Archive | April, 2012

Market Outlook This Week

26 Apr

The Good News – the market snapped the losing streak at only two weeks, with a modest gain last week.  

The Bad News – that’s pretty much the only good news.


Economic Events

The retail sales for March and last week’s economic numbers were net-neutral. Stocks did well to finish the week with a gain and I expect the pessimists may have more to shout about shortly.

On the positive, retail sales numbers showed that consumers spent more in March. Unfortunately, that’s the only decisively ‘good’ news there was last week.

Otherwise, the news reports were uneventfully neutral.

From the negative side, the UK as well as the most of Europe are back in Recession (its official), existing home sales fell, continuing unemployment claims rose and prosperity generally looks under pressure. These will raise both concerns and possibly fears for the future.

Last week’s economic numbers weren’t compelling and explains why the market remained pretty neutral.  If the coming week’s numbers aren’t better, it’s seems less likely that stocks will build on last week’s growth and further drops are become more expected.


Bigger concerns lie with expected Q1’s GDP growth estimates and the more positive recent forecasts are looking over-optimistic and could fall back, seeing revisions in excess of 10%. Order books are likely to have the typical knock-on effect, and durable orders are likely to fall, as well — not good for stock market valuations. I expect that this could see further revisions in consumer confidence.

Here’s hoping that we see improvements in the jobs figures but if this doesn’t happen the compounded effect of negativity will be dire.

I struggle to see where optimists can suggest opportunities lie.

Although, volatile markets create opportunities and I am well placed for a market drop giving me the opportunity for the market confusion to create buying opportunities – buy when others panic and out of favour sectors where some real returns may exist.


Stock Markets

It’s pretty clear that the market’s direction has changed.  Both the 20-day moving average line and the 50-day moving average line are now pointed lower.  While it’s certainly possible – and likely – we’ll see bullish days even while the trend is technically bearish, one or two bullish days doesn’t snap a bigger losing streak.  Only a close above the 20-day line would suggest the overall trend had turned bullish again – I don’t expect this until the negative news has been priced into the markets.

Looking to the CBOE Volatility Index (VIX) (VXX) (VXZ) – we are waiting for a spike in the commonly called fear index from the lows we are currently experiencing. So clearly there is little downside potential but huge upside risk. So what does that mean in English – there are many reasons for the stock markets to drop and an increase in fear could see this drop but how much of a drop?

based on historical data – possibly a 9% drop but reality and common sense dictates that the drop may be more or les severe and will be influenced by sentiment and the economic data.

In fact, the VIX’s 20-day average is about to cross above its 50-day average line for the first time since late last year. 

Things are definitely changing, and not for the better.

Remember every market cycle creates silver linings  – and opportunities to profit. I think the next few weeks will be key.

My email address is :-, tel (office) 029 2020 1241

twitter welshmoneywiz, linkedin Darren Nathan

Tax Planning & The Rysaffe Principle

25 Apr


The Rysaffe Case is often referred to within trust planning. It demonstrates that there are various ways of using multiple trusts in order to achieve effective trust planning. 

The Rysaffe principle

The ‘Rysaffe principle’ relates to Rysaffe Trustee Co (CI) v Inland Revenue Commissioners* (2003) where a series of trusts were created on consecutive days. The principle being that by establishing a series of smaller trusts, rather than just one trust, you can reduce the impact of the 10-yearly periodic charge and exit penalty by benefiting from a Nil-Rate Band (NRB) to Inheritance Tax for each individual trust.

Background to the case

HMRC (H M Revenue & Customs) contended :-

‘That the making of all the settlements were associated operations and that therefore the settlor had made one composite settlement by an extended disposition.’

After an initial successful hearing both High Court and a unanimous Court of Appeal Judgement stated that Section 42 Inheritance Tax Act (IHTA) 1984 was to apply on the basis that the word ‘disposition’ had its ordinary meaning and was not to be extended to include a disposition by associated operations.

A key statement from Judge Park J, dealing with the associated operations point was as follows :-

‘All the parcels of shares were properly comprised in settlements for the purposes of Section 64. The associated operations provisions had nothing to do with that analysis. There were 10-yearly charges on all of the parcels of shares. It is (I assume) true that in aggregate the five 10-yearly charges would be lower than the single charge which would have applied if there had only been one settlement. But that is not a valid reason for artificially importing the associated operations provisions into the exercise and using them to impose the false hypothesis that there was only one settlement when in fact and in law there were five.’

Additionally, from a planner’s point of view it is worth considering Section 62 IHTA 1984 relating to ‘related settlements’. In summary for a trust to be a related settlement:

a) the settlor is the same in each case, and
b) the trusts commenced on the same day.

So, trusts created on different days do not fall within this definition.

Therefore, by creating a series of trusts on different days we can reduce the inheritance tax payable.

Example: Let us consider a £340,000 investment into a discretionary trust.

Scenario 1:

If £340,000 is made as a one-off payment into the trust and no previous chargeable lifetime transfers (CLTs) have been made in the last seven years, assuming the full NRB is available (and other exemptions have been used elsewhere) the tax liability at entry would be:

£340,000 gifted into trust
£325,000 (NRB for 2010/11)
£15,000 liable to tax at 20% (half the death IHT rate)
Initial charge = £3,000, assuming trustees pay the tax

Scenario 2:

£340,000 gifted into trust by creating three trusts each for £113,333 on separate days
£325,000 (NRB for 2010/11)
£15,000 liable to tax at 20% (half the death IHT rate)
Initial charge = £3,000, assuming trustees pay the tax

In this example the charge is the same for the one trust route as it is for using three separate trusts. However, by setting up three trusts the 10-yearly periodic charge is likely to be lower as can be seen by the following calculations.


10-yearly periodic charge

After ten years, if we assume that the trust fund has grown from £340,000 to £600,000 and the NRB is say £430,000 in 2020/21 and there have been no other previous CLTs other than those shown or any distributions made, then:

Assuming scenario 1, the 10-yearly periodic charge is £10,200

Compare this to the three trusts used in scenario two, assuming each of the individual trust funds have grown at the same rate and are each worth £200,000, the 10-yearly periodic charge is £Nil



The result in scenario 2, we have created a series of trusts where the 10-yearly periodic charges are now £0 and any future exits will also be taxed at this rate, compared to scenario one where there is tax to pay at the tenth anniversary and also on any future distributions of capital.

This article is based on current understanding and interpretation of the law and HMRC practice. The Tax Relief and the tax treatment of investment funds may change in the future.

My email address :-, twitter welshmoneywiz, linkedin Darren Nathan

HMRC Wins Film Investment Scheme Court Case

25 Apr

Over the years there have been schemes seen as aggressive by HMRC and their opinion being this is abuse of the legislation – to create an unfair tax benefit.

The purpose of saving tax is central but how we do this is the question.

This is just the first round – round 1 to HMRC. Although the implication is huge as if this case is not overturned at appeal then convention has been created. This could block all similar schemes in the future but for now this is just an opinion rather than fact. We will wait for the battle through the courts for the legal opinion and outcome.

With tax planning care must be taken as to the risks, aggressiveness and likelihood of success. In most financial/tax planning, my starting point are government backed arrangements and those where standards of practice are in place with HMRC i.e. non-contentious.

This case, with a HM Revenue & Customs court victory could see an end to film investment schemes set up to exploit generous tax reliefs.

This case involved a scheme called Eclipse 35. The scheme was funded by a £790m loan by Barclays to Eclipse 35 with the investors adding a further £50m. Eclipse 35 then paid £503m to Disney for the worldwide rights to two films, Enchanted and Underdog.

Eclipse 35 paid £44m in fees to the organisers of the scheme, Future Capital Partners before paying Barclays £293m for the first ten years of interest payments on its £790m loan.

Eclipse 35 then re-licensed the rights to the films back to Disney, anticipating a return of £1.022bn over 20 years before intending to claim tax relief of £117m from the Revenue for the £293m interest paid back to Barclays.

Disney was also paid £6m for its participation in the scheme.

HMRC argued the scheme was no more than a way of offering investors a large amount of tax relief rather than carrying out any trading or group business. The court was also told that all 40 Eclipse film schemes are being investigated by HMRC.

An Eclipse 35 spokesman said: “We maintain that this investment is very much a commercial opportunity. We are disappointed with the decision and intend to vigorously appeal it.”

Such vehicles have seen billions of pounds invested since 2004 and although rules around investment in them have been tightened, some schemes remain under HMRC inquiry.

We await the court proceedings.

Any concerns or issues around investment related tax planning, tax planning through investments or similar matters just ask :-

Email, tel (office) 029 2020 1241

Twitter welshmoneywiz, Linkedin Darren Nathan

Income Tax & Qualifying Policies

24 Apr

Changes announced in the budget on the 21st March affect the information contained below. Before taking any action based on this article please take specialist independent financial advice.

 This article looks at the main Qualifying Policy rules and conditions that must be met in order to retain the tax advantages associated with qualifying policies.
What is a ‘Qualifying Policy’?

A Qualifying Policy is a life insurance policy whose terms meet a complex set of conditions. These include rules about the policy term, regularity and level of premiums paid and the minimum sum assured. Also a policy cannot be qualifying unless it is certified as such by HMRC. Where a policy does not meet these conditions it is typically referred to as a ‘non-qualifying policy’.

It is tax-favoured, since it does not normally give rise to chargeable event gains. In addition, where the policy was taken out on or before 13 March 1984 and not varied since then, life assurance premium relief continues to be due on the premiums paid.

 Chancellor of the Exchequer George Osborne holds up his red Ministerial Box at 11 Downing Street

What are the basic Qualifying Policy conditions?

  • Term of at least 10 years
  • Annual premium must be:
    ≤ 1/8 x total premiums payable
    ≤ 2 x premium payable in any other 12-month period
    Payable annually or more frequently
  • Minimum sum assured test
    – The sum assured must be no less than 75% of the premiums payable throughout the term.
    – Where the life assured is age 55 or over the minimum sum assured is reduced by 2% for each complete year the life assured is aged over 55. For joint life policies, this age test applies to the elder life on joint life first death cases and the youngest life on last death cases.
    – Where the policy is a whole of life cover, the minimum sum assured only needs to be calculated to age 75 of the life assured.


Which Policies are Typically Qualifying?

  • Endowment, Capital Accumulation Plans & Maximum Investment Plans (MIPs)
  • Whole of Life, Life Assurance


What Creates a Chargeable Event on a Qualifying Policy?

If within 10 years, or three-quarters of the term if less, there is:

  • An assignment (in full or in part) for consideration
  • Surrender of the policy (in full or in part)

If within 10 years, or three-quarters of the term if less, the policy has been converted to paid up and there is subsequently at any time:

  • Assignment (in full or in part) for consideration
  • Surrender (full or part)
  • Death of life assured
  • Maturity


What Changes can be made to a Qualifying Policy?

Any change must be made on a plan anniversary and must be in accordance with the Terms and Conditions to retain the qualifying status of the policy.

If a change was made that was outside the Terms and Conditions it would almost certainly render the policy non-qualifying.


What Affect will it have on the Plan if Premium Payments Cease?

If premium payments cease there may be the ability to reinstate the plan. Reinstatement can only occur if done within 13 months of the first (or earliest) unpaid premium and if the Life Company has exercised its option to make the policy paid up due to non-payment of premiums.

If a policyholder advises that they no longer wish to pay premiums and wish to convert the plan to paid up they will not be able to reinstate the plan in the future.

Where annual premiums are paid, 13 months from the first unpaid premium will be one month after the next annual premium becomes due.

If a client elects to take the extension option on a MIP at year nine and then stops paying premiums before their tenth anniversary the policy will be non-qualifying. Because the exercise of the extension option creates a revised 19-year term, therefore the lower of 10 years and three-quarters of the term is 10 years. If they had not extended at that time the term would have remained as 10 years with three-quarters of the term being seven and a half years. As they had paid the premiums beyond then the policy would have been qualifying.

 This article is based on current legislation and interpretation. Tax relief and the tax treatment of investment funds may change in the future.
To contact me, use the details above. Email, twitter welshmoneywiz, linkedin Darren Nathan

A Day of Panic

24 Apr

Political uncertainty and disappointing data in Europe raised fears the Eurozone could struggle to push through austerity measures and may stay in recession until late in the year.

The Dutch prime minister resigned from office on Monday after Dutch officials failed to agree on budget cuts, while France’s Socialist presidential candidate Francois Hollande, who promised to renegotiate a European budget pact, won in the first-round of elections. The third place win by Marine Le Pen shocked internationals as this showed growing support for xenophobic strategies, which undermines the fabric of a single european market.

Adding to that, the euro zone’s business slump deepened at a far faster pace than expected in April.

Financial markets have been unnerved by the rise of Francois Hollande, previously best known as the partner of Ségolène Royale, French president Nicolas Sarkosy’s defeated opponent in the last French election.

The economy is at the centre of the election campaigns in France. Although far from the plight of peripheral Eurozone countries, it is struggling with weak economic growth, 10% unemployment, straining public finances and a population unwilling to give up on cherished pensions and welfare benefits.

Both Hollande and Sarkozy advocate a financial transaction tax, which would have a far bigger impact on the City of London than on the Paris bourse.

We await for round 2!

My email address :-, twitter welshmoneywiz, linkedin Darren Nathan

Income Drawdown & Capped Pension Income

23 Apr

Those who are already in Pension Drawdown and those considering Pension Drawdown, should consider carefully the impact of the changes to the pension system announced by the Coalition Government and are now law.

The Good News –

  • capped income will be available throughout a client’s lifetime
  • the new tables provide age related factors up to age 85 which will benefit those clients, previously in Alternatively Secured Pensions, where income was based on an age 75 income factor regardless of age.

The Bad News –

  • if you were in drawdown before 6th April 2011, then at your next 5 year review the new rules will apply & maximum income will reduce to 100% of GAD (from previously 120%) and reviews will be every 3 years
  • those over 75 will have annual income reviews

Some see the biggest difference between the old and new regime has focused on the fact that the base income does not enjoy the 20% uplift included in the old calculations. Personally, I have guided clients to take a sustainable amount is income, which meant that we could benefit from increased income at the review dates rather than the maximum income today. You must always appreciate that this is an investment, so if the investment returns 6% and you draw 7% then your future income will diminish. Whereas, if you draw 5% and the investment returns are 7%, then at the review, because the portfolio has grown the future income can be increased (within GAD limits).

However, where clients are in an existing five-year reference period and use additional designation to top-up existing post A-Day capped income, the new maximum income applying for the remainder of the existing reference period will enjoy a 20% uplift using the new income factors.

I have written this document based on details available and current understanding. Please consider that Tax Relief and tax treatment of investment funds may change in the future.
My email is, twitter welshmoneywiz, linkedin Darren Nathan

France’s Next President?

23 Apr

There is growing concern that the Far-Right voters may decide who becomes France’s next president.

Anti-immigration crusader Marine Le Pen’s (daughter of former paratrooper and National Front founder Jean-Marie Le Pen) achieved record first-round score which has jolted the race between Socialist frontrunner Francois Hollande and incumbent Nicolas Sarkozy.

In Sunday’s 10-candidate first round, Francois Hollande beat Nicolas Sarkozy by a 1.5% margin (28.6% and 27.1%, respectively) but Marine Le Pen achieved 18.0% (the biggest result for a far-right candidate).

Marine Le Pen told cheering supporters, “The battle of France has only just begun,”


Imminent Market Downturn – Or Pessimistic Banter?

18 Apr
Many well-respected fund managers, investment strategists and economists have viewed their opinion over the market, so it’s clear – the market is about to see the best bull run of the 21st century or suffer a 20% correction in equities.
So who to believe?
Do we go with pundits, such as, BlackRock’s Bob Doll (Chief Equity Strategist)
who feels that the cautious sentiment already priced into the markets will prevent a 2011-style collapse and says the pessimistic argument is overblown?
Or, should we look to economists and strategists, such as, Marc Faber who predicted the stock market crash of October 1987 – he’s expecting a 2011-style collapse.
Okay, I accept the argument that the situation in 2011 was different :- 
  • optimism was higher with stocks coming off an impressive first quarter
  • oil prices were rising
  • the earthquake in Japan
  • the politically infused US debt ceiling fiasco

These all help fuel a sharp turnaround in risk assets as investors panicked and sold in volume.

2012 so far :-
  • stocks have been following a similar pattern in the first quarter of the year
  • oil, fuel and general commodity prices are a concern


6 Month FTSE 100 Chart


The question is – has the markets priced for relatively modest levels of growth, leaving less room for downside disappointments? If this is the case then the downside risk will be lower.

Looking at the recent levels of volatility it is clear that fundamentals only make up part of the argument – sentiment could well be a major influence.

Personally, I think either scenario is plausible so how best to build a portfolio?
1. We could use the gung-ho approach of everything in and it’ll work itself out and anyway stocks always rise over time! Simple answer – no. The highest most stock markets reached was in 1999 and the cycle has led up and down since then but don’t forget the benefit of dividends, assuming they’re re-invested.
2. We could hold only cash – no market risk to capital but what happens to the spending power of your money if you receive interest net of tax lower than inflation – another effective way to erode real capital let alone if you spend the interest.
3. Combine assets – I have taken a balanced structure between equities, fixed interest, absolute return funds, appropriate investment trusts and alternative investments.
The third strategy is the one I choose. I think it is fair to say it is very unclear what the markets hold for 2012 – for example in March the FTSE 100 reached 5,965 and in April fell below 5,595, a fall of 6.2%.
The idea being in the downturn the portfolio remains stable and in positive markets we make profits. This is achieved through careful portfolio construction blending assets with differing correlations to help neutralise the market confusion. Let’s just say I sleep soundly at night and so do my clients.
Contact me on my contact details above – email, twitter welshmoneywiz, linkedin Darren Nathan

It’s Official, S&P Confirm UK’s Soverign Debt Rating – AAA

16 Apr

The wealth status of the UK have been confirmed as AAA by rating agency Standard & Poors. This confirms their opinion on the UK as being wealthy, diversified, open with suitable debt management and controls in place.

They have confirmed they see the UK’s economic policy will continue to focus on closing the fiscal gap, with the potential of controlling the problems, with the likelihood of resolving the issues while providing a suitable infastructure where prosperity is plausible. The UK is seen to benefit from a large liquid market for  government debt issuance, entirely funded in domestic currency at long  maturities.

The agency believes the UK government will implement the bulk of its consolidation program and economic growth isn’t expected to fall below current projections.

The Good News – Standard & Poor’s have highlighted strong demand for long-dated gilts from both domestic and non-resident institutional investors.


The Bad News – the steep correction in the fiscal accounts is expected to cause a drag on economic growth; household spending is likely to be weak; and the UK will post modest real GDP growth (est. 1.6%  between 2012 and 2015).

These are only estimates and will be reviewed regularly as there are many factors, which could significantly affect these figures, assumptions and estimates but for now the general view is GOOD NEWS.

My contact details are detailed in the header – email, twitter welshmoneywiz, linkedin Darren Nathan

Earnings Season Gets Underway – And The Return of Market Volatility

16 Apr

OK so it was unexpected how stable the markets were in Q1 2012, I expect it is hello again to volatility going forward.

rollercoaster cartoons, rollercoaster cartoon, rollercoaster picture, rollercoaster pictures, rollercoaster image, rollercoaster images, rollercoaster illustration, rollercoaster illustrations  

On the reporting side, almost a fifth of the S&P 500 report next week and these include some big blue chip companies and banks (IBM, Microsoft, Coca-Cola, McDonald’s, Citigroup and Bank of America). On the economic front, March retail sales, industrial production, existing home sales and weekly jobless claims.

The Good News – valuations seem to be supportive of the market

The Bad News – stocks fell for a second week, in the most volatile week of the year, punctuated by big swings in both directions.

I think this is the first time since possibly October last year, where we have seen been effected by the reality that stocks are typically volatile, despite low volatility in the first quarter. It’s possible we could see further losses with trend data indicating a growing potential of this being double what we’ve recently seen. This could become reality off of the weaker U.S. data; a slowdown in China, and the European debt saga becoming more threatening again.

The biggest uncertainty is the Eurozone. Europe has recently returned as a significant market worry with yields in Italy and Spain rising dramatically, amid expectations of weak economic data and growth and growing fiscal concerns. I think there are going to be more reported over the European scenario, as Spain issues bills on Tuesday and longer-dated securities Thursday; ECB (European Central Bank) President Mario Draghi speaks at the ECB statistics conference on Tuesday.

This is a challenging time but could also be very profitable as volatility creates opportunities.

Any questions – my email address is; or follow me on – twitter welshmoneywiz, linkedin Darren Nathan