The Country’s Christmas Credit Card Bill
The recent spending review announced by the Chancellor in November, detailed some fairly extraordinary figures. The country has run up a tax deficit of £394 billion this year and by the end of the year, it is expected the total debt burden of the country will be £2.2 trillion. That’s quite a credit card bill to run up before Christmas! However, given the very low interest rates the country can borrow with at the moment, it is a thankfully very cheap loan to service. Indeed, our debt repayments are now, as a proportion of GDP, as low they have been since the Second World War.
Therefore, there is no immediate need for the Chancellor to suddenly ramp up tax to start paying it the debt off, but most commentator and economist believe that it’s likely some taxes will rise, and one particular tax that this might come into scrutiny in Capital Gains Tax. This is the tax you pay when you sell an investment for profit at a rate that ranges between 10% to 28%, depending on your tax rate and the asset that you’ve sold. Some believe that the rate might be increased, so that it falls in line with Income Tax – potentially for some more than quadrupling the burden from 10% to 45%. More on this is a separate article on this newsletter.
There are some sensible measures that can be taken to protect against this, especially for any money that you hold in a share or investment portfolio. The first to consider is a ‘Bed and ISA’, which simply moves money to a tax-free wrapper.
The second option is top up your pension, this not only allows you to claim tax relief on your contributions, but the investments also grow free of CGT.
Finally, for those happy to take a little more risk, an Enterprise Investment Scheme (EIS) permits you to defer paying gains on any new investments which are made and are currently exempt from CGT on any profit made.
How to Grow Your Wealth and Save the World
For many there is a fine line between personal-gain and contributing to the world around us. We all have our own needs, wants and hopes, and it’s often not viable to sacrifice our own wellbeing to help others, despite an urge to do so. But what can you really do? Can one person really make a difference, yet still ensure their personal needs are met?
Thankfully, investment houses have taken note of this dichotomy and are providing a solution.
Do you remember a time when the world laughed at electric cars? The imaginings of these futuristic ‘robots’ felt a little like you were peering into the obscure and incongruous mind of a sci-fi writer; what would be next? Flying microwaves?
But jump to the present day and electric cars are very much a reality; so much so that I’ve got two charging on my driveway! Electric cars are just one way people are saving money (personal gain) and helping others (benefitting the wider world).
We are starting to pay heed to the warnings over global warming and are now fervently fighting to save our planet. Being ‘green’ and socially responsible is more than a fad; it’s becoming a way of life that is crucial to the future of our planet. And, most importantly, people are genuinely passionate about it. It’s not that we’ve suddenly learned compassion, it’s that we now have more opportunities to play an individual role in the battle to save our surroundings.
Over the last 3 years, an investment trend known as ‘Ethical Investing’, or ESG (Environmental, Social and Governance), has provided one such opportunity for people to grow their own personal wealth whilst sustainably investing and acting with social responsibility. Ethical Investment incorporates environmental and social factors when selecting funds, but also aims to provide a competitive financial return.
Whilst it would not be prudent to try and compare the returns from the ‘old stock’, such as tobacco, alcohol and arms, with the new ‘green kids on the block’, many experts are suggesting that Ethical Investing is on the brink of something big. The Financial Times stated that “Investors are finding that if they are good to the planet and to people, they also end up, on average, benefiting themselves. There is mounting evidence that funds which observe environmental, social and governance (ESG) standards in their strategies tend to outperform those that don’t by a significant margin.” 
It is important to note here that Ethical Investing can increase your investment risk, and can potentially reduce the investment returns. Why is that? Because by limiting your investments to only ethically focused companies, you limit the pool of investments that can be selected from. Particularly when the Investment Manager is selecting funds, there are far less options to choose from.
That said, since the UN Principles for Responsible Investment were introduced in 2006, we have started to see the likes of the Vanguard Group and Fidelity Investments increasingly offering Ethical Investing; a trend which doesn’t show signs of slowing. Guido Fürer, the chief investment officer for Swiss Re, has also said that “It is more than doing good — it makes economic sense,”
It is not our job to influence you as to which way you want to invest, but to give you the options so that you can make the right decision for you. So I wanted to let you know that your Discretionary Investment Managers, PortfolioMetrix, have added a selection of Ethical Portfolios as part of their offering. You can maintain the same risk level as you currently have with your portfolios, the only difference being that the underlying holdings will then meet the criteria for and ethical portfolio.
This isn’t an all or nothing choice either. I would not necessarily recommend you move your entire portfolio over to the ethical portfolios, however if this is an area that is important to you, you may wish to change the strategy on one of your accounts (e.g. your ISA) so that some of your money is being pushed towards more ethically minded operations.
If you would like to know more about how you can elect to invest in the portfolios that are more in line with your social and environmental views, we would be delighted to discuss your options with you.
Please get in touch by calling 01572 898060 or emailing [email protected]
 Financial Times- 3rd September 2017
 Financial Times- 3rd September 2017
What Legacy Will You Leave?
Why do we want to build wealth? Is it so we can buy plush homes, drive fast, sleek cars or sun ourselves in exotic climes? Or is actually for a far more personal reason: So that we can give our loved ones a comfortable, secure and enriched life?
For some people, filling our lives with luxury is a key motivation to make money; however, most of us also want to help those who we love by leaving behind a legacy that will give them the best start in lives, or enable them to continue to live out their lives with confidence and certainty.
But is just making money enough to guarantee this?
Inheritance Tax is currently sat at 40%, meaning that, if your estate exceeds the threshold (currently £325,000 for a single person and £650,000 for a married couple) you could end up giving away nearly half of your wealth to the Government. Yes, the Tory government increased the limits by introducing the Residential Nil Rate Band, but it certainly isn’t the £1m allowance they promised, and if you don’t play your cards right, you may not get any of it at all. Your hard-earned wealth could be quickly eroded by tax and may end up lining the Treasury’s coffers, rather than the pockets of your loved ones.
I’m sure that you don’t want the Government to become the single largest beneficiary of your hard-earned money! That’s why protecting your wealth in later life is becoming more and more poignant.
Historically, Inheritance Tax has been the preserve of the super-wealthy, but this is changing. The ever-evolving world of tax, especially Inheritance Tax, is not just targeting the very rich; in fact, it is beginning to hit the average family too. HM Revenue and Customs collected £5.2 billion in IHT in 2019, so what can you do to prevent them becoming the largest beneficiary of your estate?
Careful planning around your finances is one of the key steps to take now in order to protect your wealth for the benefit of your loved ones. To use a palatable analogy, this planning is very much like baking a cake- there are multiple layers, which take a great deal of care to construct. Firstly, you need to identify what could damage your creation; in this case, Inheritance Tax could ‘spoil the mix’. Next you need to choose the best ‘ingredients’ that will help you to minimise the amount of tax you pay and ensure that your loved ones will receive the most they can. Only then can you ensure that you are in the best position to financially feed your own future as well as that of your loved ones, so you can have your cake and eat it!
Any planning around tax can be confusing, time-consuming and controversial! In the UK, we all have to pay tax in some form, so it is important that any plans you make are lawful, accurate and fair. Achieving the balance between what you want to do and what you have to do is a little bit of a minefield, so we will be launching a free online webinar to help with this topic in early 2021.
LPAs: Crucial Estate Planning
The Covid-19 pandemic has starkly demonstrated the importance of having Lasting Powers of Attorney (LPAs) in place. Any of us could find ourselves temporarily incapacitated and in need of help so it is important to know that your wishes for your property, finances, health and welfare will be carried out.
Those are benefits for you – but have you also considered the potential benefits for your loved ones?
Not only will they have the peace of mind of knowing they are carrying out your wishes, but an LPA may also prevent them finding themselves in a position where they cannot effectively manage their own lives. For example, if any of your household bills, bank accounts, insurance, etc. are in solely in your name, if you were to become temporarily or permanently incapacitated then your partner wouldn’t be able to access them…not an ideal situation!
Although the benefits of the standard LPA speak for themselves, if you run your own business are you confident that your wishes regarding the running of the business would be carried out if you became unable to deal with them yourself? If not, there are two simple ways that you can ensure this. If your attorneys and wishes are identical to those in your standard Property and Finance LPA, it can simply be specified that the document covers both your business and your personal affairs. However, if there is a distinction between the two, it may be worth setting up a separate Business and Commercial LPA.
If you want to make changes to your existing LPAs, or if you are considering setting up new ones, one of our advisers will be more than happy to help arrange this.
Beware – Online Fraud on the Rise
As we have spent the last month in lockdown, not really knowing if normality will return, many of us have turned to online shopping to make sure there are Christmas presents under the tree this year. Sadly, this has resulted in more opportunities for fraudsters to target those looking to bag some bargains in the run-up to Christmas.
UK Finance has said social media platforms, online marketplaces and auction websites are increasingly being used by criminals to carry out these purchase scams, where a customer pays in advance for goods or services that do not exist and are never received. These payments are taken off the integrated payment platform and are made through a bank transfer instead, which means people are unlikely to be refunded.
It has also warned that purchase scams may involve home improvement and DIY purchases, such as patio heaters and sheds, as fraudsters adapt to more people staying at home.
The Take Five to Stop Fraud campaign is urging people to:
Stop: Taking a moment to stop and think before parting with your money or information could keep you safe
Challenge: Could it be fake? It is OK to reject, refuse or ignore any requests. Only criminals will try to rush or panic you
Protect: Contact your bank immediately if you think you've fallen for a scam and report it to Action Fraud
Charlie’s Mini Blog
Thank goodness that’s over! What a year 2020 has been. Being a business owner is stressful at the best of times, but 2020 certainly takes the biscuit for creating the most insane emotional rollercoaster. With the sharpest stock market crash in modern times, back in March we were fielding calls from concerned clients that their retirement pots would be worth a fraction of their former selves.
Back in March I said a few times that, despite a 35% fall in the markets, it isn’t beyond reason that 2020 ends up being a positive year from a performance point of view. Whilst there is still time for all this to change, it seems remarkable that regardless of how much risk you take in your portfolio, you are set to have grown your wealth through your investments this year.
If ever there was an example of how the market plays games with you, 2020 is up there as a classic. I’ve repeatedly said that the secret to long term growth is withstanding short term losses, and that in times of market crisis you put your tin hat on, and ride out the storm, so well done for listening and for doing exactly that. I realise it is scary, but it really does pay off, so pat yourself on the back.
This year has been a great lesson for us all, so remember it, because at some point it will happen again, and these same feelings will crop up again.
Have a wonderful Christmas, and let’s hope 2021 is a prosperous and slightly more normal year!
If you are going to be setting goals for 2021, it is worth doing so whilst understanding the habits that will lead to the greatest financial and emotional success, so this month’s book recommendation is ‘Millionaire Success Habits’ by Dean Graziosi.
A simple book in many respects, but it contains some brilliant insights into what will make you happy, and financially successful. Habits are our leverage to create incredible results through their compounded effect over time, so if you can build your goals around empowering habits, you stand to create a far better year, or life for that matter!