Rachel Reeves’s tax grab sparked a record exodus from the stock market last month as investors raced to withdraw their cash.
Investors sold down a net £2.7bn of their holdings in equity funds in October – the highest amount ever recorded – with Brits pulling money out of every category of fund.
That followed a move by savers to withdraw cash in September, which marked the first net outflows in 11 months, according to data from fund network Calastone.
The figures highlight the chilling effect of the Labour Government’s first Budget after the Chancellor confirmed increases to capital gains tax, with the rate paid by basic-rate taxpayers rising from 10pc to 18pc and from 20pc to 24pc for higher-rate taxpayers.
Capital gains tax is paid by savers every time a stock or unit in an equity fund is sold, unless they are sheltered through an individual savings account (Isa).
Sell orders on equity funds surged by 36pc month on month to a record £17bn in the four weeks leading up to the Budget as savers attempted to crystallise a profit and pay less tax.
But outflows stopped completely on Budget day when the higher tax rates came into immediate effect. Sell orders dropped 40pc overnight, according to Calastone.
At the same time, buying activity also rose sharply as some chose to reinvest the proceeds of their sale but it was not enough to outpace the wave of selling.
Edward Glyn, head of global markets at Calastone, said: “Fears of a capital gains tax grab in last week’s Budget spurred investors to book their profits and crystallise a lower tax bill well before the Chancellor rose to her feet in the Commons.
“Unease in September meant the early birds took flight first, but by October investors were flocking for the exits.”
UK assets were by far the hardest hit by the stampede. More than one third (£988m) of the total outflows was pulled from funds focused on UK equities, making the fourth worst month on record for the sector.
The sell down is likely to prompt more fears about the health of the London market. Analysts have complained about a “doom loop” for the stock exchange, with the value of UK companies declining due to a surge of investors bailing out of British stocks.
Another quarter of outflows came from funds which pay a regular dividend to savers, which are known as income funds and heavily skewed towards the UK stock market.
October was also the first month in more than a year in which UK investors withdrew cash from US equity funds, while it was the first month in more than two years that global equity funds recorded outflows.
