There’s a chance the UK Budget might bring something radical for Stocks and Shares ISAs. And it’s something investors will want to think very carefully about.
According to professional services firm BDO, the Chancellor’s considering ways to make UK equities more attractive. But I’m trying to work out whether this is good for me or not.
Stamp Duty
According to BDO, the Chancellor’s looking at removing stamp duty on shares bought in ISAs with a certain percentage of UK-listed shares. They rate the chance of this as medium.
Around two-thirds of my Stocks and Shares ISA is invested in UK equities, so this looks like it will be a good thing for me. It is, but there’s a potential downside.
I don’t enjoy paying stamp duty and I’d rather not do it. But what I want more is to keep buying UK shares in the future, so that means I should hope that prices stay low while I’m doing it.
What I don’t want is more investors buying UK stocks and making them too much more expensive. This seems to be what the Chancellor’s aiming for. That will make sellers happy, rather than buyers.
Investing
It’s natural for investors to want to see stocks they own go up if they intend to sell their shares. Anyone looking to buy should be hoping for price cuts.
One of the great insights about the stock market is that it’s one of the few places where people are less inclined to buy when prices go down. But in a lot of cases, they shouldn’t.
In some respects, investors should feel better when prices go down. Buyers should want to get as many shares in their chosen company for their money as they can.
Of course, they shouldn’t hope an issue with the underlying business sends the stock lower – that could be bad.
UK value
I still think Rentokil Initial (LSE:RTO) is one of the most obviously ‘discounted’ UK stocks. Its free cash flows are 3% lower than Rollins – its US counterpart – but it trades at a 38% discount.
This isn’t entirely inexplicable – the FTSE 100 company’s in the process of integrating a big acquisition. That’s why its margins are currently lower and this brings risk.
If this normalises though, the company’s profits should increase significantly. It already generates significantly higher revenues than Rollins and I’m expecting cash flows to follow.
The business has what I look for in an investment, which is a strong position in a durable industry. That’s why I’m looking to keep buying – and I don’t want the price to go up (well, not yet anyway!)
Careful what you wish for
Removing stamp duty on UK shares might boost prices. But those of us looking to buy should be hoping stocks get cheaper, not more expensive.
The best-case scenario for investors looking to buy is that taxes come down but prices don’t go up. And if the tax cut comes on ISAs that meet certain conditions, this is a real possibility.
It could happen. But from a buying perspective, I’m hoping the discount UK shares trade at relative to their US counterparts persists for some time!
