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Spring Budget update Friday 5 March 2021

The biggest talking point in our industry this week has been Wednesday’s budget. Below I have provided a summary of areas which could affect you, some ideas for organising your assets in the most tax efficient way and a reminder of how the main personal allowances work.

THE BUDGET BACKGROUND
It is less than a year since Rishi Sunak presented his first Budget, after having been in the role of Chancellor for less than a month. His despatch box première featured an allocation of £12bn towards mitigating the impact of the Covid-19. Ironically, on the same day as Mr Sunak revealed that boost to spending, the World Health Organisation declared the outbreak a pandemic. Total expenditure on dealing with the pandemic is now estimated to be around £300bn.

The March 2020 Budget was what should have emerged in the Autumn of the previous year, before being deferred because of the General Election. The March 2021 Budget is the result of a similar delay. Last September the Chancellor decided that the uncertainties created by the pandemic meant it wisest that he waited until Spring 2021 to present the Budget. Since then, Mr Sunak has been kept busy announcing extensions to the various Covid-19 support schemes introduced in 2020. Whether the Chancellor feels the economic outlook today is much clearer than six months ago is a moot point.

One financial aspect which has been painfully clear for some time is that the government’s finances have been fundamentally changed by the pandemic. A year ago, the Office for Budget Responsibility (OBR) forecast that the government would borrow around £55bn in 2020/21. Twelve months later its estimate has risen to £400bn. The coming year, 2021/22, should see borrowing more than halve according to the OBR, but the deficit is still projected to be running at over £160bn – more than three times the figure of just two years ago.

Dealing with this level of borrowing is probably not what Mr Sunak signed up for when he moved into 11 Downing Street. He now has to deal with total government debt of about £2,100bn, equal to the UK economic output for the year. The last time debt was as high was in the early 1960s, when the UK was still in the business of paying down the bills incurred in the World War II.

Despite the lake of red ink, Mr Sunak was never going to introduce significant tax increases in this Budget. For a start, nearly all economists, regardless of political hue, were saying that economic recovery was the priority and sorting out the debt could wait. Secondly, Mr Sunak’s boss, Boris Johnson, cannot even bring himself to mention the A-word (austerity) which would ruin his ‘levelling up’ agenda. As a result the Budget was one of tax pain largely deferred.

The proposals which may be of most interest to you were:

  • The addition of £70 to the personal allowance and £200 increase in the basic rate band, in line with indexation requirements. However, after 2021/22, the personal allowance and higher rate threshold (outside Scotland) will be frozen for four tax years.
  • The inheritance tax nil rate band, the pensions lifetime allowance and the capital gains tax annual exemption will all be frozen at their current levels for the next five tax years.
  • For companies with profits of over £250,000, in April 2023 the rate of corporation tax will jump by 6% to 25%. A new smaller companies’ rate of 19% for companies with profits of up to £50,000 will be introduced at the same time.
  • The temporary £500,000 0% band for stamp duty land tax will continue to apply for residential property purchases up to 30 June 2021. The band will then be halved for the following three months before reverting to its original £125,000 level from 1 October.
  • The coronavirus job retention scheme (CJRS – furlough scheme) and the self-employed income support scheme will be extended to September, albeit with reductions in the final three months of their life.

10 QUICK TAX TIPS

1. Don’t waste your (or your partner’s) £12,570 personal allowance in 2021/22.
2. Don’t forget the personal savings allowance, reducing tax on interest earned.
3. Don’t ignore the dividend allowance, eliminating tax on £2,000 of dividends.
4. ISAs should normally be your first port of call for investments and then deposits.
5. Make use of tax relief which can be obtained with a contribution into your pension.
6. Tax on capital gains is usually lower and paid later than tax on investment income.
7. Trusts can save inheritance tax, but suffer the highest rates of CGT and income tax.
8. File your tax return on time to avoid penalties and the taxman’s attention.
9. If you are entitled to a company car, going hybrid or electric could slash your tax bill.
10. Don’t assume HMRC won’t know: automatic information exchange is now widespread.
Refresher on how some of the main personal tax allowances can work for you:

THE PERSONAL ALLOWANCE
The personal allowance was given a standard inflation-linked increase to £12,570 for 2021/22. The announcement of the minimal uplift was made in November, hidden on page 22 of the Spending Review. For 2022/23 to 2025/26 inclusive the allowance will then be frozen. Many people do not use the current personal allowance to the full and in 2021/22 there will be a gap of just over £3,000 between the allowance and the starting point for National Insurance contributions (£9,568). At the other end of the income scale, some taxpayers will have no personal allowance in 2021/22 (or future tax years up to 2025/26) because their income exceeds £125,140, at which point their allowance is tapered to nil.

If you or your partner do not use the personal allowance to the full, you could be paying more tax than necessary. There are several ways to make sure you maximise use of your allowances:

  • Choose the right investments: some investments do not allow you to reclaim tax paid while others are designed to give capital gain, not income.
  • Couples should consider rebalancing investments so that each has enough income to cover their personal allowance.
  • Make sure that in retirement you (and your partner) each have enough pension income. On its own, state pension provision is not enough, be it the new state pension (up to £179.60 a week in 2021/22) or the old state pension of £137.60 a week (if you reached State Pension Age before 6 April 2016).
  • If one of you pays tax at no more than basic rate and the other is a non-taxpayer, check whether it is worth claiming the transferable married allowance (£1,250 in 2020/21 and £1,260 in 2021/22).

THE PERSONAL SAVINGS ALLOWANCE
The personal savings allowance (PSA) first appeared in April 2016 and has been unchanged since then. Broadly speaking, if you are a:

  • basic rate taxpayer, the first £1,000 of savings income you earn is untaxed;
  • higher rate taxpayer, the first £500 of savings income you earn is untaxed;
  • additional rate taxpayer, you do not receive any personal savings allowance.

‘Savings income’ in this instance is primarily interest, but also includes gains made on investment bonds, including offshore bonds. Although called an allowance, the reality is that the PSA is a nil rate tax band, so it is not quite as generous as it seems. The PSA means that banks, building societies, National Savings & Investments and UK-based fixed interest collective funds all pay interest without any tax deducted, but they do report payments to HMRC. Thus, if your interest income exceeds your PSA – no mean achievement at current interest rates – you could have tax to pay. Be warned that if you do not tell HMRC, it will have the data to tell you.

If you and your spouse/civil partner receive substantial interest income, it is worth checking that you both maximise the benefit of the PSA. However, at today’s ultra-low interest rates you might also want to consider whether you could earn a higher income by choosing non-deposit based investments.

THE DIVIDEND ALLOWANCE
The dividend allowance also started life in April 2016, originally at a level of £5,000 before it was reduced to the current £2,000. The allowance means that in 2021/22 the first £2,000 of dividends you receive are not subject to any tax in your hands, regardless of your marginal income tax rate. Once the £2,000 allowance is exceeded, there is a tax charge of 7.5% (for basic rate taxpayers), 32.5% (for higher rate taxpayers) and 38.1% (for additional rate taxpayers). Like the PSA, the dividend allowance is really a nil rate band, so up to £2,000 of dividends do not disappear from your tax calculations, even though they are taxed at 0%.

The pandemic prompted many companies to reduce or stop paying dividends in 2020. As a result, the historic yield on UK shares is now around 3.05% which means in theory a portfolio worth more than about £66,000 could attract additional tax on dividend income, even for a basic rate taxpayer. In practice, that threshold portfolio size could prove to be smaller in 2021 as dividend payments should rise over the next 12 months.

THE STARTING RATE BAND
The starting rate band for savings income was launched at £5,000 in 2016/17 and a tax rate of 0%, and will remain on that basis for 2021/22. Sadly, most people are not able to take advantage of the starting rate band: if your earnings and/or pension income exceed £17,570 in 2021/22, then that probably includes you. However, if you (or your partner) do qualify, you will need to ensure you have the right type of investment income to pay 0% tax.

Planning Point: If you don’t anticipate using all your personal allowance or PSA in 2020/21 think about creating more income by closing deposit accounts before 6 April and crystallising the interest in this tax year. But beware of early closure penalties and shutting down accounts with better interest rates than are available now!

For next tax year, think about who should own what in terms of investments and savings. The savings and dividend allowances mean it is not simply a question of loading as much as possible on the lower rate taxpayer of a couple. In theory, you will each be able to receive an income of up to £20,570 tax free in 2021/22, but only if you have the right mix of earnings, savings income and dividends.

CAPITAL GAINS TAX (CGT)
Capital gains tax was a tax which attracted the Chancellor’s attention last year. He asked the Office of Tax Simplification (OTS) to review the operation of the tax. The OTS’s first report was published in November, but the Chancellor made no mention of it in his Budget, deciding only to freeze the annual exempt amount at £12,300 for the next five tax years

Gains are currently taxed as the top slice of income, but the rates are lower than those that apply to income not covered by allowances. Gains are generally taxable at 10% to the extent they fall in the basic rate band (£37,500 in 2020/21 and £37,700 in 2021/22) and 20% if they fall into the higher or additional rate bands. An additional 8% applies to gains on residential property and carried interest. For 2021/22 through to 2025/26, the capital gains tax annual exempt amount will be, as it is now, £12,300.

The current tax rates and annual exemption mean that if you can arrange for your investment returns to be delivered in the form of capital gains rather than income, you will often pay no tax on your profits. While investment decisions should never be made on tax considerations alone, once the £2,000 level of the dividend allowance is exhausted, favouring capital gains over income when setting your investment goals can be a sensible approach.

INDIVIDUAL SAVINGS ACCOUNTS (ISAs)
The annual ISA investment limit for 2021/22 will remain at £20,000. There will be no change in the £4,000 limit for the Lifetime ISA (LISA), which was launched in April 2017 to encourage savings by the under-40s. The limit for the Junior ISA (JISA) was also unaltered, but it was more than doubled to £9,000 last year, as was the Child Trust Fund (CTF) limit.

ISAs have long been one of the simplest ways to save tax, with nothing to report or claim on your tax return. The arrival of the LISA complicated matters, as it sits somewhere between the traditional ISA and a pension plan. If you are thinking of a LISA instead of either of these, you would be well advised to seek advice before taking any action.

Over time substantial sums can build up in ISAs: if you had maximised your ISA investment since they first became available in April 1999, you would by now have placed over £240,000 largely out of reach of UK taxes.

We are fast approaching the end of the tax year, so if you would like to use your ISA allowance in full or partially, please let me know as a matter of urgency.

PENSION CHANGES
The amount that can be contributed each year, the annual allowance, while still receiving valuable tax relief, is based on your earnings for the year and is capped at £40,000, unless the tapered annual allowance referred to below applies. You may also be able to carry forward past years allowances. Employer contributions can also be made from your company, if applicable, which can be treated as an allowable business expense, and offset against your company’s corporation tax bill.

The end of the tax year is now only one month away, so if you wish to take advantage of your annual allowance to increase your retirement provision, please get in touch with me urgently.

For 2020/21 there was a £90,000 increase to both of the annual allowance tapering trigger points, taking them to £200,000 (threshold income) and £240,000 (adjusted income). However, there was a sting in the tail for people with very high incomes: the minimum tapered annual allowance dropped from £10,000 to £4,000 (at an adjusted income of £312,000 or more).

  • State pension age (SPA) increases have stopped for the time being at age 66. An increase to 67 is due between April 2026 and March 2028. The rise to 68 is scheduled between April 2037 and March 2039, although the necessary legislation has been deferred and the dates could change due to a slowing rate of life expectancy increases. By 2050 – so if you are under 40 now – you could be facing a SPA of 69.
  • The government has confirmed that from 6 April 2028 the normal minimum age at which you can draw benefits from a private pension will rise from 55 to 57.
  • The lifetime allowance was due to be increased in line with inflation, but instead has been frozen at its current £1,073,100 until 6 April 2026. By coincidence, that date will mark the 20th anniversary of the lifetime allowance introduction – at a level of £1,500,000.

PAY LATER, NOT NOW?
For higher and additional rate taxpayers, there can be a case for considering the options for tax deferral, once the decision on which sector to invest in has been made. The potential advantages and disadvantages of tax deferral include:

  • What would be going to the Treasury instead remains invested, enhancing potential returns.
  • There is the possibility that tax rates will be lower when the investment is realised. The opposite risk is that the 50% top tax rate could reappear following a change of government, although that is now probably over three years away. However, your marginal tax rate could rise anyway because of the impact of tax bands and allowances frozen until 2026.
  • Some tax liability might disappear completely. Under current rules there is generally no capital gains tax on death, although several voices, including the OTS, have suggested this relief should be withdrawn.
  • The investor may change their country of residence, giving rise to a lower tax rate or possible tax savings during the period of transition between the old and new homes.

There is a variety of tax-deferral options available but, as ever, advice is needed to help navigate away from any potential pitfalls.

NIL RATE BAND
The nil rate band reached its current level of £325,000 in April 2009. From 6 April 2021 the 12-year freeze had been due to come to an end. However, there was no thaw and the nil rate band will now stay at £325,000 until April 2026. Had the nil rate band been increased in line with CPI inflation, it would be about £415,000 – £90,000 higher – in 2021/22.

To date a dozen years of frozen nil rate bands have dragged more estates into the IHT net and more will be added over the next five years. If your estate is are already potentially liable to IHT, the freeze could mean it will suffer more tax in the future as inflation takes it toll. Since April 2009, average UK house prices are up by about 54% , according to Nationwide, and UK share prices have risen by 80% (March 2009 marked their low point in the wake of the financial crisis).

REDUCED NIL RATE BAND
The residence nil rate band (RNRB) came into effect on 6 April 2017 with an initial figure of £100,000. For 2021/22 through to 2025/26 inclusive, the RNRB will remain at £175,000. The threshold above which the RNRB is subject to a 50% taper reduction will also be frozen for five years at £2,000,000, meaning it will be lost altogether for estates valued at £2,350,000 or more (£2,700,000 on second death for couples where the RNRB is unused on first death). While the RNRB does help to ease the burden of IHT for many estates, it is by no means a panacea: after a pandemic-induced dip, in the long term the government’s IHT tax take is expected to keep rising according to the OBR projections.

IHT YEARLY EXEMPTIONS
The continued freeze of the nil rate band makes the yearly IHT exemptions all the more important:

  • The £3,000 annual exemption. Any unused part of this exemption can be carried forward one tax year, but it must then be used after the £3,000 exemption for that year. So, for example, if you made a gift of £1,000 covered by the annual exemption in 2019/20, you can make gifts totalling £5,000 covered by the annual exemption in 2020/21 by 5 April 2021.
  • The £250 small gifts exemption. You can make as many outright gifts of up to £250 per individual per tax year as you wish free of IHT, provided that the recipient does not also receive any part of your £3,000 annual exempt amount.
  • The normal expenditure exemption. Any gift that you make is exempt from IHT if:

– it forms part of your normal expenditure; and
– taking one year with another it is made out of income; and
– it leaves you with sufficient income to maintain your usual standard of living.

FUTURE CHANGES?
In July 2019, the Office of Tax Simplification (OTS) made a range of proposals to simplify some of the complexities of IHT. It had been expected (and rumoured) that some of these would be taken up in the 2021 Budget, but instead the Chancellor made no mention of the tax. His silence on this occasion may be for the same Covid-19 focus as last year. However, IHT reform may still be on the agenda, perhaps in the Autumn Budget. With calls for wealth tax growing, restructuring IHT is one way to address the same issue without creating a new tax regime.

As is often the case with ‘simplification’, the OTS proposals would have created winners as well as losers. Given that there has now been what looks like a delay, if IHT is a concern to you, then it would be wise to seek advice on which category you might fall into.

Finally, please find below a link to a short YouTube video highlighting the changes by our partner accountancy firm, McPhersons:

McPhersons Budget 2021

If you wish for your financial adviser to assist in any aspect of your financial planning or to discuss the tax efficiency of your investments and assets please do not hesitate to get in touch.

To contact us by telephone, please call:

Ashford office: 01233 646 666 

Bognor Regis office: 01243 964 765

Chobham office: 01276 859 000

Frimley office: 01276 671 550

Hadleigh office: 01702 551 500

Hastings office: 01424 457 080 

Kind regards,
Mark Eaton
Director

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Market update Wednesday 18 November 2020

Please find below a link to a video from Tatton Investment’s Chief Investment Officer, covering some topical and very relevant matters to emerge this week.

https://www.tattoninvestments.com/tatton-media/market-update

As always, if you wish to discuss any aspect of your portfolio with your adviser, please do not hesitate to get in touch.

To contact us by telephone, please call:

Ashford office: 01233 646 666 

Hastings office: 01424 457 080 

Kind regards,
Mark Eaton
Director

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Market update Tuesday 3 November 2020

We hope this finds you well. Since the announcement on Saturday, we have been working to make arrangements to ensure the company remains fully open and accessible to you during the new lockdown using our contingency plans. You can continue to get in contact with us in any of the usual ways you would, with the exception of a visit to one of our offices for now – however, we can virtually connect with you to carry out face to face conversations, just as we did during the first national lockdown. We would like to reassure you that we are still here, monitoring your investments and ready to work with you to achieve your goals.

In market news, equities saw a rebound on Monday, as investors sought out bargains following last week’s falls, which had been the weakest weekly performance for global equities since March. Technology stocks rose but lagged the broader market gains. However, despite notching up daily gains on Monday of between 1 to 2% across global indices, this has only partly recouped the circa 5% falls from last week.

US election campaigning draws to a close
The long wait is over. US election day is finally here, but anyone hoping for an early result will be holding their breath. In the final days of the campaign, President Trump has used stark terms to threaten legal action to stop the counting of postal ballots arriving after election day on 3 November, a process that is allowed with earlier post-marks in some US states. Speaking about Pennsylvania, Trump’s claim that “we’re going in with our lawyers” as soon as the polls close later today will do little to sooth investors’ nerves of an orderly political process and transfer of power should it come to that. Meanwhile an update overnight from the US Elections Project has a tally of 99.6m Americans having now already voted before today’s 3 November voting, equal to 72.3% of the total votes counted in the US 2016 election.

What to watch on US election night, but caution on hoping for an early result
There are as many as a dozen or so ‘swing states’ to watch in the US election, which are states that historically have been closely divided politically. These include Florida (which has 29 electoral college votes), Pennsylvania (20), Ohio (18), Georgia (16), Michigan (16), North Carolina (15), Arizona (11), and Wisconsin (10). Some US states, such as Pennsylvania and Wisconsin, cannot start processing and counting early votes until election day, so final results here are less likely on the night. Instead, a lot of focus will be on Florida, a so-called ‘bellwether state’, which has a well-established process for counting early votes. Since 1996, every presidential candidate who has succeeded in Florida has gone on to win the White House. Also worth keeping in mind is caution on reading an early result, as both Florida and North Carolina announce their postal votes at the outset but vote totals can then be skewed as on-the-day ballots are counted. Safe to say, it could be a long night and week ahead.

With economically sensitive stocks seeing some support on Monday, a popular narrative is that a US election Democrat ‘blue wave’ would unleash a wave of infrastructure and broader government spending. So the thinking goes, this would support reflation hopes and drive interest into the more unloved parts of the market, including value and cyclical sectors. However, pushing back against this view, the market’s medium-term inflation expectations remain stubbornly muted. The US Federal Reserve tracks 5y5y forward inflation expectations, which is a measure of expected inflation on average over the five-year period that begins five years from today. Currently this rate is pointing to a medium-term inflation rate of just 1.82% – that’s below the Fed’s 2% target, and also below where it was at the start of 2020. Despite the unprecedented policy support so far this year, the accommodation from governments and central banks has not boosted net inflation expectations, but instead offered more of an inflation ‘bridge’ over deflationary risks. Should Biden take the White House this week, a large fiscal stimulus would likely follow but some of this might simply find itself netted off against a government more willing to curtail economic activity as the Democrats have promised to ‘follow the science’ and make dealing with the pandemic a policy priority.

The link below will take you to the latest short video, released last night, from Lothar Mentel, Tatton’s CEO and Chief Investment Officer, in which he discusses the US election, the response to the pandemic and Brexit.

https://www.tattoninvestments.com/tatton-media/market-update

As always, if you wish to discuss any aspect of your portfolio with your adviser, please do not hesitate to get in touch.

To contact us by telephone, please call:

Ashford office: 01233 646 666 

Hastings office: 01424 457 080 

Kind regards,
Mark Eaton
Director

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Market update Monday 19 October 2020

At the link below you can find some interesting thoughts from Lothar Mentel, Chief Investment Officer at Tatton Investment Management.

https://www.tattoninvestments.com/tatton-media/

He is being interviewed by Elizabeth Pfeuti, financial journalist, and discusses both the short and longer term outlooks for markets, recovery opportunities, the US election and chances for a Brexit deal. Each is just a short clip containing some very informative material.

As always, please do get in touch with your financial adviser if you wish to discuss any aspect of your financial plan or any of the content within the videos.

To contact us by telephone, please call:

Ashford office: 01233 646 666 

Hastings office: 01424 457 080 

Kind regards,
Mark Eaton
Director

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Market update Tuesday 6 October 2020

Further to my update last week covering the same topic, please click the link below (or paste it into your browser) to view a short video of Lothar Mentel’s current market thoughts.

Donald Trump’s handling of COVID-19 is making it increasingly likely that he will lose power in November’s US presidential election to his contender Joe Biden from the Democrats. Yet stock markets are proving surprisingly sanguine about the prospect of rising government expenditures and taxes. This update from Tatton’s Investment Team discusses why this potential turning of tables has so far not led to a turning of markets.

https://www.tattoninvestments.com/tatton-media/market-update

As always, please do not hesitate to contact me if you have any concerns.

To contact us by telephone, please call:

Ashford office: 01233 646 666 

Hastings office: 01424 457 080 

Kind regards,
Mark Eaton
Director

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Market update Friday 2 October 2020

We woke up this morning to the news that the President of the USA himself has tested positive for COVID-19. With US markets forecast to open lower today, and much activity going on across the pond the article below asks: What might the US presidential race mean for markets?

Making sense of markets relies foremost on growth and monetary policy – and investors will be watching closely as US voters go to the polls this November. Below we discuss what the possible outcomes of the US election might mean for investors and explain why diversification remains as important as ever.

KEY POINTS

  • The US election is one of many important uncertainties facing global markets over the coming months.
  • The most pressing risk for investors is the prospect of no party gaining overall control. We believe this is potentially the most concerning outcome for markets, creating potential for legislative gridlock.
  • The US election result poses a wide range of potential outcomes for markets. It is therefore important to have an all-weather portfolio which is diversified enough to navigate the uncertainty in the run-up to November and beyond.

ECONOMIC ACTIVITY IS PICKING UP
In terms of economic growth, the worst-case coronavirus scenarios we all contemplated in March have not come to pass – outside the most vulnerable emerging markets, many of which remain in dire straits.

In fact, most economies in the West and Asia are managing to get to within 5% of ‘normal’ in terms of economic activity. Of course, this still equates to a significant depression by any normal standards. However, note the recovery in leaders such as car sales and housing, and the surge in household savings permitted by income support policies. We could stand on the precipice of a genuine, fiscally-driven, boom (‘austerity’ is so 2010). ‘All we need’ is a vaccine, rolled out widely, before too much more economic damage is done. The first half of next year looks like a plausible timeline for this.

‘FLEXIBLE AVERAGE INFLATION TARGETING’
On monetary policy, markets seem to expect incredibly low interest rates, indeed deeply negative real (inflation-adjusted) interest rates, for at least a decade. They may well be justified in doing so.

First, the US central bank (‘the Fed’) recently announced a new framework dubbed ‘Flexible Average Inflation Targeting’. Simply put, compared to the past, for any given level of inflation they will keep interest rates lower than they previously would have. They will certainly not raise rates pre-emptively to cool an economy that looks to be booming. Second, the glut of government-backed borrowing that has been required to keep current and future growth supported during Covid-19 makes it harder to raise interest rates later. The increased burden would slow the economy down too much for policymakers to accept. Finally, no central bank wants to emerge from this crisis the way the European Central Bank did following the Global Financial Crisis – reacting to a temporary pick-up in inflation with even a slight rise in interest rates, before being forced to backtrack and having egg on their collective faces for years.

This cocktail of higher nominal growth and significantly lower US interest rates – the cost of borrowing for highly-rated companies has fallen by nearly 2% – could, in theory, have dramatic asset market implications, providing that it comes to pass.

THE US ELECTIONS
This is why November’s election will be a focus for markets – and investors. While some are focused on the likelihood of incumbent President Donald Trump winning again, some polling data is fuelling increased speculation of a Democratic ‘clean sweep’, where the Democrats could win both the Presidency (under Joe Biden) and control over the Senate. Whilst it’s unwise to rely on polls, and there is still a way to go before the election in November, this type of clean sweep would potentially leave the Democratic Party free to engage in a large fiscal stimulus, likely with a ‘green tinge’ based on some of the messages around the campaign. Such policies could lead to higher growth, inflation, and government debt, and possibly lead the Federal Reserve to raise interest rates. Some commentators speculate that the Democrats could pursue higher taxes and regulations on US companies and multinationals, in a reverse of the Trump administration’s S&P 500-supportive measures. Of course, the details of any potential policy measures – in the event of a Democratic or Republican win – will not become clear until after the election, but investors will be watching closely as the candidates spell out their priorities over the coming weeks.

While it’s interesting to weigh up the potential policies of respective administrations after November, perhaps the most pressing risk for investors is the prospect of ‘no clean outcome’, with no party gaining overall control. We believe this is potentially the most concerning outcome for markets, creating potential for legislative gridlock. Worse, while corporate taxes would not rise, it could nonetheless likely lead to a large ‘fiscal cliff’ in a year or so. The expiry of temporary income support measures, with limited offset, would lead to the exact opposite of a fiscal boom. Given that non-temporary unemployment continues to rise sharply in the US (despite strong economic growth data, it has not all been good news since March), the US economy could struggle to stomach this outcome.

After a decade of secular appreciation, the US Dollar remains very expensive but is showing signs of weakness. If it enters a secular bear market, as happens every other decade or so, it could supercharge a rotation out of highly-valued US assets. Emerging Asia remains a structural underweight in many investors’ portfolios relative to its economic importance. Crucially, it captures many of the growth and technological trends that have buoyed American asset markets, but without the premium valuations, and without the exposure to the uncertainty of the US election.

SUMMARY
Ultimately, the US election is one of many important uncertainties facing global markets over the coming months. Investors have no edge in predicting the outcome, and many have learned tough lessons from recent elections and referenda that speculating based on polling data and news headlines is unwise. Instead, it’s important to weigh up the potential range of outcomes, and position a portfolio accordingly – aiming to balance risks for the longer term, diversifying across asset classes, global regions and sectors to navigate an uncertain environment in the run-up to the election and further into 2021.

Source: Fidelity International 29/09/2020

Recommending well diversified portfolios is our core philosophy at Absolute, and as such, your investment strategy holds a range of asset classes and regional exposures. This is designed to provide you with not only capital growth, but protection during volatile conditions.

As always, if you would like to discuss any aspect of your investment strategy with me, please do not hesitate to get in touch.

To contact us by telephone, please call:

Ashford office: 01233 646 666 

Hastings office: 01424 457 080 

Kind regards,
Mark Eaton
Director

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Market update Wednesday 23 September 2020

Given the recent announcements from the government, and market volatility, we thought you may be interested to hear the views of one of the investment managers we endorse, Lothar Mentel.

Please copy the link into your browser to view a short clip with some pertinent information:

https://www.tattoninvestments.com/tatton-media/market-update

As always, please do get in touch if you wish to discuss any aspect of your financial plan, or any of the above news.

To contact us by telephone, please call:

Ashford office: 01233 646 666 

Hastings office: 01424 457 080 

Kind regards,
Mark Eaton
Director

AFM No Comments

Market update Friday 4 September 2020

At the start of the pandemic, I began providing you with regular market news and updates which may have been of interest to you and I will be continuing to do this monthly, and more frequently at times. I will cover a range of subjects which include topical matters, market insights and news about Absolute. If you wish to discuss any aspect of the information provided, or if you would like an update on your own investment portfolio, then I would encourage you to get in touch with your financial adviser directly.

This week markets have seen some volatility, yesterday with US stocks suffering their biggest one-day fall for three months, although that still only took them back to where they were trading at the beginning of last week. Since the US markets opened today, the majority have bounced as data showed the US unemployment rate dropped more than expected in August, and European markets followed suit. European shares have now overcome their early losses, with bank stocks leading gains on merger talks between two major Spanish lenders, while markets anticipate the European Central Bank maintaining easy monetary policy at a meeting next week. Similarly, here in the UK, the FTSE 100 reversed its early losses as gains in mining and financial stocks gained.

As always, we would encourage you not to be concerned by short term market movements, and instead focus upon the longer term. The market falls we experienced in the early part of this year were undoubtedly unnerving. However, an investor who pulled out of their US shares due to the economic toll of the coronavirus pandemic and increasing unemployment would have paid a price; the S&P 500 is near record highs and up 7% year to date, including an 11.5% gain since the start of July.

Tax matters The IFS and Government ministers have cautioned against tax increases now that would blow the recovery off course and put the economy at risk. Near term increases to income tax, national insurance (NICs) and VAT therefore would seem to be unlikely. Nothing is impossible of course, but changes to these taxes seem to be unlikely. Despite the sense of all this the Chancellor will also have in mind (well, one would expect he would) his commitment to sustainable public finances. And, remember, he did hint at a rise in NICs for the self-employed when he introduced the Self-Employed Income Support Scheme (SEISS): “…I must be honest and point out that in devising this scheme – in response to many calls for support – it is now much harder to justify the inconsistent contributions between people of different employment statuses”.

Much of the latest conjecture has been about capital taxes and corporation tax though.

So, what has been talked about and what are the chances of changes being made ‘any time soon’?

Corporation tax first. One of the rumours is that the tax could be pushed up from 19% to 24%. Of course, it could happen. The last few months have taught us that anything can indeed happen. But will it, given the need for the UK to be seen as a ‘destination’ for businesses? This is especially so given the expected, at the very least short to medium term, negative connotations of Brexit. Of course, this will all depend on the ‘deal’ done between the EU and the UK, but regardless of your sentiment in relation to said Brexit, it’s hard to see how terms of trade with the EU are going to improve.

There has also been some talk over the 2% digital services tax (DST) introduced from April this year. Will it be increased – the projected yield is not massive – or will it be ditched? Both possibilities have been mentioned in the press. However, the DST was always intended by Government to ultimately be a temporary tax, to be replaced by a comprehensive global solution.

Capital taxes next. Well, the Office of Tax Simplification (OTS) are right in the middle of this. They have made their recommendations in relation to inheritance tax (IHT) and one of those was to remove re-basing for capital gains tax (CGT) if the asset passing on death is also free of IHT. There are also the more radical APPGIIF (All Party Parliamentary Group for Intergenerational and Inheritance Fairness) proposals. Some IHT change at some point is likely, but as a tax raiser (if that’s the supposed prime driver for change) IHT increases are unlikely to ‘shoot the lights out’. IHT raises around £5bn a year so even if the yield were doubled it would only reach the level that CGT currently generates – at the top end of estimates.

So, how about CGT? Well the OTS are currently reviewing it and the Chancellor only recently asked them to. Most of the recent talk in the press was about charging capital gains to income tax. This could be a strong runner – perhaps with even little strong political resistance from the right wing of the Conservative Party. We had 20 years of charging capital gains to income tax from 1988, though we also had indexation (inflationary) relief. So, a return to that might not be impossible. That would pretty much double the rate of CGT for most people. But, here’s the thing, over 50% of the total CGT paid is paid by around 5,000 people – not a huge group to annoy by such an increase!

If it’s believed that this is a strong likelihood for a Budget change then what should you do, if anything?

Any re-basing (focussed on ‘starting afresh’ under a new higher tax regime) that can be done without triggering a CGT liability, i.e. within the annual exemption, should certainly be considered – please discuss this with me first as there are certain conditions.

But triggering a liability (even at today’s lower rates) to potentially save tax in the future would take a little more thought – especially since nothing is certain and no one will know for sure until any change is announced. A ‘cost/benefit’ and ‘risk/return’ analysis will definitely be necessary.

CGT rates were aligned to income tax rates in the past, for almost 20 years. It is not quite as straightforward as it seems as there was back in the day indexation relief and taper relief, which could reduce the overall level of tax but alignment to income tax rates in some way is not beyond the realm of possibility.

As always, please do get in touch if you wish to discuss any aspect of your financial plan, or any of the above news.

To contact us by telephone, please call:

Ashford office: 01233 646 666 

Hastings office: 01424 457 080 

Kind regards,
Mark Eaton
Director

AFM No Comments

Market update – Monday 13 July 2020

The full reopening of our offices for staff and client meetings alike has been a success. We are able to hold face-to-face meetings with you as our offices have all been reorganised, with new features added to allow socially distant meetings to review your financial affairs. Please do get in touch if you have anything you wish to discuss with your financial adviser, otherwise we shall be in contact with you regarding your annual review in due course. We have hand sanitiser on entry to the premises and the offices are regularly and thoroughly deep cleaned.

In case you did not see the information I provided back in May related to investing for positive change, I have reiterated some of the salient points below. There is much news coming out continually about a ‘green’ recovery and response from the pandemic and we believe that this provides an excellent investment opportunity. Market research carried out recently has again shown that funds investing in companies seeking to improve their Environmental Impact and Corporate Governance who are also acting in socially responsible (ESG) ways have outperformed their sister non-ESG funds. This has been shown to be the case for the year to date, and even more so over the long term. Companies using more ethical practices have been shown time and time again, to be less prone to external shocks.  Examples of such shocks we have seen very recently include oil spills and poor treatment of staff; society is less prepared to tolerate bad corporate behaviour and damage to the environment. These companies are also solving society’s challenges and we believe these companies of the future will prosper over the long term, due to rising demand for their products and services, motivated employees and loyal customers; they are helping to build a more stable, resilient and prosperous economy.

Finally, please copy and paste the link below to hear Lothar Mentel’s round up of the first half of 2020. As you will be aware from my previous emails, Lothar is the Chief Investment Officer at Tatton Investment Management, whose investment strategies we fully endorse and regularly use. Tatton also offers access to ethical investment strategies, should this be of interest to you.

https://www.tattoninvestments.com/tatton-media/

As always, please do get in touch if you wish to discuss any aspect of your financial plan, or any of the above news.

To contact us by telephone, please call:

Ashford office: 01233 646 666 

Hastings office: 01424 457 080 

Kind regards,
Mark Eaton
Director

AFM No Comments

Market update – Friday 19 June 2020

As we receive news that the United Kingdom’s chief medical officers have agreed that the COVID-19 threat level should be lowered one notch to ‘epidemic is in general circulation’ from ‘transmission is high or rising exponentially’, I have provided a round-up below of financial news for you.

London shares rose on Friday as a sharp rebound in retail sales in May bolstered hopes of a swift economic recovery from the pandemic-driven slump, while energy shares tracked a gain as oil prices rose on a pledge by OPEC and allies to meet their supply cut commitments.

The FTSE 100 was up 0.5% and on course to rise for the fourth week in five as optimism continued around the revival in business activity.

Data today showed retail sales volumes surged by a record 12% in May amid an easing in the nationwide shutdown imposed to contain the spread of the novel coronavirus. This confirmed that British shoppers bought much more than expected in May as the country gradually relaxed its coronavirus lockdown and online retailers boomed, adding to signs that the economy is moving away from its historic crash in March and April.

But official data also showed public borrowing hit a record high as the government opened the spending taps and public debt passed 100% of economic output.

The Bank of England on Thursday expanded its bond-buying plan, as expected, but slowed the pace of the programme, saying it saw some signs of an economic recovery. A separate survey on Friday showed consumer sentiment recorded its biggest improvement in nearly four years in June. The Bank of England (BoE) Governor Andrew Bailey said that the economy appeared to be shrinking a bit less severely in the first half of 2020 than the BoE had feared. But there was no guarantee of a strong rebound and unemployment would rise.

European shares rose with a focus on EU recovery fund talks which are high on the agenda at the European Council meeting today.

Wall Street was also set to open higher on Friday with the tech-heavy Nasdaq inching closer to a fresh record high on hopes of a bounce back in post-pandemic economic activity, as investors shrugged off rising new COVID-19 cases in several U.S. states.

As always, please do get in touch if you wish to discuss any aspect of your financial plan, or any of the above news.

To contact us by telephone, please call:

Ashford office: 01233 646 666 

Hastings office: 01424 457 080 

Kind regards,
Mark Eaton
Director