Tag Archives: Investment Trusts

Main Residence Additional Inheritance Tax Threshold

5 May

This tax information and impact note affects individuals with direct descendants and personal representatives of deceased persons with total assets above the Inheritance Tax threshold.

George Osborne revealed in July 2015’s Summer Budget that he’d scrap the duty when parents or grandparents pass on a home that is worth up to £1m (£500,000 for singles). This will be phased in gradually between 2017 and 2020.



In recent years, property prices have risen far more quickly than the Inheritance Tax (IHT) nil-rate band. As a result the number of estates subject to IHT has been increasing rapidly.

This is contrary to the aim of the current government that only the wealthiest estates should be subject to IHT. The measures announced in the Summer Budget were widely publicised beforehand and formed part of the Conservative Party manifesto.

It was commonly reported that the new measure would give an effective IHT allowance of £1 million, although we can see that the full allowance of £1 million is not scheduled to come into force until 2020/21.

Policy Objective
This measure will reduce the burden of IHT for most families by making it easier to pass on the family home to direct descendants without a tax charge.


Background to the Measure
The measure was announced at Summer Budget 2015.


Operative Date
The measure will take effect for relevant transfers on death on or after 6 April 2017. It will apply to reduce the tax payable by an estate on death; it will not apply to reduce the tax payable on lifetime transfers that are chargeable as a result of death.

The main residence nil-rate band will be transferable where the second spouse or civil partner of a couple dies on or after 6 April 2017 irrespective of when the first of the couple died.


Current Law
Section 7 of the Inheritance Tax Act 1984 (IHTA) provides for the rates of IHT to be as set out in the table in Schedule 1 to that Act. The current table provides that the nil-rate band is £325,000.

IHT is charged at a rate of 40% on the chargeable value of an estate, above the nil-rate band, after taking into account the value of any chargeable lifetime transfers. The chargeable value is the value after deducting any liabilities, reliefs and exemptions that apply.

Where an estate qualifies for spouse or civil partner exemption, the unused proportion of the nil-rate band when the first of the couple dies can be transferred to the estate of the surviving spouse or civil partner, sections 8A-C IHTA. The nil-rate band can be transferred when the surviving spouse or civil partner dies on or after 9 October 2007, irrespective of when the first of the couple died, so that the nil-rate band can be up to £650,000. There is currently no specific exemption for a residence, or for assets being transferred to children and other direct descendants.

Section 8(3) to Finance Act 2010 provides for the nil-rate band to be frozen at £325,000 up to and including 2014 to 2015. Section 117 and paragraph 2 of Schedule 25 to Finance Act 2014 extends the freeze on the nil-rate band until the end of 2017 to 2018.




How This Works in Practice

  • The current allowance whereby no inheritance tax is charged is on the first £325,000 (per person) of someone’s estate – which is the value of their total assets they leave behind when they die. This remains unchanged. Above the threshold, the charge is 40%.
  • A new tax-free ‘main residence’ band will be introduced from 2017, but it is only valid on a main residence and where the recipient of a home is a direct descendant (classed as children, step-children and grandchildren). It is being phased in gradually, starting at £100,000 from April 2017, rising by £25,000 each year till it reaches £175,000 in 2020.
  • So in 2017 the maximum that can be passed on tax-free is £850,000 for married couples or those in a civil partnership, £425,000 for others. For singles, this is made up of the existing £325,000, plus the extra £100,000. For couples, when the first one dies their allowance is passed to the survivor, so that £425,000 is doubled to £850,000.
  • In 2020, the tax-free amount will rise to £1m for couples, £500,000 for singles, as the main residence allowance rises.
  • Currently, without the ‘main residence’ additional allowance, couples can leave a home worth £650,000 without it attracting inheritance tax (singles £325,000).
  • On properties worth £2 million or more, homeowners will lose £1 of the ‘main residence’ allowance for every £2 of value above £2m. So for a couple, properties worth £2,350,000 or more will get no additional allowance.

2. It can be offset against the value of the owner’s interest in a property, which, at some point, has been occupied by the owner as a residence. It will be available when an owner dies on or after 6 April 2017 and their interest in it is transferred to direct descendants.

3. The transfer must be on death and can be made by will, under intestacy or as a result of the rule of survivorship.

4. In general, the transfer must be outright but certain other transfers into trust on death are permitted: for example, bare trusts, IPDI trusts, and 18-to-25 trusts and trusts for bereaved minors.

5. Special rules will be introduced to protect those who downsize. How this will work is currently subject to consultation.

6. Where the value of the deceased’s estate exceeds £2m (after deducting liabilities but before reliefs and exemptions) the RNRB will be reduced by £1 for every £2 excess value. It is important not to underestimate the “before reliefs” part of this condition. It means you ignore business property relief and agricultural property relief, for example, which could make quite a difference.

7. The £2m threshold and the RNRB are due to increase in line with the CPI from 6 April 2021.

8. Where death occurs after 5 April 2017, the deceased’s RNRB will be set off against any chargeable transfers of a residence before the set off against the standard nil rate band.

9. Any RNRB that is not used on first death can be transferred to a surviving spouse or civil partner. This is the case regardless of whether the deceased could have used their RNRB or not. The amount unused will be applied to uplift the survivor’s RNRB entitlement on second death


What If I Downsize?

There are measures in place to make sure the new proposals do not discourage individuals from downsizing. These measures will only apply to someone who ceases to own their main residence on or after 8 July 2015.

Initially it looks like this would only apply in a very limited number of circumstances. The example given in the Treasury policy paper is that if someone downsized from a house worth £200,000 to a home worth £100,000 they could still benefit from the maximum allowance of £175,000 in 2020/21 if they leave the home and £75,000 of other assets to direct descendants.

Where we could see the rules having more practical relevance is where someone has sold their main residence and moved into a nursing home. In these circumstances, they would be able to leave assets worth up to £175,000 (by 2020/21) to a direct descendant.


Who is likely to be affected
Individuals with direct descendants who have an estate (including a main residence) with total assets above the Inheritance Tax (IHT) threshold (or nil-rate band) of £325,000 and personal representatives of deceased persons.


General description of the measure
This measure introduces an additional nil-rate band when a residence is passed on death to a direct descendant.

This will be:

  • £100,000 in 2017 to 2018
  • £125,000 in 2018 to 2019
  • £150,000 in 2019 to 2020
  • £175,000 in 2020 to 2021

It will then increase in line with Consumer Prices Index (CPI) from 2021 to 2022 onwards.

Any unused nil-rate band will be able to be transferred to a surviving spouse or civil partner.

The additional nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.

There will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

The existing nil-rate band will remain at £325,000 from 2018 to 2019 until the end of 2020 to 2021.




Husband dies in 2020/21 and leaves his share in the residence, valued at £87,500, to his children; balance of his estate to his wife

  • £87,500 of £175,000 RNRB (Residential Nil Rate Band) set off against transfer
  • Extra 50 per cent RNRB to widow for possible set off on her subsequent death
  • Full standard NRB and transferable standard NRB also available
  • Where the first death occurrs before 6 April 2017, both the amount available for carry forward and the RNRB at the time of first death are deemed to be £100,000, thereby ensuring that, in these circumstances, the residence nil-rate band is always increased by 100 per cent on second death unless the estate of the first to die exceeded the taper threshold.
  • This is the case regardless of whether or not the estate of the first to die included a qualifying residential interest and irrespective of what dispositions occurred on their death.


Example 2.

When the first to die dies with an estate of more than £2m, entitlement to the RNRB is tapered away at the rate of £1 for every £2 of excess value. This applies on the first or second death and regardless of when the first death occurred.

Husband dies in 2021/22 with an estate valued at £2.2m

  • Husband leaves the whole estate (including an interest in the main residence) to his wife
  • RNRB on first death is reduced by £100,000 (4/7) or 57.2 per cent
  • Transferable RNRB is 42.8 per cent
  • On the subsequent death of the widow, if she dies with an estate of £1.5m, she can use all of the standard NRB, 100 per cent transferable NRB, full RNRB and 42.8 per cent transferable RNRB
  • If both deaths occur before 6 April 2017, no RNRB is available to offset against the deceased’s estate.
  • If first death occurs before 6 April 2017, the RNRB is available for transfer if the subsequent death occurs after 5 April 2017.

So, quite a lot more to it than first meets the eye – and these are just the fundamentals.


Should I Plan / Should I Take Professional Advice?

There is quite a lot more to this change in legislation than first meets the eye – and these are just the fundamentals detailed above.

There are a few basics you should think about:

  • It’s crucial to make a will
  • Take professional tax advice


Oh and finally, inheritance tax planning is important, but don’t forget, the main thing is that you (or your parents) should have financial security in old age. Don’t sacrifice everything just to plan for someone else’s future. You’ve earned your money, so let it make you comfortable.

Inheriting ISAs : Changes to the ISA Rules on Death

23 Apr


Some are still unaware of the change in legislation.

Did you know that you can inherit your partner’s ISA savings? New rules came into being in April 2015 that mean ISA assets can now be passed on to spouses or civil partners and retain their tax-friendly status, and although it may not be nice to think about, it could make a huge amount of difference should the time come.

If you save into an Isa, it means you can grow your money in a tax efficient way. Unfortunately, when you die, this benefit dies with you – unless you’re married or in a civil partnership.

New rules introduced by the government enable your surviving spouse or civil partner to inherit your Isa savings when yoU die.


Why The Change?

Under the previous system, when someone died, any savings held in an ISA automatically lost their tax-free status. This meant that the surviving partner would have to start paying tax on any returns or income earned from it, which could add up to a significant sum if the ISA holder had been saving for many years.

The system was widely thought to be unfair, particularly given the fact that couples tend to save from joint incomes – they’d have to pay tax on money they thought was protected, and thousands of people were caught by these unexpected tax charges every year. Happily, things have now changed.


Pass on the benefits

The rules mean that if an ISA holder dies, the surviving spouse or civil partner will be able to inherit the ISA and retain its tax benefits. This is in the form of an additional allowance – the surviving partner is given an ‘additional permitted subscription’ (APS), a one-off ISA allowance that’s equal to the value of the ISA at the date of the holder’s death, which won’t be counted against the normal ISA subscription limit but will instead be added on to the survivor’s own ISA limit.

In other words, you’ll be entitled to an additional allowance that would cover the value of your partner’s savings as well as your own. For example, if your partner had £50,000 in ISA savings, your ISA allowance for the year would be £65,240 (the value of your partner’s savings and your own ISA allowance for the 2016/17 tax year, which stands at £15,240).

Essentially, the rules mean that the tax-efficiency of the ISA won’t be lost, and that you’ll be able to benefit from the money that could well have been saved together. The changes have been specifically designed to ensure that bereaved individuals will be able to enjoy the tax advantages they had previously shared with their partner, offering more flexibility and a much fairer outcome.

“Approximately 150,000 married ISA holders die each year, so these changes will benefit spouses or civil partners by increasing the amount that they can save by offering the tax advantages in an ISA wrapper,” said Carol Knight, operations director at TISA. “We see it as a much fairer outcome and one we have long advocated. [Surviving partners could have] lost out significantly under the previous rules whereby investments held by deceased ISA savers lost their tax-free status… Allowing ISA savings to be transferable will enhance flexibility and will act as a further incentive to save within these vehicles.”

Rules at a glance

  • Anyone whose spouse/civil partner died on or after 3 December 2014 is eligible, and the APS could have been claimed since the start of the 2015/16 tax year.
  • The rules apply irrespective of the size of the deceased’s ISA pots – no matter how much they’d saved in an ISA, you’ll have that amount as an additional allowance.
  • In the event that more than one ISA was held by your partner, the pots will be combined to give an overall additional subscription amount that you can claim.
  • APS allowance subscriptions (referred to as payments) can be made to a cash ISA and/or a stocks & shares ISA, either with the deceased’s ISA provider or with an alternative that will accept APS subscriptions (not all will).
  • Some ISA providers will allow payments to be made in instalments whereas others only allow a lump sum, so make sure to check.
  • Chances are, arranging your new allowance won’t be at the forefront of your mind on the death of your partner. In most cases, at least for subscriptions made in cash, the allowance is available for three years after the date of death.
  • ISA providers will require key information and personal details from the spouse/civil partner to open a qualifying ISA, and they’ll also require an application form to use the APS allowance.
  • The APS allowance can be transferred to another ISA provider, subject to the new provider’s acceptance.
  • It can only be transferred once and only where no subscriptions have been made under the allowance. But, after an APS allowance payment has been made, the cash and/or investments related to that subscription can be transferred to another ISA.




How are ISA Allowances Inherited?
Anyone whose spouse or civil partner died on or after 3rd December 2014 is eligible for a one-off additional Isa allowance equivalent to the value of the deceased person’s Isa at the time of death.

This is referred to as an ‘additional permitted subscription,’ or APS allowance.

Say, for example, that you’d saved up £50,000 in your Isa when you die. Your spouse will be able to make an additional contribution to their Isa of up to £50,000, in addition to their own Isa allowance for the year (£15,240 in the 2015/16 tax year).

This allowance is regardless of what’s in your will. Which means that even if the money is left for someone else to inherit, such as your son or daughter, your partner is still entitled to an increased allowance equivalent to the value of your Isa assets on the day of death.

So if you left £50,000 worth of Isa assets to your child, your partner would still be entitled to an increased Isa allowance of £50,000, although they would be using their own money to fund it.


Where can I invest the Isa savings I’ve inherited?
The surviving partner can choose where to transfer the inherited savings. They can:

  • Keep the money with the original Isa provider
  • Put the money with their own Isa provider
  • Open up a new cash Isa or a new stocks and shares Isa and place the additional subscription there
  • An APS allowance can only be transferred once but if there is more than one Isa to inherit, you’ll have an allowance with each provider.

Under the Isa rules, you can only have one cash Isa and one stocks and shares Isa per tax year. However, you won’t breach these rules if you open up an Isa for the sole purpose of transferring inherited savings.

So, you could have some money in your own cash Isa with one bank, and place the Isa savings you’ve inherited in another bank.

Once the transfer has been made, the normal Isa rules apply and the money is treated as previous years’ subscriptions.


Do Isa providers have to accept payments?
In short, no.

Isa providers aren’t obliged to accept APS allowances – so you may not been able to deposit inherited savings with your own Isa savings.

The 11 providers below, although could change their approach and are not the only but rather a few I can detail. This could change and there will be others. It’s just to demonstrate that even though the legislation has changed ISA providers may not offer the flexibility – please check with your provider their stance on this. I have found, these do not accept the additional allowance :

  • Bath BS
  • Buckinghamshire BS
  • Harpenden BS
  • Leeds BS
  • Manchester BS
  • Mansfield BS
  • Melton BS
  • Mowbray BS
  • GE Capital Direct
  • Furness BS*
  • Al Rayan Bank*


*Furness BS and Al Rayan Bank have said they are planning to accept inherited Isa savings in the near future.


Is there a time limit for additional Isa subscriptions?
When someone dies, their estate has to be administered. This means that all of their assets have to be gathered and debts must be repaid, before it can be distributed to the people named in the deceased’s will.

During this period, interest earned on savings in their Isa is taxable, and income tax may need to be paid.

To help couples keep the tax benefits of their savings, the increased Isa allowance can be claimed by filling out an application form and is available for three years after the date of death, or if longer, 180 days after the estate has been administered.


What happens when you inherit a stocks and shares Isa?
Stocks and shares Isas are treated in the same way as cash Isas under the reforms, with surviving spouses entitled to make additional subscriptions into either a stocks and shares Isa or a cash Isa.

There are two ways for a surviving partner to use their inherited stocks and shares allowance:

  • All of the investments – such as funds and shares – could be sold, and the resulting cash can be used to open a new Isa. This is known as a ‘cash transfer.’
  • Alternatively, the investments can be transferred directly without being sold. This is known as an ‘in specie’ transfer.
  • Additional subscriptions made via an ‘in specie’ transfer must be made within 180 days of the surviving partner inheriting the funds and can only be made to the deceased Isa provider.


Investment Bulletin – January 2016

22 Mar

From a momentum perspective, the pessimists were clearly in charge since mid-2015. On the other hand, the sheer size and scope of the setback opens the door to a possible market bounce… a volatile mode the market has been in for recent times. Only time will really tell if this oddly excessive poor start to the New Year was a fluke or the shape of things to come. It’s best to prepare for both possibilities. I’m pleased to say – this is part of our core philosophy.


We have been very busy reviewing and reassessing your portfolios, considering the impact of the recently and sometimes violently changing market conditions. The general outcome of our review so far, there are possible changes required and we will speak about this on a one-to-one basis.


The results so far indicate, a seriously vulnerable market but I’m pleased to report, we have seen excellent results relative to the general market. We’ve had the panic phase, so is it now time for the panic to subside? I believe there are strong indicators and potentially positive scenarios but as always, only in certain market geographies, sectors and themes.


Market Outlook

We believe the key catalysts have been :


  • concerns about Chinese exchange rate policy and associated GDP
  • a renewed collapse in oil prices
  • the problems in the Middle East have led to a dire refugee situation
  • the rate hike in the US followed by increased fears of a slow-down in the US economy.
  • the news that Brexit might become a reality after the June Referendum.


Macroeconomic and geopolitical factors look certain to play a key part in investor thinking again in 2016, and the outlook is as mixed as it was a year ago. Most western economies are improving slowly, with the US Federal Reserve finally raising its interest rate in December after holding it at an historical low for seven years. European economies also appear more steady, even on the periphery, it appears 2016 will see the continued divergence of central bank monetary policy, with the European Central Bank (ECB) and Japan both continuing their quantitative easing stance.


Fixed income was one of the stragglers in 2015, with low yields forcing many investors to seek alternatives, or to move higher up the risk spectrum. The expected divergence in monetary policy between the US and Europe will be a key theme in bond and currency markets.


Unless there is some surprise from central banks, it seems clear that the momentum for an even stronger dollar is likely to persist into 2016.


An increase in volatility is expected in the months ahead given the shift in the US monetary stance and the increasingly accommodative strategy of the ECB. If there is any sense that the Federal Reserve may be more aggressive than currently priced in, this could possibly lead to higher bond yields and a more negative reaction from credit markets.


In Europe, a sharp fall in the euro could trigger a steeper bond curve if inflationary expectations start to build, and this may be temporarily negative for credit spreads.



To paraphrase the late Jude Wanniski – the history of man is a battle between the creation of wealth and the redistribution of wealth. Jude was a Supply-Sider, which means an economist who believes that entrepreneurship and supply (not demand) drives economic growth.


Many pseudo-economists have sprung up since the recession voicing opinion rather than understanding, fuelled by a misunderstanding of 2008. They have clearly, used selective excerpts from Economists (such as, Hyman Minsky and the Minsky Cycle), have created an entire theory that the US economy (for example) is in a “crack-up boom.” The boom, according to these “pundits”, has been suggested to be solely caused by the Federal Reserve (Fed), Quantitative Easing (QE) and 0% interest rates, and now that the Fed has tapered and started hiking rates, it’s over and a bust is on its way.


These Pseudo-Economists have focused almost solely on money; they’ve forgotten the entrepreneur. We believe quantitative easing did not boost economic growth because banks shovelled that money straight into excess reserves.  We also believe in new technologies – simply, good old entrepreneurship is driving profits and economic output inexorably upward.


Volatility in The Markets

Most people think of volatility as a bad thing. It is assumed that higher volatility leads to higher risk of a negative outcome and as it is in our nature to be risk-averse, this tends to take the form of trying to avoid or hedge a loss.


Volatility can, however, be an investment opportunity and there are strategies that focus on exploiting bouts of market uncertainty to capture a return premium. Investors need to treat volatility like any asset that has a long-term expected return and a risk profile.


Investors should also bear in mind that periods of high volatility are usually short-lived. It is therefore key, to focus on the important developments and ignore the transient ones.



Maintaining a nimble and responsive portfolio is more important than ever. We have chosen to employ a systematic investment approach and diversifying across a number of underlying volatility strategies has the potential to add value to an investor’s portfolio. Particularly in this high-volatility environment, a number of different risk strategies to achieve the desired risk/return outcome to meet investment objectives is considered.


We have found the most effective and successful approach to investing, is to focus on the macro-backdrop potentially identifying short-term investment risks and with the potential of tactical advantages. The short-term volatility helps to provide longer term buying opportunities. We see these recent events as a superior opportunity to add value through the service we provide. Our wish is, within your attitude to investment risk, to target potential returns while focusing on capital preservation, where possible.


This bulletin provides information, it is not advice. Any opinions are given in good faith and may be subject to change without notice. Opinions and information included within this document does not constitute advice.

(If you require personal advice based on your circumstances, please contact me.)

Investment Bulletin – October 2015

12 Nov

2015 has been a poor investment period so far, seeing the most significant losses since 2011. The question I’m asking – are we about to see a similar outcome to 2011 with the investment markets rallying and posting significant returns? The answer I have is “maybe” – no one knows but what is clear is the markets have been in the grip of panic, leading in my opinion to being oversold. I believe that this will offer opportunities in certain investment markets for the future.


In recent years, the investment markets have been “trading in a range” and this has seen a fall from the top of the range. So, if the markets follow a similar model this could realistically lead to positive returns.


It has been our strategy to position your portfolio, within your risk profile, with the focus of relative capital preservation and real total returns. Relative to the market situation, we have performed above expectations and produced pleasing returns.


Our portfolios are well diversified and where relevant, we have already made recommendations leading to changes in the asset allocation and some of the fund selections.



Market Overview

It has been impossible to ignore the recent dramatic sell-off in the Chinese markets and the subsequent falls in other equity markets around the world. Despite the opening up of the Chinese economy its impact on the developed world is fairly limited as regards first round effects, with exports of goods and services to and from China a very small part of GDP (Gross Domestic Product) for all mainstream economies.




I think it is economies that kill markets not the other way around so I believe the current decline is overstated.


On a more positive note, lower commodity prices are, of course, producing a significant boost to the western consumer and we are seeing an acceleration in consumer spending across the US, Europe and the UK in 2015. Inflationary pressures are also likely to remain muted for longer and interest rate increases which, until recently, seemed almost a certainty over the coming months could well be pushed back. The US rate increase heavily tipped for December.


It is also worth noting that although we have seen sharp falls in equity prices, the moves in bonds have been much less pronounced.


Whilst we shouldn’t be complacent, bearing in mind that equity markets can often be a good signal of trouble ahead, I think weakness in China is not sufficient to bring down the global economy. We maintain a modest preference for equity markets but do expect volatility to remain. I am inclined to think the recent drama has been a bit of an over-reaction and is unlikely to have a significant impact in a raw economic sense.




We are expecting the prospect of the first interest rate rise since June 2006 and we await the December Federal Reserve meeting. The Fed’s actions in the coming three-to-six months could have wide-reaching implications for the global economy. We expect that if (and based on the Federal Reserve’s commentary and dialog, a rate rise is imminent), this will be closely followed by the Bank of England to raise rates. In both cases, we are expecting small incremental steps based on the strength of the economies. So do not expect large or quickly followed further increases. The expectation is this will not lead to a rise in bank interest rates paid to the consumer, as banks based on recent results and the multitude of fines and legacy problems are not anticipating paying a higher base to account holders.


We do expect more volatility but anticipate buoyant equity markets in the near future but with clear risks in several sectors, themes and geographies.


Therefore, we reaffirm our focus on valuation discipline and total return strategies, where care and attention is and will always be needed. This focus has allowed us to achieve above average returns in less than average markets over a longer term, always with a clear relative focus on capital preservation, targeted returns and risk profile.


This bulletin provides information, it is not advice. Any opinions are given in good faith and may be subject to change without notice. Opinions and information included within this document does not constitute advice.

(If you require personal advice based on your circumstances, please contact me.)

Pension Freedoms – Is Buy to Let a Stupid Option With My Pension Fund?

22 May



I have been investigating this due to the discussions in the tabloids but rarely with clients. If I cash in my pension fund, pay the tax and invest the residue in a property – is this a good idea? I have heard that near a university there are student flats available with a guaranteed rental for the first 12 months, etc etc

The details below are for all of those thinking of entering this market….

Image result for buy to let pictures confused

Since the change of Pension Legislation in April 2015, the press has been fully of “spiffy” ideas – why not use your pension to buy a Property and let it out. Much better than one of those silly ‘pension’ things. How can you lose? Property prices always go up??? Hurray for pension freedom! – if I made these statements in my professional life, I’m sure I’d be strung up …. seems madness just focusing on what might go right; what about the risks??? – there I go – typical financial adviser trying to offer a balanced representation – naughty, naughty

Firstly, unless you are going to get involved in timeshare and fractional ownership, we are talking about proper money here. I’d say £200,000 and more.

At that level, we can assume that the client is a higher rate taxpayer, and will probably have other assets.

So let’s run the numbers. Let’s see what this looks like.

If we accept the premise that pensions do and will perform worse than property, and that property can never fall – ‘stupid’ assumptions, but go on – then the simplified figures go something like this

£300,000 pension pot, assuming 6% gross growth, minus 1% fund and platform charges, and 1% adviser charge. A bit high, but OK.

Value of pot in 10 years is a bit under £447,250.

Instead, attracted by the publicity, we take the £300,000 and cash it in. That makes it worth £211,250, using the ‘tax free cash’.

Not great, but we are looking at higher returns. So 4% year on year compound capital growth and 5% income yields – both gross, but 9% total return as a starting point, 50% more than a pension portfolio.

Assuming that the client is a higher rate taxpayer throughout, and that the property is always occupied, and that there are never any capital events required (boilers, roof painting), there are no legal fees, there are no ‘void’ periods, that all tenants pay their rent and look after the property, and the property is sold at the imagined market value, then the net total value returned to the client – including income is… (drum roll) …. just under £399,438. So another £47,812 loss after the original £88,750 tax take.

So I guess the revenue will be supportive of this particular brilliance. Always remember there are other fees to consider, such as, Agents fees (they can be chunky as well), Stamp Duty, Legal Fees,m Contracts, Tenant Vetting, Property Maintenance, Property and Landlord Legislation, costs due to voids and periods of the property being empty, utility costs, tenants non-payments maybe, etc.

As a point of interest, any idea what the gross return needs to be for the Buy To Let to actually break even with the pension? A ‘critical return required?

Its actually nearer 14.5%.

Can you imagine if I tried to take this plan to our compliance for approval?

“I’ve got this great idea! We take a well diversified, flexible and secure portfolio, and cash it in. The client then pays at his highest marginal income tax rate (mainly 40% tax but a bit in the additional rate of 45%) and then invests in a single illiquid asset, which may well require them to add further funds, and take time to manage the asset themselves. There may be court costs involved at some point and we get to pay lots of agents fees and tax. And to match the boring, diversified portfolio, in a low inflation, low risk environment, this single, risky asset only has to grow by at least 14.5% every year to break even!! What a great wheeze!

Excuse me, why are you ringing the FCA……?”

In all the above I have ignored the effects of Inheritance Tax. Promises have been made. They have been before. This time they may be kept. Who knows?

But the BTL is assessable for Inheritance Tax, the pension is not. So if we look at Inheritance Tax, then an additional 40% tax knocks us down by another lump. A real and substantial loss after 10 years.

If your belief is, we all need to give extra coppers to the national pot – then this could be a good option – not only a loss through initial tax payable of £88,750, relative loss in capital value net of Capital Gains Tax of £47,812 but if Inheritance Tax applies then a further £159,775. This could provide £296,337 of tax and relative losses that you could have avoided.

I believe emotionally, some clients will be vulnerable to this suggestion, and clearly some will actually do OK. The numbers are brutal for the majority and I see my role must be to make people aware and protect them from the circling speculators, who are not held responsible for their wild and ill though through counsel.

Investment Bulletin – September 2014

30 Sep


2014 year to date has behaved more or less as expected, trading in a range with the FTSE 100 bouncing from (circa) lows of 6450 to highs of 6850 (data until 15.09.2014).


We have made good returns, especially relative to the market – so far in 2014. 2 January 2014 to 15 September 2014, the FTSE 100 Index rose 1.2% in total (and 16 September 2013 to 15 September 2014 rose 2.7%). If we keep this as a consideration of market performance – this explains my opinion.


Our forecast of challenging markets has been correct and our approach of diversity is serving us well and I expect positive relative performance for the remainder of the year and beyond. Markets change, the risks and potential outcomes of these markets will change. This will lead to our further discussions around funds selected and asset allocation – I expect that this will lead to some fund selection recommendations and changes.


Our portfolios are well diversified, but we are carrying out in-depth risk return analysis and taking into account your outlook to investment risk linked to your investment portfolio(s).


Market Outlook

Our plan is for your portfolio to combine growth stock, with income/yield generating assets and defensive assets to help protect the capital value during periods of market decline.


Our prediction based on the market so far, and our asset allocation and expectations are on track. The market will remain weak and trade within a range, we will see subdued economic growth globally, but with pockets, countries and some economies slipping into negative figures and possibility returning to recession.


I expect the remainder of the year to be beneficial from an investment perspective, leading to high hopes for 2015. So far, there has not been any unexpected fears entering the market and the optimists have not been able to lead a break or up-surge through market barriers. The UK economy continues to exhibit signs of sustained recovery, however, interest rates are now widely tipped to rise – and signs of dissent among Bank of England policymakers have fuelled speculation about the timing and scale of such an increase.

Market Round-Up

Signs of growth within the US economy has supported the idea that one of the world’s largest economies was on the path to recovery. Further ammunition was provided by the US Federal Reserve’s (Fed) statement that it would do whatever it took to be accommodative until economic data showed significant improvements.


Asian markets are becoming quite attractive, in part this is due to valuations and associated negative performance, especially in 2013. It seems reasonable to assume that many associated economies have bottomed out (key anticipated markets are possibly India, Indonesia and possibly China).  Outlooks are starting to improve – or so we believe.  In the long run, it is a common belief that these economies have better growth potential than developed economies.


When looking at sectors with the best growth potential, this seems to favour technology, small cap, commodities, Europe and healthcare. True, this is assuming that the overall economic global growth story continues, at least as strongly as predicted – now that is a big assumption.   There are vulnerabilities to the scenarios and is a key reason why we combine asset classes and consider both positive and negative associated correlation.


On the macro side, economic data remained mixed. Inflation in the eurozone

slowed further, unemployment remained constant. GDP figures showed the German economy shrinking, France’s stagnating and Italy falling back into recession. Yet, fundamentals remain constructive. Lead indicators still point to expansion in the eurozone, albeit at a slower rate. The fiscal drag in Europe has been significantly alleviated and the economic revival in some peripheral countries is still well on track. In Spain, latest total mortgage lending

figures showed a growth of 13.2% year-on-year. Corporate earnings have also improved in Quarter 2 and are set to grow in 2014, helped by a pick-up in global economic activity. Despite the latest headwinds, various economic forecasts still imply a strengthening of activity in the eurozone going into 2015.


Your portfolio is being monitored closely and should there be fundamental movements, economic date or expectations away from the planned – I will be in contact and changes where suitable recommended.

This bulletin provides information, it is not advice. Any opinions are given in good faith and may be subject to change without notice. Opinions and information included within this document does not constitute advice.

 (If you require personal advice based on your circumstances, please contact me.)



Investment Bulletin January 2014

6 Feb

Market Outlook

This may be the first year since 2007, where the market’s attention is not being dominated by a major tail risk. No double dipping, no fiscal cliff, no life or death moment for the Euro. It seems that the risks are more mid-term as in the problems bubbling away underneath the surface of the Chinese financial sector but this is not generally believed to be an imminent threat.

I agree it is the key medium-term risk to monitor in the global economy but this should not prevent you from being a bit optimistic currently. Instead, the relative normality in the global economy as we begin 2014 means developments in the good old belly of the probability distribution, rather than excitement or doom in the tail, are what matter for the markets.

Okay, fair to say, the markets are well poised for a short-term correction in the first half of this year but I believe we are prepared for this through your portfolio structure, asset allocation and funds selected. Although, as always, “watch this space” as I am constantly reviewing our assumptions, stress testing portfolios and recommending changes as and when suitable.

What Are The Important Questions for 2014?

1.  Will US capital expenditure (capex) pick up from its weak trend so far during the recovery?

The consensus expects US consumption to accelerate in 2014 and capital expenditure to modestly improve.

2.  Will forward guidance stop working?

It makes sense to us that the US Federal Reserve and the Bank of England are cautious by maintaining low policy rates as economies continue to normalise over the course of the year and this is reflected by current policy.

However, the crucial question is – will Janet Yellen and Mark Carney be able to convince markets that the Fed and the Bank of England are themselves not moving towards pre-emptive inflation fighting mode? This is crucial for equity markets.

3.  Which of the so called ‘Fragile Five’ emerging markets (India, Indonesia, South Africa, Turkey and Brazil) will adjust relatively smoothly in 2014 to tighter financial conditions and which won’t?

India is making the best progress so far with the current account deficit falling and its superstar central bank head Raghuram Rajan is following enlightened policy to help the adjustment. In Turkey and South Africa, however, things are looking potentially uglier. All five countries have political elections in 2014, which look likely to act as catalysts.

4.  Where to for the Yen exchange rate?

I expect further Yen depreciation while we are this side of 120 Yen to the US dollar. The rationale being I believe that Yen depreciation and higher inflation are the core components of Abenomics, and still have much more work to do.

Market Round-Up

So it seems fair to say, there seems to be encouraging signs that Europe is now in a recovery phase (maybe), the UK economy is clearly on the mend, the US is seeing possibly a return to productivity; with Asia and Emerging Markets seeing a more contrived situation.

My guess is, we will see periods of expectations running ahead of reality – although the general outcome still potentially looks positive overall but with more volatility and clear periods of panic and decline; and of course the reverse, with signs of underlying growth and optimism.