Rachel Reeves’ tax coup led to a record exodus from the stock market last month as investors rushed to withdraw their money.
Investors sold a net £2.7 billion of their equity fund holdings in October – the highest amount on record – with the UK pulling money from every fund category.
That followed a move by savers to withdraw cash in September, which marked the first net outflow in 11 months, according to data from fund network Calastone.
The figures highlight the chilling effect of the Labor government’s first budget after the chancellor confirmed capital gains tax increases, with the rate paid by basic rate taxpayers rising from 10% to 18% and from 20% to 24 % for higher rate taxpayers.
Capital gains tax is paid by savers every time a share or unit in a share fund is sold, unless they are protected through an individual savings account (Isa).
Sell orders on share funds rose 36% month-on-month to a record £17bn in the four weeks leading up to the Budget, as savers sought to make profits and pay less tax.
But the outflow stopped completely on Budget Day when the higher tax rates came into effect immediately. According to Calastone, sales orders fell 40% overnight.
At the same time, buying activity also increased sharply as some chose to reinvest the proceeds from their sales, but this was not enough to overcome the selling wave.
Edward Glyn, head of global markets at Calastone, said: “Fears of a capital gains tax in last week’s Budget spurred investors to book their profits and deliver a lower tax bill long before the chancellor stood up in the House of Commons.
“The unrest in September caused the early birds to flee first, but in October investors flocked to the exits.”
British assets were by far the worst hit by the stampede. More than a third (£988m) of total outflows came from funds focusing on UK shares, marking the fourth worst month on record for the sector.
The sell-off is likely to raise further concerns about the health of the London market. Analysts have complained of a “doom run” for the stock market, with the value of British companies falling due to a wave of investors bailing out British shares.
Another quarter of the outflows came from funds that pay regular dividends to savers, known as income funds and heavily oriented towards the UK stock market.
October was also the first month in over a year that UK investors withdrew money from US equity funds, while it was the first month in over two years that global equity funds recorded outflows.
