Investors cashed in a record £2.71 billion in funds in ONE MONTH to beat capital gains tax rise in the Budget

Investors withdrew a record amount from equity funds ahead of the autumn budget, with all fund categories experiencing outflows during October.

Investors sold a net £2.71bn of holdings, with sell orders up 36 per cent compared to September, according to data from the Calastone global fund network.

The exits came as investors sought to avoid a rumored capital gains tax increase. The increase, which came with immediate effect, raised capital gains tax from 10 percent to 18 percent for basic rate taxpayers, and from 20 percent to 24 percent for higher rate taxpayers.

Despite significant outflows of funds ahead of the Budget, which followed outflows in September for the first time since October 2023, Calastone said they stopped completely on Autumn Budget day.

Edward Glyn, head of global markets at Calastone, said: “Fears of a capital gains tax takeover in last week’s Budget spurred investors to book their profits and crystallize a lower tax bill much sooner. for the Chancellor to stand up in the House of Commons.

“Unrest in September meant early birds flew first, but by October investors were rushing for the exits.”

The Budget equalized CGT rates for investors with those paid by second home owners. The £3,000 tax-free allowance remained unchanged. Investors can deduct losses from the sale of investments from the profits of others.

In total, investors sold £17 billion during the month, a sixth more than the previous high. UK assets saw the biggest sell-off, at £988m, the fourth worst month in their history. Meanwhile, the UK-biased equity fund market recorded additional sales of £733m.

On top of this, UK investors withdrew £135 million from US equity funds, making October the first month of capital outflows in more than two years.

Its figures cover more than 85 percent of the fund market.

Calastone said the main motivation for investors to sell was to account for gains for tax purposes.

After the Budget sales orders fell 40 percent overnight, compared with Oct. 29, as capital gains tax increases took effect immediately, data showed.

Glyn said: ‘There were no major catalysts in global markets to cause a decline in October; Indices fell in the second half of the month in response to rising bond yields, but there were no alarming moves.

‘Instead, a sharp rise in sales 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.

‘Furthermore, strong buying activity in October indicates that investors were also quite happy to reinvest much of the proceeds from their sales into funds.

“The striking change in behavior between October 29 and Budget Day is a clear indication that taxes were the main motivation for all this activity.”

While sales orders increased during October, purchase orders also saw a 20 percent increase compared to September. This shows that while investors were keen to sell ahead of the Budget tax changes, many were buying back their investments within tax wrappers such as Isas and Sipps.

Also known as Bed and Isa, in this process investors sell investments from a general investment account and buy them back within stocks and shares Isa.

After sales orders stopped on budget day, purchases continued, Calastone said.