Summer Holidays

As it’s the summer, we asked the Wealth Design team about their holiday plans this year, and here are their responses:

Fiona Holt, Practice Administrator
We are taking a late summer holiday at the end of September to Kent for Darren’s 50th. We’ve already taken a pre-Easter holiday to Brean with our grandchildren.
Laura Flemings, Practice Administrator and Scott Flemings, Director and Chartered Financial Planner
We are off on holiday in August with our 16-year-old daughter and her friend. The girls will have finished their GCSE exams and collect their results while we are away, which will be exciting. We would normally have gone away earlier in the year, but due to exams the focus has been on revision rather than relaxing – sadly!
We are going to Portugal, spending the first half of our holiday in Alvor before moving onto Albufeira. Have visited both destinations several times with Alvor being my favourite – and Albufeira being Scott and our daughter Ellie’s!

Richard Clarke, Finance Administrator
I enjoy the great outdoors when taking time off and my May holiday was hill walking in the Lake District.

Hannah Price, Marketing Director
We’ve been camping this year in Lancashire. A very tranquil experience and a world away from the office. It makes me appreciate the finer things in life, like a bed!

Linda Wallbank, Practice Administrator
For my summer holiday this year I will be going to Almeria in Spain with three of my girlfriends.  I haven’t been to that part of Spain before so am looking forward to visiting somewhere new.
I am not one for sightseeing, but I do enjoy lying on a sunbed listening to tunes on my iPod and soaking up the sunshine with the odd dip in the pool to cool myself down. As long as the hotel is clean and the sun is shining, I am sure we will all have a fabulous time.

Beth Evans, Practice Administrator
I was off ‘on holiday’ in May, which consisted of days out at Alton Towers and it was my son, Theo’s first time on a rollercoaster! We also visited the butterfly farm in Stratford. Apart from that, our time was spent on less interesting pursuits such as gardening and painting the fence.
We went to Tenerife in July, which was our first holiday abroad, just the 3 of us, before Theo starts school in September.

Gay Nebel, Chartered Financial Planner
My summer holiday this year will be a week in Windermere in a lovely cottage with my husband and friends.
Then it is 9 days in September in Fuerteventura with daughter Alice (who will hit 30 at the end of October) on my birthday. It is now rare that we actually spend the day celebrating together as we did when she was younger. So, no jelly, ice-cream and whizzing down a dry ski slope or round a skating rink, but rather a girlie holiday in the Canaries in a villa.
It will be a very chilled and relaxing holiday, where I will be catching up with my reading list (that does not include anything on finance), and Alice will be reading and class planning, as she is a full-time Pilates teacher.

Gemma Oliver, Chartered Financial Planner
We very much value our holidays and quality time with our children, along with our wider families and friends.  My husband and I visited my sister, who lives in Amsterdam, earlier this year.
We’re taking the children to stay with my mum and stepfather at their holiday home in Majorca in August.  We’re very lucky that my stepfather has a holiday home in Pembrokeshire and are taking the children along with some friends and their children for a week in the summer holidays.
As a couple, we’re hoping to spend a weekend with friends in the south of France in September.

Chris OMeara, Senior Financial Planner
With my first grandchild Ruairí having made his arrival in May, we have held off booking any holidays so far this year.
David Philips, Director and Financial Planner
Holiday plans this year are for week 1 in St. Ives, Cornwall, to give me an ‘Arty’ fix and then a drive up to Salcombe in Devon for week 2.

Sharon Gilbert, Group Paraplanner
It has been some years since we have known exactly where we are going on holiday until shortly before we set out in our VW campervan.  The destination is usually somewhere on the Welsh or English coast as we love the sea.  Time is booked off work; the van is always ready to go, we check the weather forecast, then off we go.
We always try to go somewhere new each year as well as re-visit some of our favourite places.  I never have to weigh my luggage and I’m always happy with the accommodation. If we want a change of scenery, we can pack up inside 20 minutes and move on.  It’s a perfect way to relax.

Andrea Bennett, Practice Administrator and Steve Bennett, Director and Financial Planner
This is a year for celebration, a landmark birthday for myself and an opportunity to try and tick a few things off my bucket list. Steve and I have planned trips to Dublin, Berlin and Portugal. We plan to celebrate my big birthday in Portugal this summer, our favourite holiday destination.

IHT tax breaks benefit those at the top

Tax Justice UK has published research showing how some of the wealthiest families in Britain are benefiting from up to £666m a year in inheritance tax breaks. The current law means that families with agricultural and business property can avoid paying any tax on these assets. The idea is to protect small farms and family businesses that might be asset-rich but cash-poor. But research shows that the vast bulk of these tax breaks are going to those at the top and the campaigning group is calling for a cap on the amount of relief available to estates of over £1m in a bid to curb use of the reliefs. The freedom of information request found that 261 families with agricultural property worth more than £1m shared £208m in tax relief in 2015/16, the latest year for which figures are available, representing 62% of the agricultural property relief given out that year. In the same period, 234 families with business assets worth over £1m shared £458m business property relief, representing 77% of the relief given out that year. Overall, the group says 71% of these two categories of IHT tax reliefs went to families with farm and business property worth over £1m. The analysis shows some 62 families with agricultural property worth more than £2.5m shared an approximate tax saving of £107m, which works out as an average saving of £1.7m per estate. At the very top, 51 families with business property assets worth over £5m shared an approximate tax saving of £327m, which works out as an average saving of £6.4m per estate. The report also points out that there is evidence to suggest these reliefs are open to abuse. In 2017 just 40% of agricultural land was purchased by farmers, down from over 60% in 2011, while investors have flocked to buy agricultural land and property, it states.

Workplace pension saving reaches new highs

Eligible employees contributing to workplace pension pots saved a total of £90.4 billion in 2018, an increase of £7 billion on the amount saved over the previous year, according to research by the Department for Work and Pensions (DWP). Its annual Workplace pension participation and savings trends of eligible employees’ official statistics: 2008 to 2018 report, published on 5 June 2019, also found that in 2018, pension contributions by employees accounted for 26% of their retirement savings, compared to 64% that was contributed by employers.

The remaining 10% is attributed to income tax relief on employees’ contributions. Overall, 87% of eligible employees participated in a workplace pension in 2018, an increase on the 84% saving into an occupational pension in 2017. Between 2012 and 2018, the number of private sector employees saving into a workplace pension has increased by 43%, and now stands at 85%. This compares to 93% of public sector staff who participate in their workplace pension. Commentators believe this year’s figures show positive trends, particularly for small and micro employers, lower earners, those working part-time and those in younger age bands. This shows that auto-enrolment is making a real difference for these employees, all of whom have historically been at risk of not saving for retirement. The rise in participation for younger age bands is particularly encouraging.

However, despite the amount people paying into retirement pots increasing for the first time in six years, and average workplace contributions outside the public sector remain too low, experts say, with most people setting aside 4% or less of their salary (with the first 3% now matched by their employer). This is still not enough. As an example, a 25-year-old who is earning £30,000 and paying in the minimum 8% total contribution could expect to have a fund worth less than £200,000 in today’s prices when they reach retirement. That would convert into an inflation-adjusted annuity income of about £7,000 a year — far below most people’s retirement expectations.

Weekly Market Commentary – 26th July 2019

Will Boris Johnson’s new Brexit Deal Placate both Parliament and Brussels?
This week saw the appointment of the new Prime Minister of the United Kingdom of Great Britain and Northern Ireland – Boris Johnson – just one more bit of evidence that we’re in the timeline where Biff still has the sports almanac. Whilst the rotation of personnel in the government has made a lot of noise, it hasn’t done much to alter reality. Theresa May has already proven that there is no parliamentary majority for her deal, which won’t be substantially different from any other, or No-Deal.

There is a hope that a more enthusiastic and charismatic PM might be able to win more support for whatever plan the new cabinet come up with, but with a working majority of three, a committed block of trouble makers and now a dozen former ministers that he’s just sacked, a can-do attitude is unlikely to be enough. The only chance to force through the sort of Brexit the hard leavers are after, is if the Conservatives can win back a majority in a general election, probably before the end of the year when Johnson finds himself in the same stalemate as his predecessor.

Autos: Almost one in ten Nissan workers to be made redundant
Falling sales in Japan and the US, rising costs and tighter emissions regulations have all contributed to Nissans profits falling off a cliff last quarter. Operating profit fell 99% to £11.9m. In turn the car manufacturer will more than double its planned job cuts to 12,500 over the next three years – close to a tenth of its workforce. And while it’s unclear where the cuts would fall, it is anticipated Nissan’s Sunderland plant which produces around 2,000 cars a day and employs 7,000 people won’t be affected. But this would be heavily dependent on continued smooth trade with Europe.

Elsewhere, Tesla shares fell 11 per cent after it announced a £328m loss despite record sales and rising revenue. Producing the cheaper Model 3 (£39,000) to its flagship model S (£80,700) has proved popular with consumers but in turn squeezed profit margins. Long term Chief Technology Officer JB Straubel also stepped down after 15 years with the company and will transition to a senior advisor role.

Eurozone: ECB Signals Willingness to help boost growth
The European Central Bank (ECB) left interest rates unchanged at the latest policy meeting and all but committed itself to further easing at its next review in September. ECB President Draghi commented “if the medium-term inflation outlook continues to fall short of our aim, the Governing Council is determined to act, in line with its commitment to symmetry in the inflation aim”.

This could mean that the next meeting will see the ECB implement a package of measures, including a rate cut as well as restarting the sovereign bond buying scheme. The central bank hope by combining both monetary (interest rate) and fiscal (bond buying) policies they can boost growth and hit or even overshoot it’s two per cent target inflation target. Following the announcement, the euro strengthened but equities fell marginally.

Tech: DOJ Targets big tech in Antitrust Probe
It has been an interesting week for Facebook. The social media company beat expectations for both earnings and revenue but at the same time settled a record £4bn fine from the Federal Trade Commission (FTC) following an investigation into multiple privacy breaches. And while it’s the FTC’s highest ever fine, it equates to roughly around a months’ worth of revenue for the social media giant.

Meanwhile, there is a different probe spearheaded by the US Department of Justice (DoJ) investigating the anti-competitive behaviour of online search, e-commerce and social media companies. From a legal standpoint, the Big Tech companies haven’t broken the antitrust law which is designed to protect consumers from unfair price hikes. However, politicians are concerned over the sheer influence these companies have on all aspects of the US landscape from the markets to political and social issues. Over in Europe, antitrust laws are backed by an administrative system which issues fines against companies whereas the US antitrust operates around criminal laws with penalties meted out to individuals

Proposed changes to the law on divorce

The key change that is proposed is that divorcing couples will no longer have to blame each other for the breakdown of their marriage. The main proposals for changes to the law include:
retaining the irretrievable breakdown of a marriage as the sole ground for divorce;
replacing the requirement to provide evidence of a ‘fact’ around behaviour or separation with a requirement to provide a statement of irretrievable breakdown;
retaining the two-stage legal process currently referred to as decree nisi and decree absolute;
creating the option of a joint application for divorce, alongside retaining the option for one party to initiate the process;
removing the ability to contest a divorce; and
introducing a minimum timeframe of six months, from petition stage to final divorce (20 weeks from petition stage to decree nisi; six weeks from decree nisi to decree absolute).

The new legislation is expected to be introduced as soon as Parliamentary time allows. The proposed legislation will not cover other areas of matrimonial law, such as financial provision or pension sharing. Financial provision on divorce is handled in separate proceedings and the Court has wide discretion to decide on the provision for future financial needs.

Overdraft fee crackdown

A dramatic shakeup of the financial sector could herald the end of free banking in the UK, with all customers required to pay a monthly fee to keep their current accounts open. The financial services regulator has announced a series of major reforms to the overdraft market that consumer rights champions say will stamp out “hideous charges designed to entrap people in debt”.

Once banks and building societies are prohibited from charging customers fees for borrowing money using an unplanned overdraft, it could become the norm for institutions to impose a monthly “management fee” on all current accounts. Banks and building societies will be banned from charging people who go beyond their overdraft limit fixed daily or monthly fees from 6 April 2020 under the sweeping reforms unveiled by the Financial Services Authority (FCA). However, experts say the new rules mean banks and building societies will be scrambling to find a way to recoup their costs and will likely be considering introducing fees for current account holders.

When it comes to recouping costs, normally a bank or building society would need to review their entire range of banking products – any perks or fees on accounts would be looked at to see if they can be sustained. They might chop the perks they are currently paying out or they could add a management fee onto current accounts. If that becomes the norm, of course customers will be irritated but that’s unfortunately how banking shakeups work…banking is a service, and banks need to make money.

Freelancers face tax inquisition

Many sectors have a long tradition of engaging contractors through Personal Service Companies (PSCs) and while numbers have reduced during the economic downturn, there remains a significant number engaged within the supply chain. Previously the matter of determining if an individual would be taxed as an employee or as self-employed lay with a PSC, but with the introduction of IR35 tax reforms by HMRC that responsibility will now fall to the end-user. In simple terms, the level of tax to be paid has not changed but the liability for making the assessment has changed and this will have repercussions for businesses and individuals throughout the supply chain.

Depending on the circumstances, the end-user could be the client at the top of the supply chain or another company within the supply chain. Many are now grappling with the thorny issue of how contractors’ tax should be treated – and if the end-user does not make the correct tax determination, they will leave themselves open to financial penalties. Individuals could potentialy face a pay cut of up to 25% if their hirer decides they are employed for tax purposes. The changes come into effect from April 2020, but employment law specialist’s advice to businesses is to act now.

Simple switching pays dividends

The Telegraph reports that savers are losing £3.5bn a year in interest on account of an inability to summon the energy to switch and many people remaining loyal to high street banks even though these often offer worse rates than smaller, rival firms. According to the Centre for Economics and Business Research, customers with Barclays, HSBC, Lloyds, Royal Bank of Scotland and Santander account for £827bn of the total £1.3 trillion saved in the UK.

And while they are set to make £3.4bn in interest on their savings over the next year, this would more than double, to £7bn, if they swapped to better deals with rivals, the study, which was commissioned by savings platform Flagstone, found. The same is true in many other savings areas,” adds the article. “All the current top rates for one to five-year bonds and ISAs are for deals supplied by non-high street lenders.”

Weekly Market Commentary – 19th July 2019

Why it’s time to time to review Monetary Policy Indicators

This week the world has been focused on those two hardy perennials, Trump and Brexit. The former for being racist and the latter for parliament acting to contain the new prime minister. At this point however, these events hardly qualify as news. Instead we’ve been taking a closer look at the finer points of monetary policy. Following the Fed Chairman’s admission that the link between economic growth and inflation might not be what it was, we find multiple instances of central banks rethinking their approach. The European Central Bank is looking at revising its 2% or below rule to be more accommodating of above target inflation, while there is also speculation a Labour government could increase the BofE’s 2% target in the future.

While the acknowledgement that perhaps an overzealous approach to inflation has been detrimental is welcome, New Zealand have gone a step further and dropped GDP as a measure of the economy in favour of a happiness and wellbeing index. While this isn’t strictly monetary policy, it is another sign that the economic orthodoxy of the 20th century is coming to an end. Old models of rates and inflation, if not broken already, will need to be scrapped.

China: is slowing GDP growth Bad News?

Much attention has been paid to China’s recent slowdown, growth in Q2 slipped to 6.2 per cent, with many commentators attributing falling growth figures to the impact of the trade war. This is too simplistic however; Chinese growth was expected to slow before Donald Trump was even elected. It has been transitioning from export orientated growth model to one of nurturing a burgeoning domestic economy over the few decades. While growth is at its lowest level in close to thirty years, maintaining this rate for the rest of the year would add $1.4tn to the $13.2tn economy – equivalent to the size of all the Scandinavian economies combined.

Even so, the question remains as to whether domestic growth can continue to offset export woes. So far, a growing middle class (400m) with increasing spending power have helped boost retail sales and consumer confidence remains high. However, trade tensions have started to bite. Both imports and exports have been declining on a quarterly basis and foreign demand looks set to be weak in the second half of the year.

US: Will we see an earning recession this quarter?

The big banks this week kicked off this quarter’s earnings season and so far, the results have been fairly positive. Goldman Sachs and the Bank of America both beat expectations with the formers strong showing in the equities and lending divisions helping to offset the drag in the fixed income division, the latter benefiting from higher retail lending figures. In addition, Morgan Stanley profited from rising markets with its wealth management division beating analyst expectations by $60m with revenues last quarter from its investment arm coming in at $839m.

Only JP Morgan suffered, as low interest rates slashed away at lending margins. But with possible upcoming rate cuts, those banks whose income primarily derives from interest income (JPM, BoA, Wells Fargo) will most likely have to revise profit forecasts for 2019 downwards. Market sentiment towards corporate earnings remains cautious given the current weak outlook and a consecutive quarter of falling profits would lead to the first earnings recession since mid-2016.

Asia: Japan-South Korea Trade War is not all about Chemicals

A new trade war is brewing between two of the US’s closest allies, Japan and South Korea. Tensions kicked off when Japan restricted the exports of certain chemicals to South Korea over “national security concerns” leaving the likes of SK Hynix and Samsung who require the materials for memory chip production in trouble. Memory chips accounts for a fifth of South Korea’s exports and an extended embargo would squeeze the nation further. As a result, the central bank has moved for the first time in three years to cut interest by a quarter percentage point to 1.5%.

In reality, the row has nothing to do with national security concerns but is caused by a longer running dispute. South Korea feel that Japan haven’t atoned enough for its occupation of the country between 1910-1945. Last year South Korea ordered Japanese companies to pay $90,500 to each forced labour worker. Japan believe the compensation issue has already been resolved in the 1965 treaty when it provided $300m in economic aid and further loans totalling $800m.

Residence nil rate band planning

An additional IHT allowance has been available since 6 April 2017 in respect of a residence which the testator owns or has owned in the past. This is called the “residence nil rate band” (RNRB) and is given by an increase in the nil rate band available to the individual. It started at £100,000 in tax year 2017/18 and will go up to a maximum of £175,000 for tax year 2020/21.

What is important for will planners is that the RNRB will only be available when a “qualifying residential interest” (an interest in property that has at some time during the period of ownership been occupied by the deceased as a residence) is ‘closely inherited’ (that is, inherited by lineal descendants or their spouses/civil partners).

Lineal descendants include children, grandchildren and remoter issue, adopted children, stepchildren and foster children. Clearly for those who wish to maximise the use the RNRB it is important that the Will provisions ensure that the relevant legacies qualify.

Unused RNRB is transferable to a spouse/civil partner in the same way as the normal NRB.
Tax-efficient gifts to children and other vulnerable beneficiaries. As we have noted, where there is an intention is to benefit minor children, it will often be a good idea to make the gift subject to trust so that controls and conditions can be imposed. This is particularly relevant where significant sums are involved as few testators would feel comfortable at the prospect of 18-year-old beneficiaries having free reign over substantial wealth.

Where a testator wishes to make provision for a disabled or vulnerable person, ensuring that the gift is structured to prevent anyone other than the disabled person being able to benefit from capital or income during the disabled person’s lifetime can give rise to significant tax advantages.

Using Will trusts for non-tax reasons
Where a testator wishes to keep control over the ultimate destination of their wealth, he/she could consider using a life interest trust in their Will. Since 22 March 2006, life interests that are created on death are known as immediate post-death interests (IPDIs) and are not subject to the IHT charges associated with the relevant property regime (contrast a similar trust that is created during lifetime). Instead, the person with the IPDI is treated as owning the trust fund for inheritance tax purposes (and where that person is the spouse/civil partner of the deceased, the gift will qualify for the spouse/civil partner exemption)