Investor tax hikes may hurt UK plc more than the super-rich
Small companies lack affordable equity capital
Billions of pounds in investment firepower held in cash
Ultra-rich investors threaten to leave to avoid higher tax
By Sinead Cruise and Naomi Rovnick
LONDON, Oct 18 (Reuters) -Higher capital gains taxes (CGT) could give Britain's risk-averse savers further cause to shun UK stocks, fund managers and advisers say, potentially damaging Britain's economy more than a threatened exodus of tax-shy multi-millionaires.
Speculation about Prime Minister Keir Starmer's fiscal roadmap due on Oct. 30 has dominated headlines since he said taxpayers with the "broader shoulders" would have to help fill a 22 billion pound ($28.58 billion) hole in public finances.
Taking a bigger slice of investment profits is one way Starmer could plug the void. Demanding more tax from elite entrepreneurs known as non-doms, who live in Britain but pay little or no UK tax on overseas wealth, is also being explored.
Some non-doms have threatened to quit Britain in protest, stoking fears in the market about asset firesales and the size of their future contribution to UK tax revenues, which reached almost 9 billion pounds ($11.6 billion) in 2023, Oxford Economics data shows.
But hiking CGT, which investors pay on stock market profits, is a bigger economic gamble for the government than upsetting the super-rich, especially given Britons' already meagre appetite for UK equities and a worsening pensions savings crisis.
Returns from UK equities have struggled to keep pace with global peers since the 2016 vote to leave the European Union, with more than $100 billion flowing out of UK equity funds in the last four years on a net basis, London Stock Exchange LSEG.L data shows.
"You're asking the general man or woman who is already risk averse and doesn't want to invest in equities they now have to give up a lot more of their gain," said Shaniel Ramjee, senior investment manager at Pictet Asset Management.
"This defeats the purpose of trying to create long-term financial security for the population."
Eren Osman, managing director of wealth management at Arbuthnot Latham, said his firm was advising high net worth clients to cut their UK equity positions, reversing a buy recommendation made just prior to the July 4 general election.
A spokesperson for the UK Treasury did not immediately respond to a request for comment.
"DOOM LOOP"
While it is common for the financial industry to warn about the unintended consequences of tax reforms, fears about a "doom loop" in UK stock markets have increased.
Even though CGT rates in Britain are already lower than headline rates in most European economies, including France, Germany and Italy, demand for domestic stocks, considered essential to a thriving economy, continues to slide.
Pension funds and insurers held 45.7% of all UK-listed shares in 1997. The level has dropped to a record low of 4.2%, the latest study of ownership by the Office of National Statistics showed.
Fund managers said any tax rise that increased the cost of risk for shareholders may make it harder for British businesses to tap the funding they need from capital markets, including "mom and pop," or retail, investors at risk of financial hardship in later life.
Working age adults who avoid equity investments are likely to have smaller retirement pots than those who do not, because stocks offer higher long-term returns than bonds and have greater potential to beat inflation.
Data from Barclays found 13 million UK adults - who already have more than six months of income in rainy-day savings - are sitting on 430 billion pounds of "possible investments" in cash.
The rhetoric of troubled public finances and a more burdensome tax regime has dented confidence across the entire wealth spectrum, Nick Lawson, portfolio manager at Julius Baer International, told Reuters.
Lawson said some clients had already cashed in their gains in UK stocks, to avoid higher tax bills and possible losses from wider forced selling across the market if hikes are confirmed.
Canaccord Genuity fund manager Eustace Santa Barbara said budget uncertainty worsened a shortage of capital available to UK companies that already lack support.
According to the Capital Markets Industry Taskforce, the UK economy needs additional investment of 100 billion pounds a year over the next decade to support a 3% economic growth rate.
But UK equity funds reported almost $6 billion of outflows in September alone, putting them in the bottom 10 of all fund categories tracked by Lipper for the month.
Increasing the highest tax bands can be unpopular even among those who may never be subject to that tax, according to Kevin O'Shea, director of wealth planning at RBC Wealth Management.
"Curtailing that ambition across the wider population could reduce the incentive to innovate and take risk, which could have wider ramifications," he added.
Concerns about CGT hikes have already pushed one in four entrepreneurs to fast-track business exits over the last 12 months, research from Evelyn Partners showed, which could extend a multi-year lull in UK listings activity.
"The real risk here is that this could create a chill for retail investors of all wealth brackets," Antonia Medlicott, CEO of Investing Insiders, said.
"The government needs to strike a balance so that these changes don't accidentally end up scaring off those they're trying to get to invest more," she said.
($1 = 0.7699 pounds)
UK stocks suffer heavy selling pressure https://reut.rs/3NuCbyp
Discount on UK stocks versus global peers nears record high https://reut.rs/3NAC0l7
Reporting by Naomi Rovnick and Sinead Cruise, editing by Barbara Lewis
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دستبرداری: XM Group کے ادارے ہماری آن لائن تجارت کی سہولت تک صرف عملدرآمد کی خدمت اور رسائی مہیا کرتے ہیں، کسی شخص کو ویب سائٹ پر یا اس کے ذریعے دستیاب کانٹینٹ کو دیکھنے اور/یا استعمال کرنے کی اجازت دیتا ہے، اس پر تبدیل یا توسیع کا ارادہ نہیں ہے ، اور نہ ہی یہ تبدیل ہوتا ہے یا اس پر وسعت کریں۔ اس طرح کی رسائی اور استعمال ہمیشہ مشروط ہوتا ہے: (i) شرائط و ضوابط؛ (ii) خطرہ انتباہات؛ اور (iii) مکمل دستبرداری۔ لہذا اس طرح کے مواد کو عام معلومات سے زیادہ کے طور پر فراہم کیا جاتا ہے۔ خاص طور پر، براہ کرم آگاہ رہیں کہ ہماری آن لائن تجارت کی سہولت کے مندرجات نہ تو کوئی درخواست ہے، اور نہ ہی فنانشل مارکیٹ میں کوئی لین دین داخل کرنے کی پیش کش ہے۔ کسی بھی فنانشل مارکیٹ میں تجارت میں آپ کے سرمائے کے لئے ایک خاص سطح کا خطرہ ہوتا ہے۔
ہماری آن لائن تجارتی سہولت پر شائع ہونے والے تمام مٹیریل کا مقصد صرف تعلیمی/معلوماتی مقاصد کے لئے ہے، اور اس میں شامل نہیں ہے — اور نہ ہی اسے فنانشل، سرمایہ کاری ٹیکس یا تجارتی مشورے اور سفارشات؛ یا ہماری تجارتی قیمتوں کا ریکارڈ؛ یا کسی بھی فنانشل انسٹرومنٹ میں لین دین کی پیشکش؛ یا اسکے لئے مانگ؛ یا غیر متنازعہ مالی تشہیرات پر مشتمل سمجھا جانا چاہئے۔
کوئی تھرڈ پارٹی کانٹینٹ، نیز XM کے ذریعہ تیار کردہ کانٹینٹ، جیسے: راۓ، خبریں، تحقیق، تجزیہ، قیمتیں اور دیگر معلومات یا اس ویب سائٹ پر مشتمل تھرڈ پارٹی کے سائٹس کے لنکس کو "جیسے ہے" کی بنیاد پر فراہم کیا جاتا ہے، عام مارکیٹ کی تفسیر کے طور پر، اور سرمایہ کاری کے مشورے کو تشکیل نہ دیں۔ اس حد تک کہ کسی بھی کانٹینٹ کو سرمایہ کاری کی تحقیقات کے طور پر سمجھا جاتا ہے، آپ کو نوٹ کرنا اور قبول کرنا ہوگا کہ یہ کانٹینٹ سرمایہ کاری کی تحقیق کی آزادی کو فروغ دینے کے لئے ڈیزائن کردہ قانونی تقاضوں کے مطابق نہیں ہے اور تیار نہیں کیا گیا ہے، اسی طرح، اس پر غور کیا جائے گا بطور متعلقہ قوانین اور ضوابط کے تحت مارکیٹنگ مواصلات۔ براہ کرم یقینی بنائیں کہ آپ غیر آزاد سرمایہ کاری سے متعلق ہماری اطلاع کو پڑھ اور سمجھ چکے ہیں۔ مذکورہ بالا معلومات کے بارے میں تحقیق اور رسک وارننگ ، جس تک رسائی یہاں حاصل کی جا سکتی ہے۔
