Efficient Wealth Update – August 2020

Public-sector pay rise

An above-inflation pay rise of up to 3.1% is to be given to 900,000 public- sector workers, including doctors and teachers. Whilst this is good news in itself, many claim it is not a sufficient reward for what front-line workers have had to endure during this pandemic, nor is it enough to make up for the lack of adequate pay rises in the past.

This pay rise does not apply to nurses or junior doctors as they have negotiated their own separate deals in the past couple of years. It will also not be applied to social care workers as the government has not announced increases to local authority funding.

Underlying what looks to be a somewhat generous offering from the government is the fact that the level of pay for frontline workers is still below the level it was in 2010, after inflation is taken into account. Government departments will also not get any extra funding for these pay rises and so the cost will need to be absorbed by each entity. This will likely result in trade-offs and tough decisions for those departments whose income streams have been the most affected by Covid.

The Chancellor has been forthright about the need to exercise restraint in regard to future public-sector pay awards and has confirmed that tougher decisions will need to be made about the allocation of public funds in the aftermath of the Covid pandemic.

Opinions are divided; whilst nearly everyone is pleased to see an above- inflation pay rise for those workers who saw us through such tough times, there are many who will see this pay rise announcement as an appeasement of public-sector workers. Whichever side you are on, balancing the books in the years to come is going to be one heck of a job, and one I am certainly glad I won't be in charge of!

CGT to be reviewed ... again?

Last month we reminded you about some changes to Capital Gains Tax (CGT) regarding property that were announced back in April.

A new review has now been launched to ensure the system remains fit for purpose in its entirety. It will focus on CGT for individuals and smaller businesses and will cover allowances, exemptions, reliefs, losses, as well as admin and technical issues. There will also be a review of how gains are taxed in comparison with other sources of income - a real belt-and-braces review by the sounds of things!

The cynics amongst us will be smelling a tax rat, as the review aligns perfectly with the need to generate more income for the Chancellor to use in the aftermath of Covid. Meanwhile, the Treasury is adamant that it is standard practice to keep taxes under constant review.

I suppose the money to pay back the big debt the government has been left with (borrowing is set to hit its highest level in peace time!) has to come from somewhere and CGT is likely the main focus, as presently the rate of tax is much lower on gains than on many other sources of income. A potential increase in CGT may be a starting point for further tax reviews and so, in the longer term, may not be the only increase under consideration.

The Treasury has asked for all information to be with them by October 2020, so although we may hear mention of it in the Autumn Budget we may not see any changes. But keep an eye out for what are likely to be big changes in the Spring Budget 2021!

Are LPAs going digital?

 I am sure you all know what a Lasting Power of Attorney (LPA) is so I won't bore you by going over the details again. If you don't know what one is then get in touch with us because it's more than likely you need to get one!

The Office of the Public Guardian (OPG) who registers LPAs has unveiled a new digital service for existing attorneys to enable them to prove their status and their right to act on the donor's behalf to institutions such as banks and healthcare providers. Once an LPA is registered with the OPG, the attorneys and donor will be sent an activation key to allow them to create an online account and add their newly registered LPA. They are then able to generate an access code that can be given to organisations to allow them to view the LPA online and verify the attorney's status. This new system aims to avoid long delays whilst still protecting the donor against any misuse of the LPA.

The OPG will offer the service for any new LPAs registered from 17^th July 2020 but there are plans to backdate this to those registered in 2019. Whilst there are no current plans to backdate it earlier than 2019, if all goes well it is quite possible this will change in the future.

It all sounds fantastic ... if it works! I am sure there will be challenges along the way, with lots of tweaking and head-scratching lessons to be learned, but fingers crossed it will come to fruition and make the lives of those acting as attorneys that little bit simpler.

Stamp Duty takes a holiday

The Chancellor announced a Stamp Duty holiday for house purchases completed as of 8^th July 2020 or later, ending on 31^st March 2021. It will apply to the first £500,000 of main residence property purchases.

Stamp Duty is one of the biggest costs incurred when buying a new house and so the savings could be huge. On a property of £500,000 the savings could be as much as £15,000! The Chancellor has said that an average Stamp Duty bill will fall by £4,500 and nine out of ten property purchases will pay no stamp duty at all!

This incentive is an attempt to give those who were planning to buy, but who may have been financially hit by Covid, the opportunity to go ahead with purchase of a new property. It is also an effort to boost the property market post-lockdown. If you, your children, friends or other family were thinking of moving soon it is worth considering acting now to take advantage of this time-restricted incentive. The Stamp Duty holiday may even make moving home possible when it was not possible before.

Although the markets have picked up since the end of lockdown and in light of Sunak's announcement, they are still down by about a third on last year - this is not unexpected considering the year so far! Hopefully, the combination of this rather generous incentive and the lengthy reflections people may have had about their living situation during lockdown will be enough to get the property market moving and back to the highs of previous years.

HMRC tax gap reduced ... but is it enough?

What HMRC expect to get in tax is never the same as the money they actually receive, but recently HMRC reduced the 'gap' between the two to a record low of £31 billion! To put this in perspective, this is the same amount as the budget for the Department of Transport and Department for Business, Energy & Industrial Strategy combined in the 2018/2019 tax year.

This very substantial gap arises for several reasons including human error, tax evasion, insolvency and criminal attacks. Human error alone accounts for £3.1 billion of missing tax receipts, with income tax, national insurance contributions and CGT the biggest culprits for tax discrepancies.

Whilst HMRC may see this record low as an improvement, it is still a huge amount of missing revenue that could be recycled back into the public sector. In reality, HMRC are likely to come under increasing pressure to reduce this figure further, considering the effects of Covid on the economy. Whether this is achieved by bringing in tougher regulation, simplifying the rules or modernising their systems to reduce errors, I wouldn't be surprised if we hear more about this soon.

Charlie’s Mini Blog

Last week I attended a conference that should have taken place in Scottsdale, Arizona. Watching it from the comfort of my own home did bring a level convenience, but compared to last years event in Miami Beach, I found I definitely learned less. Partly because of the lack of atmosphere/environment, and partly because you can’t interact with people and discuss the content with them as you can in person.

That said, there were some fantastic speakers. On Thursday morning, James Clear was talking to us about the virtues of creating habits. He said “Excellence is not about huge achievements, but about lots of small gains.” It is about getting 1% better every day, not trying to make massive strides in one go.

Habits are the compound interest of self-improvement. If you have good habits, all you then need is time for amazing things to happen. If they are bad habits, time is your enemy because the problem will grow. If you are struggling to improve something, the problem isn’t you, the problem is your system. It is how you are going about the process.

I couldn’t agree with this advice more. It is certainly the secret for me going from not running or swimming since school, to completing an Ironman. Getting up at 5.30 every day to train was the single biggest factor in achieving this. When I look at Strava to see whether my running has improved from last week or last month, it is easy to get disheartened by not seeing progress - sometimes it even looks like I am getting slower! From 1 year to the next however, the gains can be enormous.

It is the reason I have written 3 books, because I created the habit of writing at certain times of the week. It is like trying to eat an elephant; you eat by taking one bite at a time.

The same applies to your finances. If you have good habits (i.e. you have the right type of portfolio, saving a sensible percentage of what you earn or have the right tax saving strategies in place), the plan will be achieved. You may not make a big stride from one year to the next, and some years it might even feel like you are going backwards, but by having the right habits, continually improving them and having a little patience - all of which is much easier with the guidance of an expert - you can create an amazing future!