The total amount of inheritance tax raised between April and August of this year was £0.3bn higher than in the same period last year, HM Revenue and Customs has revealed.



HMRC noted an increase in inheritance tax receipts, receiving £3.2 billion during Q2 2023, surpassing the £2.9 billion reported the previous year. 

Julia Peake, a tax and estate planning specialist at Canada Life, characterised these figures as indicative of 2023 potentially becoming a “record-breaking year in IHT receipts for HM Treasury.”

Furthermore, HMRC reported that June 2023 marked the highest monthly total on record, with this exceptional month potentially influenced by the recent uptick in interest rates. Suggesting that the recent interest rate hikes might have prompted personal representatives of some estates to expedite their tax payments. Nonetheless, HMRC emphasied that confirmation awaits the availability of complete administrative information.



Political Ramifications

Quilter’s tax and financial planning expert, Rachael Griffin, delved into the political ramifications of HMRC’s findings, emphasizing, “The growing revenue presents a policy conundrum for the government.” She elaborated on the pressing nature of this issue as election season approaches, with more Conservative backbenchers advocating for inheritance tax reform or even its complete abolition as a potential “vote-winning tactic.”

“While such a move may be popular with the public,” Griffin noted, “the government might be hesitant given the steadily increasing revenue it generates from this tax.”

Laura Hayward, a tax partner at Evelyn Partners, further underscored the financial significance of rising inheritance tax receipts for the Treasury, emphasizing that this trend shows no signs of abating.

This surge in inheritance tax receipts contributed to HMRC reporting a significant overall revenue increase for Q2 2023, totalling £331.1 billion over the three-month period—an impressive £19.8 billion surge compared to the same period in 2022.



Additional Receipts

HMRC’s Q2 2023 report highlighted a significant increase in receipts across income tax, capital gains tax, and national insurance contributions, reaching an impressive total of £185.8 billion. This represented a noteworthy £10.6 billion surge compared to the same period in 2022.

Rachael Griffin pointed out, “With the reduction of the additional rate income tax threshold from £150,000 to £125,140, we should anticipate further escalations in the months ahead.”

Moreover, Q2 2023 also saw an upswing in receipts for PAYE income tax and NIC1, climbing from £161.2 billion in 2022 to £170.7 billion.

Furthermore, environmental taxes, encompassing landfill tax, aggregate levy, and climate change levy, aggregated to £1.5 billion between April and August, although this figure was £90 million lower than the corresponding period in the previous year. HMRC attributed this dip in receipts to timing effects, which partially offset the higher figures observed in July.

After a choppy end to last week the focus this week turns to central banks with the US Federal Reserve meeting on Wednesday, the Bank of England on Thursday and the Bank of Japan on Friday.



Last week there was a tight call on what the European Central Bank (ECB) would do, and after a rise but accompanied by comments that would suggest there will now be a pause in the interest rate cycle the outlook for this week’s meeting offers different possibilities as each economy is at different points in their inflationary cycle. This could lead to global central bank divergence and sets up different investment patterns to be monitored for risk and opportunities.

In the US, core inflation has continued its downward trajectory driving expectations that US interest rates have now peaked. Indeed, despite recessionary fears being subdued the market is still pricing in chances of cuts next year, which may be a little premature.

In the UK, inflation concerns remain embedded with factors such as wage growth rising. To put the UK inflation outlook in context UK CPI is at 6.8% whilst the US is 3.7% and Europe is at 5.3%. The UK outlook is further complicated with increasing concerns that the UK could dip into recession. So, the market is pricing in a further hike to 5.5 this week, but whether this is the peak will be a tight call. Whilst, the market expectations is for UK interest rates to stay higher for longer. This expectation is helping keep the UK Government Bond (Gilts) curve inverted, ie you will get a higher yield for Gilts over the next 1 to 2 years than you would for 5 to 10 years. For the UK, given the weaker economic outlook coupled with stubborn inflationary pressures we may experience more pronounced changes in expectations, which is likely to make reinvestment risk more problematic for portfolios.

Whilst in Japan, the dynamics are different again. After 30+ years of deflation Japan is one of the only countries where inflation is a positive rather than a headwind. Wage pressures have been growing in Japan coupled with currency weakness and this has increased expectations that the Negative Interest Rate Policy (NIRP) may change by the end of the year.. No change in rates are expected this week but the rhetoric from the central bank may change.

At the end of last week commenters analysed every word of US Federal Reserve Chair Powell and European Central Bank President Lagarde Jackson Hole speeches to identify any signs on what they would announce at the respective central bank meetings in September.



In essence, they said nothing new and so the outcome for the next meetings remains mixed. Generally, at this moment markets are pricing in no change.

Part of this expectations is due to the sharp deterioration seen last week in economic data particularly the Purchasing Managers Index and this week we have another full-on calendar of data releases. Current market price action is very data dependent so these releases will be closely watched.

Of note, in the US we have consumer data which will identify if the consumer spending continues its robust trajectory. Over the past three months, US consumer spending has risen over 4%ar. We also have the Fed’s preferred measure of inflation PCE. Whilst at the end of the week we have the important July US employment data with a gain of 125,000 expected, although this month’s figures are expected to be distorted by the entertainment industry strike. Whilst in Europe we have inflation data where a moved lower than the 0.5% monthly average is likely to be seen as a positive and reinforce expectations of the ECB remaining on hold for September rate decisions.

UK retail sales fell by -1.2% m/m coming in worse than expected with the consensus focused at -0.6%. Year on Year retail sales growth has declined -3.2% from -1.6% in June also below consensus -2.1%.



This data is not going to help the feeling that the UK economy, despite the slightly better than expected Q2 GDP data last week, is not a laggard in the developed markets universe.

According to external economist Pantheon, rainfall in the UK for July was 78% above its 1970 – 2022 average and has been the main driver to the falls seen in food and non-food retail sales last month. The falls could have been even more severe if Amazon’s Prime Day did not fall in July.

But it’s not all bad news, given the increase in wage growth the expectations are for real disposable income to rise in Q4 especially as energy prices fall back and the increases in food and core good prices slow.

Mortgage refinancing remains a headwind for the UK, and it is unclear whether consumers will look to spend/save or pay of debt at this time but overall, there is some flicker of light for UK retail sales into the end of the year.

When it comes to managing your finances and securing your future, the choices you make regarding saving and investing can significantly impact your financial well-being. Both concepts play distinct roles in your financial journey, and understanding their differences is crucial for making informed decisions. In this article, we will delve into the world of saving and investing, exploring their characteristics, benefits, and how they fit into your overall financial strategy.



The Foundations of Saving: Building a Safety Net

Saving is the cornerstone of financial stability. It involves setting aside a portion of your income for short-term goals and unexpected expenses. The primary purpose of saving is to create a safety net that cushions you during times of financial uncertainty. Here are some key points to consider:

Emergency Fund: An essential aspect of saving is the creation of an emergency fund. This fund provides a financial buffer to cover unforeseen expenses such as medical bills, car repairs, or job loss. Aim to accumulate three to six months’ worth of living expenses in an easily accessible account.

Low Risk, Low Reward: Savings are typically held in accounts like savings accounts, money market accounts, or certificates of deposit (CDs). These accounts offer minimal risk of losing your principal investment but provide modest returns in the form of interest.

Liquidity: Savings are highly liquid, allowing you to access your funds quickly and without penalties. This accessibility is vital during emergencies when you need immediate access to cash.

Short-Term Goals: Saving is ideal for achieving short-term financial goals, such as buying a car, taking a vacation, or making a down payment on a house. By saving diligently, you can avoid accumulating high-interest debt for these expenses.



The Power of Investing: Growing Your Wealth Over Time

Investing takes your financial journey to the next level by enabling your money to work for you and potentially generate higher returns. While investing carries more risk compared to saving, it offers the opportunity for greater long-term growth. Consider the following aspects of investing:

Long-Term Perspective: Investing is designed for long-term goals, such as retirement planning, building wealth, or funding your children’s education. The power of compounding allows your investments to grow exponentially over time.

Risk and Reward: Unlike savings, investments come with varying degrees of risk. Assets like stocks, bonds, real estate, and mutual funds can experience fluctuations in value. However, historically, investments have outpaced inflation and provided higher returns over extended periods.

Diversification: One of the key principles of investing is diversification. Spreading your investments across different asset classes can help mitigate risk. If one investment performs poorly, others may help offset potential losses.

Tax Advantages: Certain investment accounts, such as retirement accounts (e.g., 401(k)s and IRAs), offer tax benefits that can further enhance your returns and provide tax-deferred growth.



Striking the Balance: Integrating Saving and Investing

The key to financial success lies in finding the right balance between saving and investing. Both play complementary roles in your financial strategy:

Emergency Preparedness: Start by building a robust emergency fund through regular saving. This fund ensures you have a safety net in place before committing to more long-term investments.

Goal-Oriented Saving
: Continue saving for short-term goals like home renovations, upcoming vacations, or major purchases. Maintaining a separate savings account for each goal can help you stay organised.

Long-Term Wealth Creation
: As your financial stability grows, consider allocating a portion of your savings to investments. A diversified portfolio can help you pursue higher returns and work toward long-term goals.

Regular Contributions
: Consistency is key in both saving and investing. Set up automated contributions to your savings and investment accounts to ensure a disciplined approach.



Conslusion

In the realm of personal finance, saving and investing are two pillars that contribute to your financial success. Saving provides a safety net for short-term needs and unexpected expenses, while investing has the potential to grow your wealth over the long term. By understanding the distinctions between saving and investing and integrating both into your financial strategy, you can work towards achieving your goals, weathering financial storms, and securing a brighter future for yourself and your loved ones. Remember, financial decisions should be based on your individual circumstances, risk tolerance, and long-term aspirations.

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