Michael takes a look at some sectors that could be affected by the upcoming autumn budget.
The budget day is going to be like a firehose of RNS announcements attached to your face.
Lots of changes are going to be anticipated and there will be plenty of volatility.
This volatility presents an opportunity (both for profit and loss!).
Sky News has come out with the headline this morning that Kier Starmer has said that those with assets are “not working people” – suggesting that there will be tax rises for those with assets.
Labour promised not to increase taxes for working people, and Sky News had this to say:
“Sir Keir said he believed a working person was somebody who “goes out and earns their living, usually paid in a sort of monthly cheque” but they did not have the ability to “write a cheque to get out of difficulties”.”
This isn’t anything new. So, whilst many people will both voicing their outrage or agreement online, it shouldn’t be changing anyone’s expectations.
What sectors are likely to be volatile based on Labour policies?
We know the government wants to focus on economic recovery.
That means housing, healthcare, and of course, green energy.
Let’s take a look at some of the ideas being floated.
Capital Gains Tax
Capital Gains Tax is widely expected to go up. Most astute investors won’t pay a penny of Capital Gains Tax (at least not in shares) due to the generous £20,000 ISA allowance per year, and the potential to decrease a tax bill by investing in a private pension or SIPP.
Until recently, spread betting was an inexpensive option due to the low interest rates.
However, as interest rates have crept up, and the spread bet firms add their markups onto that, suddenly the hurdle rate is a lot higher.
It’s not unlikely that spread bet firms can add 3% extra to the relevant interest rate, and so whilst spread betting is indeed tax-free, a significant amount of profit is eaten up by the funding charge.
So whilst Capital Gains Tax may go up, I don’t think this will affect UK small caps overly much.
One issue could be an ISA limit or even a tax on spread betting.
But spread bet companies pay gambling duty and if the government were to tax this, then the result would be the losers would be able to claim back their tax losses, meaning the government would be out of pocket. I don’t hold any high expectations for politicians but this would be rather dumb indeed. Unless, of course, the government taxed winners but didn’t allow tax losses to be offset.
Companies to watch here:
- IG Group Holdings (IGG)
- CMC Markets (CMCX)
- AJ Bell (AJB)
Business Property Relief
Business Property Relief (BPR) offers relief from Inheritance Tax (IHT) on the transfer of qualifying business assets at a rate of either 50% or 100%.
Again, my belief is that most serious investors will have stocks held within an ISA meaning they are tax-free (in terms of Capital Gains Tax).
But lots of people will consider holding AIM shares that qualify for this relief because if they’re held for over two years at the time of death then they can qualify for IHT exemption.
Any changes to this will affect tax situations.
And changes to tax situations will trigger people to reassess and reprioritise.
This is understandable. If you were holding a share expecting it to be IHT-free, and now it longer is, then the perceived benefit is no more yet the risk remains the same.
Companies to watch here:
- Any popular AIM share that is likely to be held long term – established growth, history of stability, regular and special dividend payers
Gambling sector
We know that the idea of up to £3 billion in extra taxes for the gambling sector has been discussed.
One proposal is to double taxes on the 15% general betting duty which is levied on high-street bookmakers.
Another is the remote gaming duty – currently charged at 21% but potentially raised to 50%.
The gambling sector is an easy target because nobody cries when a bookmaker makes a loss.
However, the idea that this will protect the consumer is a dangerous thought.
When the British government decided to pay for every dead cobra when Delhi was full of venomous cobras, it unfortunately had an unintended consequence. People soon realised that by breeding cobras to kill they could collect the bounty.
And when the British government realised that they were the schmucks, they stopped paying the bounty.
Guess what happened then? There were even more venomous cobras on the streets of Delhi as everyone who had been breeding them didn’t want them anymore, so they released them.
If the government increases duty on betting, then the gambling companies will obviously want to pass on these costs to the consumer. Gamblers will always find a way to gamble, and so the end result is they’ll likely gamble the same amount of money just get less bets for their money.
Companies to watch here:
- Entain (ENT)
- Evoke (EVOK)
- Flutter Entertainment (FLTR)
- Rank (RNK)
Oil & Gas
My belief is that the Energy Profits Levy is going to destroy North Sea investment, and that is already being said by small company executives such as Serica and Harbour Energy.
Any change to the Energy Profits Levy (EPL) is going to have an impact on these companies’ share prices.
It’s unlikely that the EPL will be extended again. But any talk of there being a potential reduction will affect the sentiment of companies that are active in the North Sea.
Companies to watch here:
- Serica Energy
- Harbour Energy
- Kistos (KIST)
There are plenty of other sectors to look at, and you should certainly be prepared with a plan for your own existing positions at the very least, to play defensively.
Michael Taylor
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