Tax rises are the biggest threat to finances for investors, research shows

News - Tax

Written by Ray Clancy

Wednesday, 24 March 2010 09:38

Tax rises are the biggest financial worry for investors and confidence in the stock market has fallen slightly, according to new research.

When asked what they consider to be the biggest threat to their finances, 45% of active investors and 21% of the general public said changes in the tax rates were the biggest concern, the research from the Association of Investment Companies (AIC) shows.

As a result the number of investors planning to use an ISA this year has increased on last year with 72% of investors and 38% of the general public planning to take out an ISA this year in comparison to 66% and 31% last year.

The research also found that investors favour UK markets but emerging markets are increasingly popular but confidence has fallen slightly over the past 12 months with 40% of investors saying they will increase their stock market investments this year, down from 50% in March 2009. This is, however, an increase from October 2008 when levels fell to 33%.

Nearly half, 46%, are planning on making no changes to their investments and only 12% plan to decrease their investments. Of those planning to increase their investments this year, 32% cited low interest payments on their bank accounts as the main reason and 23% said that they are feeling more optimistic about markets in general.

Some 22% of investors said the increase in income tax to 50% was the biggest threat and a further 22% are expecting further tax increases after the elections to threaten their finances. Other concerns for investors were the recession, 13%, a possible stock market crash 9%, inflation 9%, and the possibility of Britain’s AAA credit rating being downgraded at 8%.

Tax increases after the election was their biggest worry for the general public at 16%, followed by inflation at 15%, losing their job 14%, the recession 12%, and rising interest rates at 9%.

As the UK creeps out of recession investors are still cutting back on their spending and saving more money but the number doing so has reduced since last March. Some 29% of and 27% of the general public say they are saving more and spending less whereas last March it was 40% and 34%. But 62% of active investors and 44% of the general public say they have not changed their spending habits at all.

Investors are still backing the stock market over the housing market with nearly half, 45%, expecting equities to outperform property, down from 54% last year. Despite this, confidence in the housing market has increased to 12% compared to a measly 2% in spring 2009.

The general public are still backing property to outperform equities with 21% backing property and just 13% equities, a sharp increase on March 2009 when 10% of the general public thought the housing market would produce better returns and 7% thought that the stock market would do better with the majority, 56%, believing that both property and equities would produce bad returns, whereas this year this number has dropped to 27%.

Some 64% of investors saying they are mainly investing in the UK but an increasing number are putting money into emerging markets. Some 13% of investors, up from 6% in March 2009, are mainly investing in emerging markets and 10% in Asia Pacific, up from 4%, followed by Europe at 6% and North America 3%.

Blue chips are still the most popular sector with 25 of investors opting for this sector followed by resources and commodities at 17%, utilities 12%, smaller companies 11%, technology 8%, pharmaceuticals also 8% and financials 6%.