Investors pull £300m from stocks in race to beat inheritance tax raid

Budget uncertainty triggers scramble to offload funds that own UK-listed companies

Rachel Reeves’s feared inheritance tax (IHT) raid has triggered a surge in investors racing to sell funds which own UK companies listed on the stock market.
Investors pulled nearly £300m from funds specialising in small UK companies last month – almost a four-fold increase on the £80m withdrawn in August, according to Morningstar Direct.
Mid-sized UK stocks also suffered from Budget uncertainty, with funds reporting outflows for the first time since March.
Investors redeemed £30m net from mid-sized funds, reversing five consecutive months of inflows into mid-sized UK stocks.
The sharp reversal comes amid uncertainty over whether Ms Reeves will end a lucrative tax break on smaller company shares and general gloom over the UK economy.
Shares in smaller companies quoted on the junior stock market, known as Aim, qualify for business relief making them free from inheritance tax when they are sold.
The tax break has made them a popular investment for wealthy individuals who want to pass on money to their children without paying IHT.
But unease about the Chancellor’s plans has prompted many to bail out before her maiden Budget on Wednesday.
Neil Birrell, chief investment officer at Premier Miton, said: “IHT is very specific and there’s no doubt there are a handful of relatively small private investors who are putting trades on. There’s very little liquidity around and that is pushing share prices down.
“Over and above that, people are worried about committing money to the UK ahead of the Budget. They’re no longer sure what they’re dealing with.
“The UK equity markets have been knocked by what’s taken place over the course of the last few weeks. It’s not a great environment at the moment.”
Mark Preskett, from Morningstar, added that some financial advisers had reported an increase in investors selling their shares owing to nervousness over the Budget.
He said: “Financial advisers are saying that, on the margin, some clients are nervous about the potential tax changes and they’re seeing greater than normal redemptions over the last couple of months.
“Whether that is justified or not remains to be seen but this small and mid-cap outflow is potentially evidence of that.”
“Smaller mid-cap and Aim stocks are also the most biased towards the UK domestic economy. If you want pure UK exposure, that’s where you would go … so there’s also potential concern around the Budget having wider implications for the UK economy.”
A number of wealth and fund managers have reported a slowdown ahead of Wednesday’s announcement.
Fund manager Liontrust suffered net outflows of more than £1bn in the last three months, while Brooks Macdonald, a wealth manager, also blamed a sapping of investor confidence for a £100m fund outflow last quarter.
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