I am pleased to announce the launch of my website – http://www.waverleycc.co.uk
After much work, reviews, re-writing and editing my website is now live. Let me know your thoughts on the content, design and presentation. Personally, I am most pleased with the Testimonials sections – every one who kindly provided their comments presented their views of our relationship.
Stockpicking has been a style that can prosper even in the most difficult markets.
We are almost there !!!
I expect within a few days my website will be up and available.
The official corporate Financial Services site for Welshmoneywiz is Waverley Court Consulting Ltd.
You have to give George Osborne his dues…we all knew there were failings in the assumptions from the Summer Budget. He didn’t duck the bullet. Rather than just guidelines and review of the Summer Budget (normally what seems to be the Autumn Budget), it was more an introduction to the Spring Budget 2013, giving details of some of the fiscal changes ahead.
A benefit of knowing about tax policy to be introduced from a future date is, it gives us a chance to plan now.
Registered Pension Schemes
George Osborne made proposals to cut back on the tax advantages of registered pensions.
The bad news :-
• Annual allowance to be reduced from £50,000 to £40,000 from tax year 2014/15.
• Lifetime allowance to be reduced from £1.5m to £1.25m from 2014/15
The good news :-
• Allowances to remain unchanged for 2012/13 and 2013/14 (at up to £50,000)
• Carry Forward remains unchanged for tax years 2010/11, 2011/12, 2012/13 and 2013/14 (at up to £50,000)
• Fixed protection available – enabling benefits to be taken up to the greater of the standard lifetime allowance and £1.5m without any lifetime allowance charge
1. Election by 5 April 2014
2. Protection lost where further accrual/contributions on or after
6 April 2014
• Personalised protection option – a possible additional transitional protection
1. Provides a lifetime allowance of the greater of the standard lifetime
allowance and £1.5 million, but without the need to cease
accrual/contributions on or after 6 April 2014.
2. Available to individuals with pension benefits with a value of at least
£1.25 million on 5 April 2014.
• Maximum capped drawdown income to be increased from 100% to 120% of the relevant annuity rate determined from the GAD tables – date to be confirmed.
Planning Opportunities
The reduction in the annual allowance was expected and was only to £40,000 (it could have been worse). The reduction doesn’t apply until tax year 2014/15. Carry Forward of unused annual allowance of up to £50,000 for each of tax years 2010/11, 2011/12, 2012/13 and 2013/14, is available.
It gives a high earners the chance to maximise contributions before the reduction in the allowance bites. Also, for very high earners, if action is taken before the end of this tax year, they may be able to secure the 50% tax relief.
The changes to the lifetime allowance will mean that any one likely to be affected by the reduction and looking to retire in the near future will need to consider all means to reduce/avoid any lifetime allowance charge. This includes :-
Income Tax
So, it seems fair to say, there is actually only a very small change in the potential tax bill payable. Personal allowance has increased and the basic rate band has shrunk. The unlucky few are worse off but in most cases the situation seems to either be neutral or possibly a slight improvement.
The personal allowance is to increase by £1,335 to £9,440 in 2013/14 – an improvement in the terms announced in the Summer Budget.
In 2013/14, the basic rate tax limit will reduce from £34,370 to £32,010. This is offset by the increased personal allowance.
The result of these changes is that all taxpayers who are fully entitled to a personal allowance (where net income is less than £100,000) will be better off. At the lower end, the extra increase in the personal allowance will lift a quarter of a million people out of tax altogether.
From 6 April 2013, additional rate income tax will reduce from 50% to 45%. This rate applies for those who have taxable income of more than £150,000. For those affected, there is an incentive to make investments before 6 April 2013 and defer the resultant income until after that time.
In terms of planning for married couples/registered civil partners, this will mean that:
• There is scope to shelter income from tax if a higher/additional rate taxpayer is prepared to transfer income-generating investments (including possibly shares in a private limited company) into a non-taxpaying spouse’s name
• There is an incentive for lower rate taxpayers to make increased contributions to registered pension plans with a view to ensuring that any resulting pension income falls within the personal allowance.
Age Allowance
As the personal allowance increases, the age allowance is gradually being phased out. The amounts of age allowance are frozen at £10,500 for those born between 6 April 1938 and 5 April 1948 and £10,660 for those born before 6 April 1938.
For those who satisfy the age conditions, the age allowance is still currently worth more than the personal allowance. However, the allowance is cut back by £1 for each £2 of income that exceeds the income limit. The income limit will increase from £25,400 to £26,100 in 2013/14.
For those who are caught in this income trap, you should take appropriate planning i.e. reinvesting income-producing investments into tax-free investments (ISAs, VCTs, EISs, SEISs) or possibly tax-deferred investments (single premium bonds) or by implementing independent taxation strategies.
Business Tax
The Government will reduce the main rate of corporation tax by an additional 1% in April 2014 to 21% in April 2014.
The small profits rate of corporation tax for companies with profits of less than £300,000 will remain at 20%.
The capital allowance known as the Annual Investment Allowance will increase from £25,000 to £250,000 for qualifying investments in plant and machinery for two years from 1 January 2013. This is designed to encourage and incentivise business investment in plant and machinery, particularly among SMEs.
A simpler income tax scheme for small unincorporated businesses will be introduced for the tax year 2013/14 to allow:
Eligible self-employed individuals and partnerships to calculate their profits on the basis of the cash that passes through their business. Businesses with receipts of up to £77,000 will be eligible and will be able to use the cash basis until receipts reach £154,000. They will generally not have to distinguish between revenue and capital expenditure.
All unincorporated businesses will be able choose to deduct certain expenses on a flat rate basis.
Tax Avoidance and Evasion
As expected the Government unveiled a bundle of measures aimed at countering tax avoidance and tax evasion.
Areas of particular interest are:-
• The introduction of the General Anti-Abuse Rule. This will provide a significant new deterrent to people establishing abusive avoidance schemes and strengthen HMRC’s means of tackling them. Guidance and draft legislation will be published later in December 2012;
• Increasing the resources of HMRC with a view to:
• Dealing more effectively with avoidance schemes
• Expanding HMRC’s Affluent Unit to deal more effectively with taxpayers with a net worth of more than £1 million
• Increasing specialist resources to tackle offshore evasion and avoidance of inheritance tax using offshore trusts, bank accounts and other entities, and
• Improving technology to help counter tax avoidance/evasion
• Closing down with immediate effect for loopholes associated with tax avoidance schemes.
• Conducting a review of offshore employment intermediaries being used to avoid tax and NICs. An update on this work will be provided in the Budget 2013.
• From 6 April 2013 the Government will cap all previously unlimited personal income tax reliefs at the greater of £50,000 and 25 per cent of an individual’s income. Charitable reliefs will be exempt from this cap as will tax-relievable investments that are already subject to a cap.
Inheritance Tax
The inheritance Nil Rate Threshold is to increase, although by only 1% in 2015/2016 to £329,000. Currently, the Nil Rate Threshold is £325,000 and has been frozen since 2009 until 2015. This means, from 6 April 2015, if the first of a married couple to die does not use any of his/her nil rate band, then the survivor will have a total nil rate band (including the transferable nil rate band) of £658,000.
We await the outcome of the consultation on the taxation of discretionary trusts which is due to be released in December. Hopefully this will incorporate some simplification to the current complex system.
Capital Gains Tax (CGT)
The CGT Annual Exemption (£10,600 in 2012/2013) will increase to £11,000 in 2014/2015 and £11,100 in 2015/2016. We do not know what it will be in 2013/14.
Gains that exceed the annual exempt amount in a tax year will continue to be subject to CGT at 18% and/or 28% depending on the taxpayer’s level of taxable income.
Trustees pay a flat rate of 28% on gains that exceed their annual exemption.
Individual Savings Account
The current maximum investment in an ISA is £11,280 in a tax year (maximum of £5,640 in cash). With effect from the tax year 2013/2014, the maximum will increase to £11,520 (with the cash content not to exceed £5,760). Use of the allowance should always be maximised as any unused allowance cannot be carried forward.
The Junior Isa and Child Trust Fund maximum annual contribution limit will move from £3,600 to £3,720 from 6 April 2013.
The Government will consult on expanding the list of Qualifying Investments for stocks and shares ISAs to include shares traded on small and medium enterprises (SMEs) equity markets such as the Alternative Investment Market and comparable markets. This could lead to ISAs becoming even more appealing as a tax shelter.
Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS)
The rule changes, mostly approved months ago, revolved mainly around opening up more companies for investment from VCTs and EIS, and increasing how much can be invested.
The size of companies that the schemes can invest in has been increased from £7 million to £15 million and the number of employees from 50 to 250.
The limit on the amount an individual can invest in an EIS has increased from £500,000 to £1 million, while the amount an EIS or VCT can invest in an individual company has increased to £5 million.
Ian Sayers, director general of the Association of Investment Companies (AIC), commented, ‘The proposed rule changes allow VCTs to invest in a wider range of companies which is a welcome boost to the sector and businesses desperately seeking finance.
‘The Chancellor’s removal of the £1million limit on VCT investment in a single company will ensure more efficient support to smaller businesses in the UK.’
However, the Budget also finalised plans to subject VCTs and EIS to further scrutiny in relation to the investments that they make.
The government will introduce a ‘disqualifying purpose test’, designed to exclude VCTs or EIS that do not invest in qualifying companies and are set up solely for the purpose of giving investors tax relief.
Although the schemes escaped any changes to their individual tax benefits, the Budget introduced a cap on tax relief, in an effort to prevent high income taxpayers getting away with very low tax rates.
The new rules will set a cap of 25% of income on anyone seeking tax relief of over £50,000 but, while the proposals are not particularly clear, it appears EIS and VCTs will be exempt.
Paul Latham, managing director of Octopus Investments, explained, ‘The good news is that the government’s new cap only applies to tax reliefs which are currently classed as “unlimited”. This means that tax-efficient investments, such as EIS and VCTs, are unaffected by this legislation.’
Up until the end of last week, the market had given up a little more than 8.0% since the September peak (an 8% pullback is about the average size of a normal bull market correction), and while that could imply a reversal of fortune may be due, more downside may be in store before a good technical floor is found.
This is a tricky situation. On the one hand, stocks are oversold and due for a bounce. On the other hand, the momentum is still pessimistic, and we have to assume that trend will remain in motion until we clearly see it isn’t.
The bullish case is bolstered by this weeks positive results, which stopped the previous declines. The market’s previous fall of 8.8% from the September high is right around the normal bull market correction. So, the reversal clue materialized right where it theoretically should have.
The bearish case: There’s still no assurance that the bullish days will continue. In fact, the stockmarkets could carry on gaining and still not snap the losing streak ( as compared to September’s highs).
Any additional clues from the CBOE Volatility Index? No, not really.
Just for some perspective, there’s still plenty of room and reason for the stockmarkets to keep tumbling. Point being, if the bulls are serious here, there’s not much of a foundation they can use as a push-off point. Then again, the VIX is clearly hitting a ceiling at its 52-week moving average. Until and unless it can be hurdled, the bulls don’t have an enormous amount to worry about (they just have a little to worry about).
So could the recent corrections and this weeks swing be the formation of a swing low of an intermediate market-bottom being formed?
Typically the stock market will rally fairly aggressively out of one of these major intermediate bottoms, often gaining 6%-8% in the initial phase. At that point the market will dip down into a half cycle low that will establish the trend line for this particular cycle.
The Dollar (USD) is now, based on its daily cycle, overdue for a move down into a short-term low . This, I would expect, should help drive the first half of that 6%-8% move, followed by a short corrective move (as the dollar bounces) and then rolls over quickly into a another phase down.
If this is the case, I believe the cycle would be due to bottom around the first of the year and should drive the stock market generally higher into early January 2013.
We could continue to see the dollar generally heading lower with intermittent bear market rallies until it puts in a final three year cycle low in mid-2014. This should keep the stockmarket generally moving higher at least until the point where commodity inflation collapses Consumer Spending. Once that occurs the stock market will stagnate. The fear is that the US Federal Reserve may continue to print money, and this may cause the environment of artificially high money supply, which could lead to creating the conditions for the next recession.
As has been the case in the 1970s and also during the last cyclical bull market in 2007, I think we will probably see the stockmarket at least test the all-time highs, if not a marginal break above them, before rolling over into what I expect will be a very complex bear market bottoming sometime in 2015.
As with all predictions. They are dependent on sentiment, market forces and behavioural economics and as such I reserve the right to change my views and expectations, based on information as and when it arises in the future. The scenarios suggested and dates predicted are based on current information. The future is unknown and will change the potential outcome as estimates become actuals.
This is why we carry out sensitivity analysis, stress-test portfolios and incorporate diversified portfolios because the one fact we can be sure of is everything will change.
It has been the argument for many years – Does active fund management generate better investment returns? The general accepted conclusion has been yes but only for the best managers whereas the rest under-perform. So the question as an investor is it worth the additional cost?
Personally, I agree with the above points and believe a combination of strategies is best – the point is, if active fund management generate above sector average returns on a consistent basis then by selecting, monitoring and reviewing we will achieve the best risk adjusted returns. The question is which sectors to combine and this is where my expertise adds value and my expectation of betters risk-adjusted returns.
Premier Fund Management has challenged the opinion that average fund managers always tend to under-perform the associated indices.
Conventional measures of the “average” fund manager’s performance – the use of fund sector averages based on the mean performance of all funds in the sector – have long appeared to support this view. Many experts have tended to attribute the under-performance to the effects of active fund management fees on the funds’ performance.
However, research by Premier Asset Management based on ‘weighted averages’, which give bigger funds a greater influence on sector average calculations to reflect the true average return in the sector, shows that in most cases this is not the case.
In the IMA Asia Pacific excluding Japan sector the conventional sector average return of funds in the past five years was 27% – far lower than the FTSE World Asia ex-Japan index gain of 34.8%. However, when the amount of assets in each fund is taken into account, the actual weighted average performance experienced by investors was 37.4% – better than the index, the research shows.
In the IMA Global Emerging Markets sector the conventional average performance was a 23.9% gain, compared with an MSCI Emerging Markets gain of 27.4 per cent. However, the weighted sector average gain from funds was actually 32.2%, the research shows.
It also shows that, while the weighted average fund performance was not necessarily better than stockmarket indices in all sectors, it was better than the conventional sector average in seven out of the eight sectors that were examined. This suggests that the existing reported sector averages published to investors understate the returns enjoyed by most clients of actively managed funds.
The one sector where the conventional sector average was higher than the weighted average was IMA North America – suggesting that the biggest funds in that sector actually under-perform the smaller funds on average.
Simon Evan-Cook, investment manager on Premier’s multi-asset team and author of the research, said the weighted average calculations were a better method of judging funds because more investors were affected by the performance of larger funds. “As a whole, the industry is understating the performance and value of active management,” he said.
Ed Moisson, head of UK research at Lipper, said Premier’s method was “logical” and demonstrated the strength of larger funds’ track records, but added it did not tell the whole story.
After months of waiting, investors now have one less uncertainty to deal with. The election is over, and voters decided to give President Obama another four years to lead the country.
In addition to winning, the Democratic Party retained a majority in the Senate, picking up 2 seats. However, the Republican Party also maintained its majority in the House of Representatives. This means that the political leadership will not change significantly. That doesn’t mean everything will stay the same. Voters decided to retain many of the same leaders, but recent polls suggest many people want to see different legislative results.
Looking ahead, the new Congress and President Obama must now find a way to boost economic growth and create jobs. Along the way they need to avoid the fiscal cliff, foster trade with other countries and maintain the security of the United States in an increasingly threatening world. Unfortunately, avoiding the fiscal cliff and promoting economic growth are immediate problems. If Congress fails to take action, the Bush-era tax cuts and the Obama payroll tax cuts will expire at the end of this year. At the same time, mandatory federal spending cuts are scheduled to begin (as lawmakers could not agree on a compromise to reduce the deficit during last-years’ debt-ceiling negotiations). The Congressional Budget Office estimates that the economy could go into recession and contract 0.5% next year if all the tax hikes and spending cuts take place as scheduled.
We believe there are several scenarios that could unfold around the fiscal cliff. The most likely outcome would be that lawmakers would find acceptable middle ground including some tax increases and spending cuts but not the full measure scheduled to occur at the end of the year. Modest tax hikes and federal spending cuts would not severely hurt the economy but would be a drag on economic activity next year.
Recent economic news shows that the U.S. economy is slowly recovering from the 2008-2009 recession. Fortunately, the housing market has finally turned up after six years of subtracting from economic growth. The country will face some fiscal drag if Congress allows some tax increases and spending cuts to reduce the deficit next year. This fiscal drag will most likely be offset by the recovery in housing and continued increases in consumer and business spending. As a result, we believe that the economy is likely to grow in 2013.
Many investors may be concerned that the election outcome will lead to continued political gridlock that has existed during the past two years. However, both parties recognize the risk to the economy if lawmakers do not address the fiscal cliff. Therefore, during the next few weeks we are likely to see both parties talk about a willingness to work together, but start the process by stating the pre-conditions for cooperation. We believe this would just be the first step toward addressing policy differences. Obviously, the process will not be quick and easy.
Some strategists are suggesting that Congressional Leaders could allow the country to go over the fiscal cliff as a way to force a compromise. If this happened we would expect any compromise after the first of the year would be retroactive to the start of the year and the economic impact would not necessarily be that severe. The outcome would be volatile financial markets.
So what do the elections mean for investors? We believe that the underlying U.S. economic fundamentals remain favorable. The economy is growing, and the uncertainty of the election is behind us. If Congress and the President can find some middle ground and compromise over tax hikes and spending cuts, the outlook for the economy would be better than the worst-case scenario of allowing all the tax hikes and spending cuts to be implemented as scheduled.
The economy is expected to start the year on a weak note until the fiscal cliff issue is addressed, but we expect economic momentum to build as the year progresses. In this environment, the stock market would be volatile during the next few months. The positive seasonality during November and December could support stocks if investors see Congressional Leaders trying to work together. Longer-term, we look for the stock market to have modest gains next year.
Fortunately, the Federal Reserve’s easy money policies will partially offset the fiscal drag of reducing the deficit. The government may borrow and spend a little less next year if a compromise is reached but net lending in other sectors of the economy has increased, and this increase in credit in the private sector is likely to support economic growth. In addition, the credit markets are likely to benefit if the Fed continues to provide liquidity to the economy by buying bonds until the unemployment rate declines.
My clients have been positioned with asset preservation and potential of positive returns in mind during the past year. This was in order to deal with the uncertainty of the global environment, the Eurozone debt Crisis, slowdown in China’s GDP, the US election outcome and the pending fiscal cliff (to name just a few). Finally, businesses appear to have delayed capital spending and hiring until the direction of governments policies becomes clearer. After waiting much of this year, next year could potentially be a year of action and less worsening situations (possibly even improving situations). Investors may take a less defensive position, assuming investor sentiment improves (on a relative basis, this is anticipated) and this could lead to stocks outperforming bonds in 2013. If this scenario ends out being true then cyclical sectors of the stock market are likely to perform better than defensive sectors. Although this is only an “if”.
Why invest? Market volatility means there is an inherent risk that capital value may drop and the returns achieved may not match our expectations. The answer is INFLATION. How else can we inflation proof the value of our money?
I have no other answer to this life-long question – so the question becomes, how do we protect against dire volatility while maintaining the true value of money?
Many great statistical minds have tried and all have failed to effectively predict volatility and inflation with any consistency. I believe that it is easier and more appropriate to weatherproof a portfolio against the potential situations.
The case for high inflation goes something along these lines: paper money, not backed by any physical store of value, effectively only derives its worth from the goods and services you are able to exchange it for. By printing lots of it, as we have (such as, through quantitative easing [QE]), without a corresponding increase in the number of things you are able to spend it on – its value decreases.
So, if twice as much money can only be used to buy the same amount of stuff, then it must be worth half as much. It is debatable how much money has to be printed before there is any noticeable drop in value; especially since the extra currency gets recycled many times through the banking system, where its impact could be multiplied massively. The worst-case scenario is that there has already been too much extra cash printed and the effects are slowly gathering momentum.
Additionally, there is the fear that by becoming the lender of last resort to governments, notably in the US and UK and more recently the ECB, central banks will be unable to take corrective action without effectively bankrupting their home nations.
High inflation erodes the real value of your portfolio, and this needs to be protected against. One obvious starting point is inflation-linked bonds. The income on these bonds is indexed to the rate of inflation. While this will prevent a fall in the real value of income received, it could still leave you exposed to falling real capital values. A fairly consistent defence against moderately high inflation has been equities. It makes sense to match up markets to currencies; if you are concerned about UK inflation then UK equities are a good choice. They protect both income levels and capital value. Shareholders will always demand a real return, forcing businesses to pay out higher dividend rates to attract investors. At the same time, the higher rates will attract investors seeking income protection who would otherwise be in low -yielding assets such as cash.
If you are a bit more extreme in outlook, with a sizeable number of people predicting the end of the fiat money system altogether, then it is best to hold physical assets. Gold is the favourite of inflation conspiracy theorists and its record price shows the extent of the fear of high inflation. As a homogenous, globally traded commodity, its value tends to increase any time the threat of inflation rises anywhere in the world. The difficulty with investing in gold is that unless you physically have it in your hand, you are just as exposed to the system of interconnected promissory notes as you are with equities or any other paper asset.
Raw materials such as oil, food and other industrial metals and minerals are likewise relatively good bets in a high-inflation environment. These physical assets can not be debased by simply conjuring more up and as they will always be in demand, their value is reasonably assured. Again, it is quite hard to stockpile barrels of crude oil or frozen orange juice concentrate, but if you are looking for security you want as little separation from the physical items as possible. A focused fund can also be a useful addition to a portfolio. It is important to remember that inflation is a risk that is actively managed by most fund managers as part of their standard investment process.
A well-diversified portfolio, not just across asset classes but taking in a good spread of strategies and outlooks will likely cover you from the most likely inflation scenarios.
Good financial health – The WelshMoneyWiz
Investment Bonds have formed part of many investment strategies and the tax wrapper purchased by many – care is needed. In recent years there has been an explosion in the number of off-shore bonds and based on assets owned or the contract terms these may be defined as a Personalised Portfolio Bond (PPB), which is taxed differently.
Beware – for a UK resident – taxed in the UK individuals the tax is payable each year based on yearly deemed gain and the cumulative gains – so not just the yearly actual gains – assessed and taxed at your personal rate of income tax.
Personal Portfolio Bond Legislation
The PPB legislation is an anti-avoidance measure which imposes a yearly deemed gain on life assurance and capital redemption policies where the property that determines the benefits is able to be selected by the policyholder.
The deemed gain is subject to income tax where the policyholder is UK tax resident. The legislation can be found in Income Tax, Trading and other Income Act (ITTOIA) 2005 Sections 515 to 526. The PPB legislation applies for policy years ending on or after 6 April 2000 and the tax year 2000-2001 is the first for which a PPB gain can arise.
Personal Portfolio Bond Tax Charge
Where a policy is regarded as a PPB then the PPB legislation imposes a tax charge on an artificial deemed gain on the policy for policyholders who are UK resident individuals, UK resident settlors or UK resident trustees (where the settlor is not UK resident or has died).
The tax charge based on the PPB deemed gain is payable yearly for UK resident policyholders. The PPB deemed gain is calculated at the end of each policy year while the policy is in force. It does not apply on surrender, death or maturity, but previous amounts are taken into consideration as shown in the example below.
How is it Calculated and Applied?
The PPB deemed gain is not based on actual gains. The PPB deemed gain assumes a gain of 15% of the premium and the cumulative gains for each year the policy has been in force. The tax charge on the PPB deemed gain will be the highest rate of tax paid by the investor. Top slicing relief is not available.
What Policy Assets Are Permitted Under the Personal Portfolio Bond Rules?
A life policy, life annuity or capital redemption policy is ‘excluded’ if:
directly or indirectly by reference to a personal portfolio bond;
or
Some examples of policy assets which are not permitted under the PPB rules :-
Returning to the UK with a Personal Portfolio Bond
The test of whether a policy is a PPB is an ongoing test. If a policy was originally a PPB but its terms were varied so that it ceased to be a PPB then the PPB tax charge will not arise.
The yearly PPB deemed gain only arises if a policy or contract is a PPB on the last day of the related policy year.
The following options are available:
Will there be any changes to the assets that are allowed?
Since the PPB rules have been in force, the only changes to the investments have been an extension to the list of assets which are not permitted assets. Once the policy is endorsed, should any assets at a future date cease to be permitted they will have to be disposed of at the first reasonable opportunity.
Cash Holdings – must not be for the purpose of currency speculation. Any cash held in the policy which arises as a result of buying and selling investments (essentially a transaction account), and which is in the currency of the policy is permitted. In addition a bank or building society deposit account in the currency of the policy is permitted as well as a number of others.
Closed Ended Funds
With closed-ended funds, only shares in UK FSA authorised investment trusts are permitted. The Financial Services and Markets Act 2000 states that closed-ended vehicles are not collective investment schemes. Therefore non-UK closed-ended funds cannot fall within the permitted assets. Shares in a non-UK company may not be classed as an OEIC under the Financial Services and Markets Act 2000 and therefore may not be permitted assets. Clarification should be sought on each asset.
It is essential that policyholders inform their fund adviser of their decision regarding endorsing their policy, and restricting what assets they can invest in. It is the policyholders responsibility, along with the fund adviser to monitor your investment selection. The product provider/insurance company are not responsible for this, nor are they obliged to pass on to the policyholder or fund adviser information relating to your selected funds.
What happens if a fund adviser accidentally acquires non permitted assets for a client’s policy?
This is a risk, which is why it is important that a fund adviser knows about the restrictions. It would clearly be an action which would breach the terms of the endorsed policy and that breach must be remedied. It is probable that it would be necessary to discuss the matter in full with HM Revenue & Customs.
Points to consider if assets need to be sold
If assets have to be disposed of to allow a policy to be endorsed, policyholders need to consider the cost of the PPB tax charge against the current market value of the assets and possible future growth.
Consideration also needs to be given to assets with restricted dealing days, ensuring there is sufficient time for receipt of the endorsement request and time to sell the assets and endorse the policy before expiry of
the time limit.
What happens if a policy is not endorsed before the time limit expires?
The tax charge for the PPB deemed gain will apply. The charge is assessed on the day before the policy anniversary each year. The charge will cease to apply for the policy year ending after the policy has been endorsed.
Action checklist
What a Difference Five Years Makes – 10 Years Makes – 15 Years Makes
With this week marking the five-year anniversary of the stock market’s record high, much of the attention will and has been devoted to the market’s steep drop and sharp rebound. The chart below shows, the S&P 500 has been swinging in a wide range for the last 15 years. The pattern has been quite extreme – doubling and then falling by half over and over again.
Five years ago, the S&P 500 closed at a peak of 1,565.15. Since then the index has seen a huge decline followed by a huge rally. After all those swings, the S&P 500 has declined 7.9% over the last five years (annualized the decline works out to a loss of 1.63% per year). If we extend the period to the last 10 years, the S & P 500 has increased by 85.6% (6.38% per year).
SPX 5 & 10 Year Return Table
Some people may not remember, is that five years prior to the S&P 500’s all-time high made on October 9th, 2007, the index bottomed out from the 2000-2002 bear market at a level of 776.76. Following the post-Internet bubble low on 10/9/02, the index rallied more than a 100% before dropping more than 50% from 2007 to 2009. After bottoming out in March 2009, the index has since rallied more than 100% once again.
S&P 500 15 Year Performance Chart
With the S&P 500 about 7% away from its all-time high of 1565.15, I am skeptical the market is poised for another multi-year decline. The stronger earnings, higher dividends, reasonable valuations and an improving US economy are four main catalysts why I currently doubt the rally won’t fall off the edge of a cliff.
Conversely, I don’t expect double-digit returns in the coming years.
I believe that stocks may produce below historic average returns in the years ahead and in the near-term the market and associated economies face daunting challenges in the coming months. This includes – a sluggish global economy, European financial stress, U.S. budget battles and the looming fiscal cliff. However, with better fundamental drivers of value than at similar points in the past 15 years, stocks are likely to weather most potential outcomes better than they have in the past, making a return trip to the lows of the 15-year range unlikely, at least for now. Plus, if history is to repeat itself we are three years into the five-year cycle – but that is a very big “if”.
welshmoneywiz 