Small Cap Value Report (Weds 30 Oct 2024) - BUDGET. NXT, TMO Briefs: AML, CABP, EQLS, HSP, ECK, SALT

30th Oct '24 by Paul Scott

215 comments 14899 reads

Good morning, and happy budget day from Paul & Graham!

As usual I'll be posting my immediate notes on the Budget speech in this article shortly after the Chancellor sits down - as I type it up in real time anyway, so might as well share my notes with you here. EDIT: Done - published at 14:08.

Then at 5pm, Megan and Mark will be doing a webinar - details here - with more in depth analysis, so I'm looking forward to tuning in to that.

Budget speech -

Summary

Not as bad as the worst fears - has already triggered a big rally in some AIM shares.

Taxes will be raised by £40bn, the bulk coming from Employers NICs at £25bn.

I think this is a fairly balanced set of measures, but it’s going to hurt business profits due to higher labour costs & taxes.

AIM loses half its IHT relief, from 40% to 20%, so still worth holding good AIM shares. Pity she didn’t commit to no further changes in future.

So uncertainty will continue, but AIM lives to fight another day!

Increases to CGT, but not particularly big.

Pensions will become subject to IHT - a big change (not immediate though - subject to consultation).

Employers NICs will go up by 1.2% from 13.8% to 15.0%. Thresholds also lowered - a heavy extra cost for employers.

Big increase in minimum wage, as expected. So this is going to be very expensive for struggling hospitality & retail companies. Expect broker forecasts to be slashed in some sectors.

Corp Tax will remain at 25% for full parliament. Lowest in G7. Confirms what has previously been announced, but it’s clearly good news.

What it didn't do (which had been feared) - no changes to tax relief on pension contributions, and I didn't hear anything about betting taxes either. Also ISAs left alone, which was another fear. Also apparently no change to the 25% tax-free lump sum on pensions, and no change to the tax relief on money going into pensions.

Budget Speech Detail

Starmer:

Our no.1 mission is growth.

Budget Speech, Rachel Reeves

Political stuff - change, mandate for renewal, last 14 years, rebuild Britain, fairer society, austerity broke our NHS, harmed business, mini Budget, higher mortgages,…

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Conistons

30th Oct '24

I believe the Budget intends to remove the anomaly where there is currently potential for double taxation (IHT plus income tax) solely on non-discretionary schemes. In future inheriting from non-discretionary schemes will be treated the same as inheriting from discretionary schemes and both may be subject to IHT (and possibly income tax) and paid out net. Pity the poor pension administrators with yet another complication.

BnB

Pensions - What I've been unable to find clarity on is the treatment of AIM shares held within a SIPP. I'm hoping that they will be recognised as due a 50% "discount".

Somewhat unlikely, I would think. I believe the pension assets are technically in trust (ie not yours, even though you put them there) so the allowances you qualify for would not necessarily apply to those assets. I doubt, however, that this has been thought through, so it will have to be tested in a tax assessment and counter argument.

jamesalastair

Thank you BnB.

Tomorrow is another day ...

Lochinver

I guess its inevitable and amusing that after today’s events that certain posters have come on here and boasted about how clever they are and how they ‘read ‘ the market correctly beforehand. And made a killing. They cant help themselves but to share their special qualities with those less fortunate than themselves.

The reality is completely different. They completely switched into gambling mode . They got incredibly lucky. They abandoned the rules of Buffet, Munger, Graham and Lynch. Betting and gambling on daily price movements are not the actions of proper investors. Nothing wrong with that but don't describe yourself as an investor - you are a trader.

dulciemo

You cant blame the senior members of govt for the amount of speculation and fear mongering that has been around for the last few weeks. If you want to believe the tory press then more fool you. This is a government that need to be given a chance and the constant criticism does not help. Judge them in 5 years or hopefully 10 when the fruits of this budget should yield some fruit.

I worked for a farmer who passed on his farm to his daughter 10 years before he died and she did not have to pay inheritance tax. I think the law then was he had to live for at least 7 years after passing it on. Does this law not apply anymore?

Spender71

31st Oct '24

A trader becomes an investor when the trade has gone wrong, as they say.

Gnome2

Jamesalastair,

Sorry to hear that you and your fellow farmers have been thrown into this uncertainty. I've always viewed the farming community as custodians of the landscape, one of the country's greatest assets. We should all be hugely thankful for the hard work that you guys put into preserving this green and pleasant land.

Hopefully, time, and common sense, will lead to a reversal of this misguided tax grab.

Caper4

You MUST be joking .

The Jayman

Michael you are spot on.

When you consider that for livestock farming 300 acres would be a minimum viable unit size which in England certainly would put a farming estate well above the threshold, then there is the value of the farmhouse, and the value of the equipment.

Given farming doesn't generate meaningful returns on assets employed there be many farmers forced out of business and away from their livelihoods.

Of course that psychopath was President for 4 years and in spite of all the bluster his administration did a reasonably competent job . Market’s certainly want another 4 years of Trump rather than a left wing Government.
Neither candidate is particularly attractive but I still back US entrepreneurs over the U.K. post Brexit .

GloucesterBob

I can see the following businesses doing a roaring trade.

De La Rue (LON:DLAR) - Print money

Basildon Bond - Make Envelopes

Yale - household safes

rmillaree

I can 100% blame the government yes - they could have had earlier budget or been clear on areas they were not going to change like pension 25% lump sum - it’s simple sensible communication - ok some unnecessarily panicked - but the obvious concerns were real and not addresssed adequately - yes the paranoia didn’t help - but we have similar nonsense every year in run up to bugldget that’s real and politicians beed to deal with that and be clear - over now though do we can all climb back in our hole. Don’t tell me labour did not make a meal out of what they inherited - they happily whipped up the narrative we are in the shit when it’s pretty much business as it always was with quite calm waters -

Speedy Hire (LON:SDY) is inconsistent and accident prone.

VP (LON:VP.) is a better bet IMHO (I hold) and only up 1.25% on Budget day

Was gonna post the same - one can hate the guy but even if he is obnoxious that doesn’t mean he will do worse job than the other candidate - if nothing else I think he was the one recent us president who didn’t start a new war- on any level kudus for that fact. And he has already done the job for 4 years so predicting an abyss seems to make me question the logic of the original poster rather than trump

Rusty2

Do they?

There is hardly any coverage and the performance of the top ranked stocks is quite poor. If l only invested in the US, l would not be renewing.

Completely agree. But there is more upside in SDY for a cyclical trade. Not my normal style, clearly. But I’ve been vocal about a cyclical twist all year and it has paid off well. Wondering about a second bite at this cherry/rotten apple

Not sure if this is aimed at me, but surely the test is whether the investor/trader holds onto the shares for the long term, as I intend, having followed them for years looking for an entry, or sells in the next month for a quick profit. I would also argue that an investor buying just before the budget was doing so when there was blood on the streets, very much in the spirit of Buffet.

So you were gambling after all. Just before an event that had an unknown outcome. Buffet would never do that, and you know it. However bloody the streets were.
I enjoy your posts mostly, Bnb. A little dose of humbleness might serve you well, though.
Im going to the Derby event in a few weeks. Would be good to meet you if you were attending.

1st Nov '24

So you were gambling after all

I disagree. I’ve been through goodness knows how many budgets in my career. And it was clear to me in the run up that Labour were very wary of spooking the market - witness Kier’s soothing comments on the likely extent of CGT rises. I specifically targeted shares with CGT and/or IHT risk that I coveted. In the case of CGT targets there were a number that had sold off so badly as to no longer pose a CGT-specific risk, ie such was the sell-off that there were no more gains for anyone other than very long term holders to realise. Look at the charts of Tristel, Bioventix, Global Data for an illustration and others I considered such as Keystone Law and AB Dynamics, both of which I concluded were riskier on the CGT realisation profile and therefore avoided (to my cost as it turned out). These were high quality businesses at knock down prices with little additional downside potential, absent a general sell-off affecting markets beyond AIM. Every trade is a gamble in the sense that we cannot know the future. But this was an opportunity to enter good businesses with an enhanced risk/reward. Names that I will hold for years if their trading progresses as their track record promises.

That said, point taken about the tone of the post and it wasn’t my intention to tout my good fortune, rather to highlight the importance of calm calculation during volatility. Yes, I’m at Derby and look forward to meeting you, where we can continue this conversation and initiate new discussion. I appreciated your vigilance when the forum got hijacked by political nonsense a short while ago.

Small Cap Value Report (Weds 30 Oct 2024) - BUDGET. NXT, TMO Briefs: AML, CABP, EQLS, HSP, ECK, SALT

Budget speech -

Summary

Budget Speech Detail

Starmer:

Budget Speech, Rachel Reeves

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Paul Scott

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