What caught my eye this week.
Recent weeks have seen us debate whether you should sell ahead of – what’s still only rumoured – capital gains tax rises.
But as St. Charlie liked to remind us: invert, always invert!
To wit: tax-motivated sellers might create opportunities for bargain hunting buyers.
Of course every tax-fearing seller must already be finding a buyer for their shares, investment trusts, or buy-to-let property.
Because no buyer, no sale.
But that eternal truth doesn’t mean that sudden – and hurried – selling can’t overwhelm natural demand, pushing prices below where they’d be if Rachel Reeves had instead decided to take the rest of 2024 off.
Bricking it
So are we seeing any signs of frantic or panic selling so far?
Maybe the very faintest signs – especially if you want to see it, I suppose.
Property is where there’s the strongest signal of tax-motivated selling going on.
Just this week Rightmove reported a surge in larger homes for sale that’s supposedly driven by CGT fears.
As reported by The Guardian:
Rightmove said various factors could be causing the increase in owners of larger homes wanting to sell. One was falling mortgage rates following the Bank of England’s 1 August interest rate cut, and the expectation of more to come.
“Another factor is increasing speculation around a CGT rise,” the website said. “In addition to landlords, second homeowners of larger homes, in particular, could be hit by any increase to CGT, which may be leading some to cash out now.”
Last week I linked to reports that some landlords in London are selling up for the same reasons.
Buy-to-let hasn’t been attractive in London for years. It’s easy to imagine the prospect of a CGT hike as the final straw to prompt some sales.
After all, you can’t defuse capital gains built up on a two-bedroom flat in Clapham piecemeal like you can with shares. Tenants tend to get cross if you try to partition and flog off their second bedroom.
Final straw men
Veteran landlords in the South East could well be sitting on hundreds of thousands of pounds worth of gains per BTL.
And I imagine some framing their choice as sell now and buy an annuity (or similar) and escape a 40% hit – or else hold the properties ‘forever’ as a pension.
Because people really really hate paying capital gains tax.
Nevertheless property is property – big, lumpy, illiquid. It can be quicker to sell the idea of university to your school-hating 13-year old than to get a terraced house off your hands and the money in the bank.
I’ve read articles suggesting workarounds, enabling speedy sales agreed ahead of the Budget to complete afterwards. But I don’t know whether these strategies are credible – or even strictly legal.
What I am happy stating though is that if I was a first-time buyer (or even a still-keen landlord) looking to buy, this would all be music to my ears.
There must be some decent deals out there for those who can move quickly.
Au revoir, mon chéri
How about shares? Are we seeing any downward pressure that we can pin on Budget Day worries?
Well…maybe.
Broker Winterflood reported this week that already-wide discounts on investment trusts have gotten a bit wider. Only by 20 basis points to 14.2% as of Thursday.
Which is vaguely… suggestive, I suppose.
Sources in the CityWire article citing this discount widening mooted a ‘buyer’s strike’ was to blame. Budget Day-minded, yes, but more ‘wait and see’ than ‘get me out of here’.
Also markets have been more choppy recently. So it might be fanciful to see CGT motivations at work.
On the other hand, a bit like BTLs, investment trusts are quintessentially held by greybeards who tended to get into them back before passive investing became popular. Folks like HariSeldon from our recent FIRE-side chat.
And the richer ones may well have sizeable holdings outside of tax shelters. Especially if they didn’t read Monevator, and so didn’t do all they could to defuse their gains and shelter their assets over the years.
Might they be selling at the margin?
I guess. Though they’d need to be pretty long-term owners to have big capital gains, given most trusts have been through the ringer for the past couple of years.
And surely long-term owners are more likely to stay that way? They’ve sat through plenty of scares before.
Baby steps
As for small caps, I think I’ve noticed odd moves downwards in some small caps I follow.
But I could be fooling myself. These little shares bounce around all the time, as their market is so thin.
True, there has been weakness in the AIM 100 index, coinciding with the CGT drumbeat getting louder:
Source: Hargreaves Lansdown
Which is again… a bit suggestive. The FTSE 100 and the US markets are higher over the same timeframe.
But the AIM index does include plenty of companies that the Budget might also make ineligible for business relief – useful for inheritance tax planning – if other rumours turn out to be true.
Also the (non-AIM) FTSE Small Cap index has been more resilient. Which doesn’t suggest private investors are rushing for the exit.
A big leap
What would it look like if UK private investors were dumping stocks for CGT-sidestepping reasons, rather than because of the underlying fundamentals?
Well, I’d expect to see steady selling ahead of Budget Day on 30 October.
That would drive some underperformance by UK equities, mostly at the smaller end of the market.
Then after the budget we could expect a bounce, irrespective of if or how CGT levels are changed. (Because it will probably be too late to sell by then anyway to avoid any announced hike.)
And markets being markets, presumably that bounce will be somewhat front run…
Okay, this is getting speculative!
As a naughty active investor, I have the dream of mis-pricing due to sellers wanting rid for their own reasons filed next to golden childhood memories of sloppy ice-creams eaten on sunny beaches.
Heaven!
At least in theory – before you learn about heart disease, diabetes, skin cancer, and how hard it is to beat the market.
It’s not something the average Monevator reader needs to ponder, anyway.
Unless just maybe you’ve inherited a few hundred thousand pounds, and you’re in the market for your first two-bedroom ex-BTL flat?
In which case, good luck and don’t make an offer until you see the whites of their eyes!
Have a great weekend.
p.s. Nearly a fifth of you said you were selling for CGT-related reasons in our recent poll, so we know it’s happening. But has anyone spotted any buying opportunities as a result? Whether shares, bonds, or bricks and mortar – please let us know in the comments below.
From Monevator
Our updated guide to help you find the best broker – Monevator
Pay off the mortgage or invest (with calculator) – Monevator
From the archive-ator: They don’t tax free time – Monevator
News
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HMRC drops ban on fractional shares in an ISA – Which
First-time buyers have two months left to save £15,000 in stamp duty – Your Money
Tesco loses Supreme Court ‘fire and rehire’ case – Sky
Vodafone-Three merger: tens of millions could face higher bills, says UK watchdog – Guardian
Second rate cut by ECB as euro area growth falters – Sky
Barclays report claims 13m UK adults sitting on £430bn of investable cash – Money Marketing
Families with twins face an additional £20,000 hit – Twins Trust
China mulls raising retirement age as workforce ages – Semafor
Long NHS delays in England leading to thousands of deaths, inquiry finds – Guardian
Products and services
Nationwide, Natwest, and TSB slash mortgage rates for smaller deposits – This Is Money
Pension Wise launches digital guidance service – Which
Open an account with low-cost platform InvestEngine via our link and get up to £50 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine
Vanguard launches long-awaited app for UK investors – Your Money
Insurance rates still too high for pay-monthly customers – Which
Get £100-£2,000 cashback when you open a SIPP with Interactive Investor (T&Cs apply. Capital at risk) – Interactive Investor
Is investing in rum a sober choice? [Search result] – FT
Vinted will alert you if you breach HMRC’s new selling rules – Skint Dad
Nationwide and Santander change-up their current account fees – Which
Homes for sale with stylish extensions, in pictures – Guardian
Comment and opinion
Investors must survive – Behavioural Investment
Britain’s new Sovereign Wealth Fund: what can it learn from others? – FT
If the prices are wrong you should be rich – A Wealth of Common Sense
Give bonds some credit – Humble Dollar
Spend money according to your plans – Darius Foroux
Can your children really help you cut your tax bill? – This Is Money
Top 10 savings hacks – Be Clever With Your Cash
Mark Dampier’s side of the Woodford/Hargreaves story – Money Marketing
International diversification…diversifies! – Verdad
Compound interest is apolitical – Tony Isola
Trusting the wrong people – Abnormal Returns
The minimum amount of money where work becomes optional – Financial Samurai
The ETF market: in zine form – Dave Nadig
Cliff Asness: the less-efficient market hypothesis [Research] – SSRN
Naughty corner: Active antics
Alphabet has never been this (relatively) cheap versus the S&P 500 – Sherwood
An angel investor’s ‘resignation letter’ – Reaction Wheel
China’s mysterious deflation – Scott Sumner
Price predictions mini-special
Should you ignore past stock market returns? – Morningstar
The case for trend following – Optimal Momentum
Kindle book bargains
Quit: The Power of Knowing When to Walk Away by Annie Duke – £0.99 on Kindle
The Good Enough Job by Simon Stolzoff – £0.99 on Kindle
Grit: The Power of Passion and Perseverance by Angela Duckworth – £0.99 on Kindle
The Missing Cryptoqueen by Jamie Bartlett – £0.99 on Kindle
Environmental factors
Low-carbon homes can save £1,341 a year in bills, study shows – Guardian
What China’s EV revolution looks like on the ground… – Big Technology
…and what it might mean for the UK car market – This Is Money
Solar panel installation slump in UK blamed on the cold summer – This Is Money
UK watchdog gives funds anti-greenwashing rule extension – Reuters
Robot overlord roundup
AI and the technological Richter scale – Zvi Mowshowitz
OpenAI reportedly in talks to raise at $150bn valuation – TechCrunch
How to navigate a tech world dominated by AI – Uncharted Territories
Here’s what AI does next – The Honest Broker
The end of work – Daniel Miessler [h/t Abnormal Returns]
Right-wing influencer shills mini-special
Stop letting right-wing influencers cosplay as ‘independent media’ – Taylor Lorenz
Mysterious influencer network pushed sexual smears of Kamala Harris – Semafor
Off our beat
How a mind-boggling device changed economic history [Search result] – FT
Inside Thailand’s $2 billion scam industry – Newsweek
Boomer Apple – Stratechery
The mysterious, meteoric rise of Shein – The Atlantic via MSN
The great global divergence of values – Garden of Forking Paths
Six ideas to keep Poland’s economic miracle going – Noahpinion
How long til we’re all on Ozempic? – Asterix
It’s another British multimillionaire’s solemn farewell tour – Marina Hyde
And finally…
“Everything, in retrospect, is obvious. But if everything were obvious, authors of histories of financial folly would be rich.”
– Michael Lewis, Panic!: The Story of Modern Financial Insanity
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