Image source: Getty Images
After climbing from 39p to 110p – and paying plenty of dividends along the way – the Lloyds (LSE: LLOY) share price looks unstoppable. That is, provided a windfall tax doesn’t arrive in the next budget, which is less than two months away (28 October).
Is a windfall tax on banks likely? Will the tax halt the surge across the sector? Could now be the time to sell Lloyds shares before the bottom drops out? I asked ChatGPT and it said…
Questions and answers
Question: “What’s the percentage chance a windfall tax comes in the next budget and sinks the Lloyds share price?”
Answer: “I’d currently put the odds of a specific windfall/profits tax on UK banks at roughly 40%–50%.”
I was handed a table too which offered a little food for thought:
| Event | Estimate |
|---|---|
| Some additional bank tax in Budget | 55%–65% |
| A genuine windfall/profits tax | 40%–50% |
| Tax materially worse than investors currently expect | 25%–30% |
| Lloyds falls >5% on Budget reaction | 25%–35% |
| Lloyds falls >10% | 10%–15% |
| Tax causes a lasting >10% decline | <10% |
What to make of all this? Well, obviously this is mostly just a bit of fun. ChatGPT and other AI chatbots are quite clear that they shouldn’t be used for financial advice (nor are they legally allowed to).
With that said, the prospect of a windfall tax is a real one. While I won’t be banking on the 40%-50% chance my AI buddy has given me, this is a real possibility that Lloyds shareholders like myself need to consider. That’s why the latest news doing the rounds in early September is worth paying a lot of attention to.
On the table
What happened? An article in The Telegraph mentioned that new chancellor John Healey is eyeing up a windfall tax on banks and oil companies. Apparently, “treasury officials are discussing both policies” as they’re seen as less controversial than tax increases on individuals. So I think we can say the option is on the table.
What form might it take? It seems like the likeliest option is a ‘time-limited’ tax. This essentially means that the tax would be ongoing but come to an end at some time. That would mean banks like Lloyds could be on the hook for several years.
One suggestion doing the rounds is a 38% levy on domestic profits above £800m. This might bring in £19bn each year. For comparison, the ‘big four’ banks booked £29bn in earnings in the first half. Also, Lloyds’ profit after tax in the last financial year was £3bn. The point being that this isn’t exactly small change.
There’s reason to think all of this might not come to fruition. The government has talked endlessly about growth, which would be at odds with taxing one of the country’s thriving sectors more heavily.
As for what I’m doing, I have no intention of selling my Lloyds shares just yet. But I’ll be watching upcoming events closely.
Should you invest £5,000 in Lloyds Banking Group Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group Plc made the list?
John Fieldsend owns shares in Lloyds.
This story originally appeared on Motley Fool
