Archive | March, 2012

This Weeks Market Roundup

17 Mar

What a week we have seen with the markets lapping up positive data from the States on retail sales. Economic data has been mixed, but recent non-farm payroll data seems to suggest we are generally still on track for recovery. Care is needed as the last consumer confidence index had turned more negative. This overall has been really good news but there is fear – when we see a strong bullish faze on what is at best insufficient data to draw an effective conclusion, then this is often a cause for alarm for investors. The caveat being – it may not take too much bad news to jolt investors, the market and sentiment.

Consensus thinking among investors typically is wrong, as human nature is to jump onto the bandwagon long after it’s left. So we jump at the hope of success, forcing the market up short-term but then the fundamentals override – if it is ‘real’ good news the pressure in the market has a good chance to continue up – but otherwise, market pressures have a good chance to plummet and downward pressure is typically quick and heavy.

The worry being, the higher stocks have climbed, the bigger the potential drop in prices. What might be the catalyst for such a change in trend? Often the biggest threats to markets stem from unexpected events. Or, from something we know and has been discounted as a risk factor, such as, rising fuel and food prices, the UK Budget, the Greek Debt Crisis, the Eurozone Crisis, Nuclear risks and Oil in the Middle East, the US Recovery, China’s Economy Soft Landing, inflation in Emerging Markets and product demand, etc.

The management of Greek Debt Crisis has gone as well the ECB could have hoped, although with creating what I believe to be the biggest write-down in history and the re-writing of debt to reduce it’s cost, have we only deferred the problem. I guess much still will depend on what happens next, especially after the Greek elections in late April or earlyish May this year. So is China still able to be our global financial saviour? Figures out of China are also mixed but, at worst, they imply a soft-landing.

Following the recent rally, many equity markets appear fair value in a low growth, relatively low interest rate environment but these valuations are dependent on corporate profitability. For now, I retain a positive outlook for UK, US, China, Asian, some Emerging and certain niche markets – focusing on strong balance sheets, cash reserves and robust business models. This will be reviewed throughout the year, when hopefully there will be greater clarity on global macro issues.

In bond markets, I believe this year will now be driven by corporate earnings. I am now more risk-conscious than previously.

Property has significant positive signs but following the recent rally, care is needed as there are signs of a market pull back as some property indexes look overstretched.

 Happy investing but take care.

Any questions, contact me –

Is Now the Time To Invest?

16 Mar

I have been asked by some, is now the time to invest? My thoughts as an IFA is the undlying markets are vulnerable and so be cautious but not too cautious. I think it is fair to say, that part of what is and has driven markets higher is investors demand for risk assets (i.e. the hunger for profits rather than the fear of losses). Many investors have jumped on to the optimists bandwagon, which has at least in the sort-term, driven markets higher.

 In my opinion, the time to be bullish on stocks and shares was a few months ago. At times like this, my belief is to do the opposite to the market and now is time to be defensive, as who is left to turn bullish and plough money into the market to drive it higher? Well, if the pressure forcing the market higher subsides, what happens next?

To be clear, there are reasons to be more cautious in both the economy and certain areas of the markets. Also, there are reasons for optimism. As a number of the fund managers have said, at some stage time does begin to heal. We are a further year through this credit crisis and some of the more systemic problems in Europe, at least in the short-term, seem to be more under control (well that is the perception anyway). Some have even suggested that there are green shoots appearing in the US. If these sustain, there are grounds for investors to be optimistic for the future.

Playing devils advocate, some equity markets are looking technically over-bought. So, becoming bullish at this point and investing in a higher risk portfolio (weighted towards equities) may not provide the required long-term returns. I would say, money can be made but care is needed and a diverse mix of asset classes would be wise. Remember when one market is rising another market is falling – so combine ad consider risk adjusted returns as higher risk does not guarantee higher returns, it just offers a wider range of possible outcomes.

New Tax Code – What’s Going On

15 Mar

It seems that around 14 million people are set to receive their tax code in the next few weeks. I have received calls from clients and I am currently reviewing the details. Remember, if the tax coding is wrong you will either pay too much or too little tax. This will lead to you having to pay more or that you would have overpaid tax. Make sure that the details are correct, as you are liable and responsible for the tax you pay.

I know this doesn’t sound fair but the system very clearly levies the responsibility on the individual. Hope the following helps to clarify but if in doubt check and where necessary take professional advice.

What is a Tax Code?

Tax codes are used by employers and pension providers to calculate the amount of tax to deduct from your income.

Things that typically lead to mistakes on tax coding is if you have recently changed jobs, got a company car or other work benefits, started drawing your pension, or have a new source of income.

The codes being sent out at the moment are for the tax year 2012/2013. HM Revenue & Customs (HMRC) usually sends a different tax code for each job or pension that you have.

If you have received tax coding letter(s) — open them and if you’re unsure if they are right, call the HMRC Helpline and ask. Try  calling either early in the day or late in the afternoon. My experience is do not try to call especially between say 10.30am and 2.30pm, this is the worst time to call.

Don’t Worry?

Mistakes about income and tax allowances do happen (OK maybe a bit too common), which means you could end up with the wrong code.

Many local tax offices have been closed, so face-to-face advice is often unavailable.

Why Do Mistakes Happen?

A good question that has and is asked, time and time again. The best I have is the system has failings, it is not designed for those with multiple incomes and the system is over-strained. I may also be, being too kind and it’s down to simple incompetence. The bottom line is I don’t know, all I know is it goes wrong and it seems to be regularly.

Tell HMRC of Any Material Changes

If your personal or financial circumstances change, this will have an implication on your taxation status.

For example if:

  • You get married, divorced or separate;
  • you start to receive another source of income;
  •  the amount of untaxed income you receive increases or decreases.

How Do You Check Your Tax Coding?

You need to check if HMRC has correctly calculated your income and employee benefits, and that it has taken into account your personal allowance (i.e.the amount of income you can receive without paying tax).

Your personal allowance (The personal allowance for 2012/2013 is £8,105. This means anyone under 65 can earn £8,105 a year without paying any tax.) depends on your age, but can also be affected by your job benefits and your income. There is a wealth of information on the internet and HMRC’s Website to help.

What If I Work Full-Time?

You might receive a tax code, more commonly if you have started a new job in the last 12 months.

Normally happens if you:-

  • Received a pay increase or decrease;
  • Gone on maternity leave;
  • Taken up new benefits, such as a company car or private medical insurance.
  • Started a new job

From £8,105 (basic personal allowance for 2012/13 is £8,105) to the higher-rate tax threshold you will pay 20% income tax (i.e. on the next £34,370 of earnings). This means on earnings above £42,475, you will pay 40% income tax. Income above £150,000 is charged at the highest rate of 50%.

If your income is more than £100,000, you lose £1 of personal allowance for every £2 you earn. So by the time you earn £116,210, you will have no personal allowance.

On top of income tax, if you are under age 65, earning more than £7,228 a year, you must also pay National Insurance contributions. You pay a rate of 12% of the amount you earn between £146 and £817 per week.

If you earn more than £817 a week (£42,484 a year), you also pay 2% on all your earnings above this amount. Broadly speaking, to arrive at your tax code, your tax-free income is divided by ten and added to the letter which fits your circumstances.

Most common letters for people in work:

  • L is for those eligible for the basic personal allowance
  • K is for people who have extra untaxed income, such as company or state benefits.

The number in a K code multiplied by ten indicates how much must be added to your taxable income to take into account the excess untaxed income you have received.

For example, K497 means your untaxed income of £4,970 more than your tax allowances. This amount must be added to your total taxable income to ensure you pay the right amount of tax.

What If I’m Retired and a Pensioner?

Tax for older people can be rather complicated.

Pensioners aged 65 to 74 can have an income of £10,500 in 2012/2013 before paying tax, or £10,660 for those aged 75 and over.

Although, if you are over 65 and your income is more than £25,400 in 2012/2013, your personal allowance is reduced by £1 for every £2 of extra income you have over the £25,400 limit.

There are two main letters used in tax codes for pensioners:

  • P is for people aged 65 to 74 and eligible for the full personal allowance;
  • Y is for people aged 75 or over and eligible for the full personal allowance.

Remember, if you receive the basic state pension, this is taxable, but it is received without tax being deducted.

If you are aged over 77, you may also be eligible for the married couple’s allowance. You can claim this if you are married and living together and at least one spouse was born before April 6, 1935.

The married couples allowance does not reduce your taxable income, but is used to reduce your overall tax bill. A maximum of 10% of the allowance can come off your tax bill.

For 2012/2013, the full allowance is £7,705, which means you get a tax deduction of £770.50. The minimum allowance that you can receive is £2,960 for 2012/2013. You will be entitled to this amount no matter how much income you have.

If You Have Multiple Incomes?

You usually receive a tax code for every source of income. Around 18 million codes are expected to be sent to 14 million people in the next few weeks. Your personal allowance is usually deducted from your main source of income.

If you have more than one job or pension, your code should state at what rate you are being taxed:-

  • BR – all income is taxed at the basic rate of 20%.
  • D0 – all income is taxed at the higher rate of 40%
  • NT – no tax is to be taken from your income

Any questions, email me at

If Inheritance Tax is a Voluntary Tax, Why Do So Many Volunteer To Pay?

15 Mar
Okay, with the state of the economy everyone needs to do their bit but isn’t it a bit much contributing to the nation’s coppers from beyond the grave?

Inheritance Tax (IHT) receipts received by HMRC increased to over £2.7billion in the tax year to April 2011, a rise of 14% on 2010.

So why do so many pay? It’s fair to say a larger estates will attract a tax bill unless you take proactive action and for this it is normal to need professional advice. For many families, they could quite possibly eliminate or limit Inheritance Tax with some preparation and professional advice.

The administration of an estate for Inheritance Tax has been simplified, which allows for effective and appropriate planning. Tax laws also allow wealth to be apportioned, or drip-fed to you family each year. You could make full use of your benefits, exemptions and allowances.

An estate above £325,000 for an individual or £650,000 for a married couple(or civil partnership) will be subject to a 40% Inheritance Tax charge on the excess.
What are The Rules?

The Good News – if your estate (and this is assets owned worldwide for most of us) is below £325,000 for an individual (or £650,000 for a married couple or civil partnership), there is no inheritance tax to pay.

The Bad News –  if your estate is above these thresholds, the excess will be subject to a 40% Inheritance Tax charge. For example, an estate worth £850,000 could see a tax bill of £80,000.

However, if you live for seven years after giving away money or assets, or give them to a spouse or civil partner, these gifts will avoid Inheritance Tax. You can enhance the situation by using some government back schemes, which attract 100% Inheritance Tax Relief after only 2 years, others that attract an immediate exemptions in part or full from Inheritance Tax.


Go Skiing and Spend More

SKI – Spend the Kids Inheritance. People are living longer, so it makes sense to use some of the available funds instead of giving it all away and there are ways to use trusts, which will be a gift out of the estate and retain an income from the trust, typically for life.

When you make capital gifts, once given it is gone and so make sure it is affordable both now and in the future. Don’t leave yourself financially vulnerable, be aware of Long Term Care funding issues, cost of future care, house modifications possibly, etc.

Gifts from Income – unlimited regular payments can be made from after-tax income, but you must maintain your normal lifestyle. This income could include part-time work, a pension, or interest from savings but this type of gifting needs to be documented, be payable out of spare income, paid on a regular basis and quantifiable. This exemption allies only to income and so you cannot make exempt regular payments if you make them from your capital.

Capital Gifts –

Annual Exemption – you can also give as much as £3,000 as a lump sum every year tax-free. So if you haven’t given away anything in Year 1, in Year 2 you can give the unused £3,000 allowance in the following year (so a total of £6,000). You can only carry back the benefit one year i.e. only once in consecutive years.

Small Gift Exemption – small amounts up to £250 can be made to any number of people within one tax year but these people need to exclude those you have paid over your annual exemption (assuming you used your full £3,000 allowance).

Inheritance Tax Planning Scheme’s may provide an income while reducing the size of your chargeable estate to inheritance tax.


Get Married

Transfers to a spouse or civil partner fall outside of the inheritance tax net, you can transfer assets between spouses without an Inheritance Tax charge. If you leave assets to your spouse or civil partner, this means they can bequeath up to £650,000 (their allowance of £325,000, plus yours) free of Inheritance Tax.

You can give tax-free gifts to a couple getting married: up to £5,000 from parents, £2,500 from grandparents and £1,000 from any one else. The gift must be promised before the ceremony, even if the payment is made many months later.


Give Bigger Gifts

High value direct transfers of money, investments or even antiques bequeathed before you die are known as ‘potentially exempt transfers’. They are exempt from IHT only if you live for seven years. But if you die within this period, these gifts will be taxed at their current value, not their value when you gave them away.

Inheritance Tax is a capital tax, so you could make gifts of capital into IHT Schemes. These can reduce the size of the associated IHT and some potentially provide an income for life. Schemes, such as Gift & Loan, Loan Trust Arrangement, Gift Trusts, Discounted Gift Plans, EIS Managed Portfolios, BPR Schemes, APR Schemes, etc.


Use Property

You can give away property and dodge inheritance tax if you meet the seven-year rule. Although, if you stay living there rent-free, the gift is classed as a ‘gift with reservation of benefit’ and is subject to IHT.

Seek legal advice when gifting property because it can be a costly mistake. For example, if given to a relative as their second home, the property may be liable for capital gains tax when sold in the future. This will be based on the difference between the price at the date the ownership was transferred and the value when it was sold.


What About Your Pension or Paying Into Someone Elses?

Depending on the particular pension scheme or plan, a number of benefits may be payable when you die, including:

  • a return of your contributions 
  • a lump sum 
  • a pension for your spouse, civil partner or another dependant

The payment of death benefits on most pension schemes is ‘discretionary’ and therefore won’t be part of the estate for Inheritance Tax purposes. Discretionary means that the pension provider is free to decide who to pay the death benefit to. Often they’ll follow the deceased’s wishes, although they don’t have to. If the lump sum isn’t discretionary there may be Inheritance Tax to pay. Your pension provider will be able to give you details about your pension.

Lifetime cash gifts can result in a ‘double gain’ of tax benefits if the recipient uses it as a pension contribution. This is because pension contributions receive tax relief at the saver’s highest rate of income tax.

So if you paid £10,000 into your child’s pension, this would effectively be worth £16,666 if they were a higher-rate 40% tax payer. The gift itself is free of IHT if the benefactor survives for another seven years.

Cash gifts can be used to mop up pension tax relief and it’s inter-generational planning.



Take professional advice, any questions –

Private Sector Pension Holders Could Double Their Annual Payouts

14 Mar

In recent years, low-interest rates coupled with improving life expectancy have forced pension providers to slash annual payouts. These seem to be typically around the 5.5% per year of a total pension fund. If you have a policy issued before 1988, then you may have a Guaranteed Annuity Rate within the policy and these were commonly between 10% and 12% per year. It seems, in my experience, pension providers have been less than forthcoming with this information.

So should you have a pension fund of £100,000, with a guaranteed annuity rate set in the Eighties, this could get an annual income of between £10,000 & £12,000 each year rather than, say £5,500 currently offered (through an annuity purchase).

Private sector pension holders could double their annual payouts through a legal entitlement through some policy’s small print. You should examine the terms of the policy documents before agreeing rates for your annuity.

Buying your income through your pension fund, I expect is the most important pension related decision you will make. If you are purchasing an annuity, remember it’s for life. Once you have bought a pension income through an annuity, the terms can’t be changed. If you fail to spot the set rate and accept a lower offer, you will not be able to change it afterwards.

These policies including Guaranteed Annuity Rates, where pensions providers including Phoenix, Aviva (through Norwich Union, Commercial Union and General Accident), Scottish Widows, Prudential and Scottish Life.

When purchasing an income through your pension fund, take professional advice through a suitably qualified Independent Financial Adviser to make sure you get the best deal.

Any questions contact me –

Good News on Results of Annual US Banks Stress Test

14 Mar

Shares have received a boost following positive results from the annual US bank stress test, where most financial institutions passed. JPMorgan Chase announced it had passed the test, forcing the Federal Reserve to announce results two days early,  in contrast there were some concerning failures included Citigroup.

The Federal Reserve also announced it had raised its outlook on the US economy but made no other comments (such as, on any further monetary stimulus).

In the Budget next week, the Treasury announced a 100-year gilt will be launched. The move is intended to take advantage of the historically low interest rates in the UK (0.5% for the last three years).

Spain : The Next Euro-Crisis?

13 Mar

Spain is the Eurozone’s fourth largest economy, with unemployment running above 22% and the decline within its property market means Spain could have significantly worse problems than Greece. This could threaten the Eurozone’s  vulnerable stability.

There are some suggestions that public debt in Spain might be higher than the official statistics. If this is true, there’s a serious concern that it might end up very high within the next few years. The banking system throughout Europe, including Spain, is fragile and with debt problems in the housing market, means we could see a situation comparable to that in Ireland. If this is the case, bailouts and defaults would become a problem. The associated fall-out for Europe would also have  far worse consequences than Greece. Spain is much larger than Greece, so any risk of a default or a bailout has a much bigger implication for the Eurozone.

Eurozone finance ministers on Monday urged Spain to make new cuts to its 2012 budget to reduce its deficit by a further 0.5%, agreeing a new target of 5.3%. In the same meeting, some of the finance ministers dismissed any comparisons with Greece as Spain has made progress.

Spain has large downside risks and is in a very fragile situation. Its problems are significantly worse than Greece’s. The macroeconomic situation of the country posed a major threat from the current austerity program.

The financial panic is temporarily over but 2012 will be the year of austerity across Europe.


Any questions –

Thinking of Switching From Cash to Investments

13 Mar

If your money is languishing in cash accounts paying low rates of interest, investing could offer a better option. After 3 years of the Bank of England’s Rate of Interest still held at 0.5% per annum and all likelihood that this status quo to remain then maybe an income portfolio would be a better approach?

An income portfolio with a diversified portfolio, typically with distributions around 4.5% per annum (net of basic rate tax) and with the potential of capital growth. Remember, this is an investment rather than cash, so values can go down as well as up but with an investment focus of income. Historically, I have seen my client’s income grow over time and yes, the capital value has fluctuations but then the risk profile of the portfolio can control volatility within a range.

The markets have been hugely volatile, with big swings up and down since the turn of the century.

There are several choices to make: the type of investment, how you invest, how it’s managed, how long you want to invest for, the level of volatility and investment risk you are prepared to take with your money.



There is a wealth of information about funds to be found on the internet. Many websites provide free guides and factsheets with details about funds and how they work. These factsheets list the aims of a fund, its risk and performance history. They also tell you some of the companies your money is invested in, and where in the world they are.

To buy into an investment fund, you can go through a broker, fund supermarket, a financial adviser or to the company directly.



There is always a fee for investing and it is, in the main, deducted from your investment. If you get independent advice then you will have to pay for this, too.

Funds normally charge a one-off fee, typically around 5%, for your initial investment, and then an annual charge of between 0.3% – 2.5%, depending on the fund type. However, you may avoid some or all the initial charge, or get a discount on the annual cost if you go through an independent financial adviser, broker or fund supermarket.



You can deposit a lump sum or/and pay a regular contribution into your portfolio over time. There are pros and cons whichever you decide, but neither comes with any guarantees. A lump sum deposit has the benefit of immediate exposure to the chosen investment strategy, funds and asset allocation.



Do you want to receive some income from your investment or for the potential value of your capital to grow or a combination of the two? This will have an essential effect on the structure of the portfolio, possibly type of fund, asset allocation, etc. because your focus and requirements will need to be prioritized.

A portfolio with a heavy weighting in favour of dividend-generating attributes could provide you with a regular source of income. This helped many investors to profit last year, after dividend payouts soared by more than 19% compared to 2010. Investors will have different goals, so best to have the portfolio designed to align with your goals, within your risk profile and time horizon.


Take appropriate independent financial advice from a professional who specialises in investing and wealth management.

Any questions –

Pensions – The New Drawdown Rules

13 Mar

On 6 April 2011, the government announced that you no longer have to take pension benefits by the age of 75.

Previously, any tax-free cash lump sum had to be taken by the age of 75 and a pension set up at the same time. The only alternative was if you had a big enough fund to take an income directly from it (known as income drawdown).

This article outlines the key government’s new rules. These rules affect benefits in personal pensions and money purchase occupational pension schemes.

Key Changes :-

  • You can now take a tax-free cash lump sum after age 75;
  • You can now buy an annuity after age 75;
  • The maximum income drawdown payment is calculated differently; and
  • New ‘flexible drawdown rules’ with unlimited withdrawals if you already have a secure pension income of £20,000.


What is income drawdown?

Income drawdown allows you to take income from your pension fund while the fund remains invested and continues to benefit from any investment growth.

You generally need a substantial fund to take income drawdown. The amount of fund varies according the rules of the pension provider, but is often around £100,000.

If you have a big enough fund to use income drawdown, you will be able to keep your funds invested and draw an income directly from it indefinitely.

In addition, if you have a ‘secure’ pension income of £20,000 a year, you can take as much income drawdown from your fund in retirement as you want by using ‘flexible drawdown’.

The new income drawdown rules provide an alternative option if you prefer to have greater control and flexibility over how and when you receive your pension income. In theory, you may be able to leave your pension fund untouched for as long as you like assuming allowable by your pension scheme.

The New Drawdown Rules

  • There is no minimum amount of income that you must draw, irrespective of age. i.e. you could leave your pension fund untouched for as long as you like, without having to draw any income.
  • The maximum amount of income that you may draw has reduced to 100% of a single life annuity that a person of the same gender and age could purchase
  • The maximum income will generally be reviewed every three years until age 75 and annually from age 75
  • Tax-free cash lump sums may now be paid after age 75, even if you decide to take no income.

Will my pension provider have to offer income drawdown?

No – each pension provider will decide if they will provide income drawdown.

If I am already using income drawdown, can I buy an annuity at anytime?

Yes – the rules on this have not changed.


Any question, please ask

Budget Forecast – Corporation Tax Cut to 20%

13 Mar
Chancellor George Osborne is expected to announce a cut in UK Corporation Tax to 20% in next week’s Budget speech.
Corporation Tax has previously been cut from 28% to 25% since his tenure as Chancellor. He has voiced that he plans to cut it to 23% over this parliament and a future cut to 20% in the Budget.
 It has also been reported that he is unlikely to make significant changes to higher-rate pension tax relief.