The spring budget for 2021 is happening this week. The Chancellor of the Exchequer, Rishi Sunak, will spend time running through the latest amendments and tweaks to various financial measures. This will include taxation for both consumers and businesses, along with other elements of fiscal spending and investment. What’s really important for me as an investor is to look and see what element of the budget will impact my investments, both directly and indirectly.
Benefitting from using my ISA
First up is potential changes to capital gains tax. This could have a direct impact on my investing strategy. At present, if I’ve used up my capital gains allowance I do have to pay capital gains tax if I sell stocks for a profit. This percentage ranges from 10% upwards. That’s why I invest in a Stocks and Shares ISA. It allows me to buy and sell stocks without incurring a tax liability.
For the spring 2021 budget, it’s anticipated that capital gains tax will rise from 10% to 18%. For higher rate tax payers, it’ll increase even more. I think this makes it really important for me to ensure that all my stock investments are done via my ISA. If not, then any profits I make from good stock picking could be eroded by having to pay higher capital gains tax.
Stock picking opportunities
There’s several other elements to the 2021 budget that could actually represent opportunities for me. For example, it’s expected that there will be an extension to the stamp duty holiday for another three months. This extension should help to boost the property market.
I think that this extension could see a kick higher in the share price for companies such as Rightmove. The property marketplace should see increased fees from estate agents listings, as well as higher traffic on the website from people looking to buy or sell. The lifting of lockdown and the first round of the stamp duty holiday helped the business. This spring could be a similar story, and one that makes me seriously consider buying Rightmove shares now.
However, one risk here is that the initial rush has gone, and so I might be overestimating the amount of people who will jump on this extension.
Another point I’m keeping an eye on from the 2021 budget is the extra support specifically in the hospitality sector. Sunak could potentially be announcing large scale grants for this area. We also could see an extension of the cut in VAT from 20% to 5%.
This is targeted help for companies such as Cineworld. The cinema operator has struggled over the past year. Revenue was down 67% as of June 2020, and is likely to be similar for H2. If government support is given, then we could see a short-term boost for the Cineworld share price. I’d still be cautious of buying shares, as I don’t think this will be enough to be a catalyst for a long-term rebound specifically for Cineworld.
Budget 2021: plenty going on
Overall, there’s plenty I’m going to be watching out for in the budget this week. I need to look past the obvious, thinking how this could impact different firms, and then decide what to buy.
