Infrastructure and renewable investment trusts have already been incorporating the planned tax cuts into their cashflow and valuation models after parliament enacted a law to reduce the rate from 19% to 17% in April 2020.
In a report published on Thursday, Stifel estimates net asset values on UK-heavy renewable and infrastructure investment trusts to fall around 2.5p a share if the corporation tax rate remains at 19%.
Prime Minister Theresa May (pictured) has said a “Brexit dividend” would fund the £20bn boost to the NHS by 2023, but the Treasury is currently floating changes elsewhere in the budget to finance the proposals, including tampering with corporation tax or pension tax relief.
The £2.6bn HICL, £660.4m BBGI, £2bn INPP and £1.2bn John Laing Infrastructure investment trusts have all incorporated the tax cut into their tax assumptions for the last two years.
Stifel analysts Iain Scouller and Anthony Stern said falling tax rates had been the largest economic factor to contribute to returns in HICL over the 10 years to March 2016.
Changes in tax rates added 10.9p to the total 41.9p rise in the NAV to 140.3p.
However, HICL is not the investment trust most sensitive to tax changes, according to Stifel. Instead, the net asset values of John Laing Infrastructure and BBGI are both likely to be more affected with a 5% increase in the tax rate forecast to take a 4.6% hit on the former and a 4.1% hit on the latter.
Bad move
Tilney managing director Jason Hollands said a reversal of corporation tax cuts would be a bad move.
Hollands said: “Post-Brexit improving the attractiveness of UK as place to base a business will need to be a key priority and this will likely weigh on Treasury thinking.
“This would clearly be negative news for UK-domiciled business if it happens and so could be another source of uncertainty.”
He said an overhaul of pension tax relief looked vulnerable.
“There is understandably a lot of speculation about how the government are going to fulfill their NHS pledge, let alone the very significant pressure building to increase defence spending.
“Any Brexit dividend is unlikely to come in time to finance this given there is a £39bn divorce bill to be paid.”
