaller and mid-cap stocks, which typically have more exposure to the UK economy, are particularly susceptible to any policy outcomes that might affect domestic markets. The increased skepticism surrounding the UK’s economic direction underscores broader concerns among investors and fund managers alike.
Fund managers are acutely feeling the effects of these investor shifts. Liontrust, for instance, reported over £1bn in net outflows over the last quarter, while Brooks Macdonald attributed £100m in outflows to a loss of investor confidence. As the Budget announcement approaches, there is mounting pressure on UK equity markets to mitigate risks amidst speculation about potential tax reforms. This trend is reflective of wider apprehensions regarding the economic outlook and potential changes that could reshape investment strategies for those focused on small and mid-cap stocks in the UK.
The apprehension surrounding inheritance tax reforms is influencing investor behavior, significantly impacting the UK equity markets.
