Invesco: What the Budget could mean for investment trusts

Will Ellis, Head of Specialist Funds at Invesco, answers what the UK budget could mean for investment trusts.

The good news for investing is undoubtedly the reduction in the ISA cash cap to £12k, which is hoped to direct the savings of up £8k, that would have gone into cash instead towards stocks and shares. This is encouraging that the Government is working towards greater retail capital supporting investment into business and the better returns that may earned from investment.

Whilst I can understand the exemption for over 65s of this cap owing to the potential risk appetite of that age group, this age group has the greatest number of ISA holders, so a half-measure, and with over 65s being income seeking, cash savings are likely to be eroded over time, through drawdown and lower rates. Looking ahead to the Government-supported national campaign in February this should help to direct savings into investments.

In direct contrast to this, is the increase in tax on dividends and savings. It appears business owners paying themselves in dividends are being targeted, but this goes against the push to drive savings into investments, as it will also punish those familiar or comfortable with share investing – a group the Government is trying to encourage – and who derive an income from their savings. With all three of our trusts paying dividends, which is proven particularly attractive to investors either on the basis of passive income or providing a living income, this will be a headwind to any savings outside of a tax-wrapped vehicle.

“Considering the very limited number of IPOs, the waiving of stamp duty for new company listings for up to three years is inconsequential, and investment trusts continue to have the extra duty applied (stamp duty at the portfolio level and when they’re bought/sold), whilst other listed collectives (ie ETFs under UCITS) are excluded.”