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2009 Budget Overview
Tuesday, April 28th, 2009 | Financial Digest | No Comments
2009’s Budget was never likely to provide much in the way of good cheer. As the Treasury struggles to cope with the cost of the recent bank bailouts and the rising cost of social security and falling tax revenue, public borrowing is set to soar to record levels. In an attempt to help the UK balance its books, Chancellor of the Exchequer Alistair Darling intends to cut growth in spending on public services by almost half from 2011 and, in a surprising move, he announced that that those earning more than £150,000 per year will be taxed at a new high rate of 50% from April 2010.
The Budget also included a reduction in tax relief on pension contributions paid by high earners. Tax relief for those earning more than £150,000 per year will be tapered off, disappearing completely for those earning £180,000 or more. Meanwhile, those earning more than £100,000 per year will see the withdrawal of their personal allowances from April 2010.
Fuel duty will rise by 2p per litre in September, while duty on alcohol and tobacco rose by 2%. Darling announced £2 billion-worth of help for the unemployed, and measures intended to boost the housing market and the motor industry. The Budget included some help for businesses, although the Confederation of British Industry criticised the Budget, commenting that it did not set out a “credible and rigorous path for restoring the public finances to health.”
Pensioners will see the basic state pension increase by at least 2.5%, regardless of inflation, and current winter fuel allowances will be maintained for another year despite the recent fall in energy prices. The limit on savings that pensioners can possess before their Pension Credits are reduced will rise to £10,000 in order to help those negatively affected by low interest rates. Meanwhile, the annual limit for ISA contributions will rise this year to £10,200 per year for those aged over 50, and for everybody from next year.
Darling expects Britain’s economy to shrink by 3.5% during 2009, and return to growth the following year. However, the International Monetary Fund expects the UK to contract by a rather more drastic 4.1% in 2009, and does not expect Britain to return to growth during 2010. Darling appears to be gambling on a relatively swift economic recovery for the UK; only time will tell whether this gamble will pay off. Here’s some more detail:
INCOME
Income Tax Increase
From the 2010/2011 tax year earnings over £150,000 will be subject to a new income tax rate of 50%. Pension contributors currently enjoying higher rate relief and earning in excess of £150,000 will continue to enjoy higher rate relief providing
a). pension contributions do not exceed £20,000, or
b). contributions in excess of £20,000 have been “regular” for the past two tax years.
Further information can be found in BN47 on the HMRC website.
Income Tax (dividends)
From the 2010/2011 tax year the highest rate of tax on UK dividend income will rise from 32.5% to 42.5%. This will affect investors with income in excess of £150,000.
Personal Tax Allowance
This will be reduced by £1 for every £2 earned above £100,000 from April 2010. Consider increasing pension contributions or “salary sacrifice” to reduce or avoid this additional charge.
Trust Taxation
As from 2010/2011 tax year the income tax applicable to most trusts will rise to 50% and at the same time trustee dividends will be taxed at 42.5%. The careful use of trusts may avoid both of these tax charges.
PROPERTY
Stamp Duty
The Stamp Duty holiday has been extended to the year end. Homes up to £175,000 will remain free of Stamp Duty providing the purchase completes by 31 December 2009.
Shared Equity Scheme
The Chancellor has made a further £80m available to help first time buyers onto the property ladder with the Shared Equity Mortgage Scheme.
Energy Eficient Housing
An extra £100m has been made available to build energy efficient homes.
PENSIONS
State Pensions
The Chancellor has commited to increasing the State Pension in 2010/2011 by a minimum of 2.5% even if we remain in a period of deflation.
Pension Credit
Individuals will be able to hold savings up to £10,000 before being means tested for Pension Credit. This replaces the existing £6,000 limit.
INVESTMENT
ISA Limits Increased
The Chancellor has increased the ISA limit to £10,200 from October this year for over 50’s. This will be extended to everyone else in April 2010. Up to 50% of the ISA investment can be in cash.
Enterprise Investment Schemes
Under previous rules investors could carry back 50% of the investment made up to 5th October subject to an overriding limit of £50,000. This restriction has been removed, allowing the full EIS limit of £500,000 to be carried back.
OTHER CHANGES
Winter Fuel Allowance
Last tax year’s special allowance of £250 for the over 60’s and £400 for over 80’s has been continued for this tax year.
Tax Planning Schemes
HMRC is to publish details of ineffective tax planning arrangements to increase consumer protection.
Offshore Disclosure Arrangement
HMRC will introduce a third opportunity to disclose assets held offshore, giving another chance for those with undisclosed assets to settle with HMRC, thereby normalising their affairs.
Inheritance Tax
As expected the Inheritance Tax (IHT) Allowance has moved to £325,000, giving an effective tax limit on second death of £650,000, providing the couple concerned are either married or in a Registered Civil Partnership. The rate of tax applicable remains at 40%.
For further information and help with your understanding of this budget and its implications, contact us on 0845 30 50 222.
Global Markets Update April 2009
Thursday, April 9th, 2009 | Market Updates | No Comments
Global equity markets staged a recovery during March. Share prices rallied from the middle of the month following the news that the US Federal Reserve (Fed) intends to buy back over US$1 trillion-worth of debt, fuelling hopes of an earlier-than-expected end to the global recession. Concerns about deflation rapidly evolved into worries about the possible return of inflation, leading to renewed interest in gold and other commodities as a means of protection against inflationary pressures.
Central banks are trying increasingly radical methods of stimulating their economies. The Bank of England announced a programme of quantitative easing intended to encourage commercial banks to revive lending activity. The measures involve the purchase of £75 billion-worth of commercial banks’ assets, which will be financed with newly created money. Meanwhile, the Fed announced plans to inject almost US$1.2 trillion of newly created money into the US economy in order to help kick-start bank lending, revive the housing market and lead to economic recovery. Nevertheless, export growth is still on the wane in the UK, US, China and Germany, reflecting the decline in worldwide demand, and the World Bank expects the global economy to decline for the first time since the Second World War during 2009.
After reaching a 12-year low during early March, share prices in the US rose in the latter part of the month, led higher by the financial sector. This rally followed the announcement of further measures to alleviate the effects of toxic assets upon American banks, and news of better-than-expected new home sales.
Equities advanced in the UK during March; however, their rise was relatively muted, dampened by a raft of disappointing corporate profits announcements and yet more negative economic news. Share prices in Europe posted relatively strong gains overall, although underlying country performance was mixed, reflecting the fortunes of individual companies and a welter of overwhelmingly negative economic data.
Most Asian markets posted strong gains during March, buoyed by hopes that the world might emerge from recession sooner than expected. In particular, financial stocks rallied on the news of the Fed’s quantitative easing measures. Japan announced further measures intended to stimulate flagging economic growth, although Japan’s substantial public debt is likely to hamper its scope to boost its economy. Meanwhile, Japanese exporters were heartened by a weakening in the yen ahead of the fiscal year end, amid mounting hopes that the global financial crisis might be on the wane.
Surviving the Crunch
Monday, March 30th, 2009 | View from the Top | No Comments
Ten Point Checklist to help counter the Credit Crunch
Managing Partner Simon Harris writes:
It depends on where you subscribe, but the current economic difficulties are expected to end somewhere in the next 3 years.
The important point is that all sources report that it WILL end – the Federal Reserve Chairman recently suggested that it may be as soon as the end of 2009. In the light of all published performance indicators this appears optimistic, but if it were true that could lead to a very quick return to positive in the UK thereafter.
In the meantime the majority of people in the UK are waiting for the turnaround, some more concerned about survival than others. Is there anything we can do to improve our circumstances while we wait? This checklist might help to ensure you are in the best position:
1. Review your savings return.
Most savers have lost out over the past 12 months, but there is no reason to simply accept the rate your current savings institution is offering. There are many ways to invest for a better return, for which seek expert advice from an independent financial adviser.
2. Can you release equity from your house?
Whether for your own requirements or a family member, it is often possible to release money from your property despite the difficult lending environment. Even if you are not working or have retired there may be a plan to suit you. An independent broker can help further – please resist the temptation to do this on your own as it is now, more than ever before, a specialist field.
3. Have you made best use of tax allowances?
It is surprising how few people fully utilise the tax allowances available, but then again the information is not always that easy to find or digest. An independent financial adviser can help to ensure that you have used your allowances effectively.
4. Do you have employment insurance?
Unless you have been notified of redundancy it’s not too late to insure a percentage of your income, protect your mortgage payments or provide a fixed lump sum in the event of redundancy. An independent adviser will find the best policy for your circumstances.
5. Have you checked your mortgage payments?
Despite the fall in house prices and sales volumes there has been some good news in the falling interest rates for borrowers. There are some excellent savings to be enjoyed, check first with your existing lender to ascertain their best offer and then use an independent broker to compare that to the whole mortgage market for you.
6. Compare your life insurance.
Rates have fallen over recent years and you may well be able to switch life insurance providers achieving the same (or better) cover for a lower premium.
7. Review your pension fund.
You may be surprised by the improvements available by changing providers. It is essential to use an independent financial adviser, as pensions can be quite complicated.
8. Compare your other insurances.
Many people already compare buildings and contents, car, pet and holiday insurances using an Internet comparison website, which often does not present every available option. If you are not doing so, now is a good time to start, or better, seek help from an independent broker.
9. Are you under notice of redundancy (or feel it’s imminent)?
I. Make sure you know the redundancy procedure at your firm and check that it meets the legal requirements. Try www.direct.gov.uk for more details.
II. Make full use of the £30,000 tax free band for redundancy payments.
III. Consider paying for transitional benefits to be included in your severance package – it may be a lot cheaper that way and buy you some time whilst you look for other work.
IV. Look closely at your pension if funded by your employer – this should also be included in your severance pay and is tax efficient for your employer.
10. Are you struggling with mortgage or other loan repayments?
I. Never hand back the keys to your house – you will continue to be responsible for the debt and any shortfall after the bank has sold the property. The fees and charges will be significant and lenders will respond more positively to a borrower taking action to address the problem than one who is in denial.
II. Talk to your lender first – whether it’s a secured or unsecured loan you should always contact your lender first to discuss the options that they are prepared to make available to you.
III. Talk to your financial adviser – review your overall financial position with an independent financial adviser, who will introduce you to a debt specialist if appropriate. There may be savings that you have not considered, or different ways to release money from your existing position.
So, in all there are a number of moves you can make to try to keep ahead of things. Many of these points form the basis for an ongoing regime, which your adviser will guide you through as part of your annual review process.
Please telephone 0845 30 50 222 to arrange a free initial appointment.
Quantitative Easing – What…?
Thursday, March 26th, 2009 | Financial Digest | No Comments
UK interest rates reached a new low in March as the Bank of England (BoE) cut rates from 1% to 0.5%. The cut, which was widely expected, brings interest rates even closer to zero, reducing the BoE’s scope to boost economic activity through monetary policy.
The news that UK interest rates had fallen yet again triggered renewed concerns about the outlook for savers, who have been badly hit by the dwindling rates on their deposit accounts. The Building Societies Association went so far as to describe March’s rate cut as “a kick in the teeth for savers”, while the Confederation of British Industry criticised the BoE’s ongoing series of rate reductions, describing them as “becoming less and less effective as a means of stimulating the economy”. Lower rates are also likely to renew pressure on sterling, which has already weakened substantially.
In a radical and unprecedented move, the BoE announced that it intends to pump £75 billion into the financial system by buying securities from banks in return for additional credit. Although this measure – known as “quantitative easing” – is sometimes described as “printing money”, no new banknotes are actually produced; nevertheless, because the BoE’s asset purchases are not funded by debt, they should increase the circulation of money in the financial system. Many experts believe that a lack of available credit is a far bigger problem than the cost of borrowing and the BoE is likely to hope that its programme of quantitative easing will help to alleviate this problem.
ISA Matters 2009/2010
Thursday, March 5th, 2009 | Financial Digest | No Comments
After a tough 2008, effective financial planning is more important than ever.
Why not start 2009 by taking full advantage of the tax breaks available to you? Whether your priority is capital preservation, or taking advantage of uncertainty in the markets, now is a good time to think about Individual Savings Accounts (ISAs). You can use your ISA to save cash or invest in stocks and shares. Save cash in an ISA and the interest will be tax freeInvest in shares or funds in an ISA – any capital growth will be tax free and there is no further tax to pay on any dividends you receive. Whatever your views on the market, we will be able to assist you in making the right investment decisions and ensure you make the most of the tax breaks open to you. ISAs are an important part of this as any income or capital gains are completely tax free.
Use it or lose it
The end of the tax year is fast approaching, which means there’s limited time left to use your ISA allowance for 2008/09. You can invest the whole ISA allowance of £7,200 in a Stocks and Shares ISA, or you can split it between a Cash ISA and a Stocks and Shares ISA – for example: £3,600 in a cash ISA and £3,600 in a Stocks and shares ISA. You can’t carry your allowance forward, so if you haven’t made the most of it now is the time to do so.
For the remainder of this tax year Lansdown Place are recommending a number of ISA options which are available to Investors via the Lansdown Place WRAP. This is a new facility that Lansdown Place are delighted to be able to offer to our clients, at its most simple it is a system for enabling you to hold all of your investments in one place, but yet diversifying your holdings between over 1600 collective investment funds. All the funds are available with discounted charges and the WRAP system has the added benefit of requiring minimal paperwork from you to establish your ISA account.
In order to assist you in making a decision of where to place this years ISA allowance I have highlighted some funds and options below, which I hope you will find of interest. We hope that this summary is of interest to you, if you would like to discuss making an ISA contribution in the current tax year then all we ask you to do is to get in touch with us, in order we can organise the investment for you and forward our essential paperwork for your signature and return.
Please note that the stated funds and ISA options below are not recommendations to you; all ISA contracts placed in the current tax year will be done after full consultation with our clients and one of our independent financial advisers
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Cash |
Owing to the recent market turbulence many investors are keeping money on deposit. The savings rates offered by the majority of institutions are sub-1%. Standard Life Bank are offering a Cash ISA with a current rate of 2.1% |
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Fixed Interest |
The fixed interest market incorporating government gilts and corporate bonds in a range of listed companies is a popular home for new money being invested in the current economic climate. In this area there are the following funds: Templeton Global Bond Fund The fund’s investment include a portfolio of fixed and variable rate debt obligations of governments, government related or corporate bond issuers worldwide. Standard Life Investments AAA Rated Corporate Bond Fund – This fund invests solely in AAA rated corporate bonds |
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Absolute Return |
Another area which has proved popular with investors is the absolute return investment strategy, this allows fund managers to invest up to 100% in cash if they feel equity markets will produce a negative return. The ethos of this type of investing is to produce a positive return for investors year on year, in this area there are the following funds: BlackRock UK Absolute Alpha Fund The fund invests primarily in a portfolio of equities and equity-related securities of UK Companies. It reserves the right to invest in cash and cash like holdings, to achieve a positive return from the portfolio. Octopus Total Return Fund This fund aims to achieve a positive return for investors through investment in UK equities. The fund is managed against a cash benchmark rather than any UK equity index, reflecting the aim to deliver a positive return in all stock market conditions. |
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Equity |
Despite Stocks and Shares hitting the headlines for dramatic falls and volatility over the last year, they do represent an opportunity to invest whilst prices are suppressed. In view of this we are highlighting one traditional fund that has performed consistently over the long term. Invesco Perpetual High Income Fund This well established popular fund aims to achieve a high level of income together with capital growth. The fund invests primarily in companies listed in the UK. |
Global Markets Summary
Friday, February 27th, 2009 | Market Updates | No Comments
‘Stop the world, I want to get off…’
The true cost of the sub-prime mortgage meltdown
2007 was the year in which the US sub-prime mortgage sector collapsed, triggering worldwide problems within the financial system. However, 2008 was the year in which governments, businesses and individuals became fully aware of the consequences of the sub-prime debacle amid the development of a worldwide credit crunch.
As the year progressed, investors and governments realised that the problems faced by financial institutions were even more extensive and serious than had previously been thought. Moreover, it became clear that these problems would not remain confined to the financial sector, but would affect almost every business and household. During 2008, confidence in the financial system has collapsed, share prices have plummeted and governments and central banks have striven to boost confidence in the financial system and kick-start lending activity.
A banking sector in disarray
The collapse of sub-prime and the subsequent credit crisis led to massive changes in the structure of the global financial sector, not to mention wholesale redundancies. JP Morgan bought troubled investment bank Bear Stearns in a deal underwritten by the US Federal Reserve (Fed), while American International Group (AIG) was bailed out in order to avoid the risk of meltdown in the global financial sector. However, 158-year-old Lehman Brothers was allowed to collapse in a move that shook the sector. Merrill Lynch was taken over unexpectedly by Bank of America, and venerable investment banks such as Goldman Sachs decided to transform themselves into ordinary bank holding companies in order to allow themselves the chance to benefit from Treasury funding if necessary. Meanwhile, in the UK, mortgage banks Northern Rock and Bradford & Bingley were nationalised by the British government and Lloyds TSB launched a takeover bid for HBOS.
Iceland hit the headlines in the autumn following a raft of bank failures that strained relationships between London and Reykjavik amid concerns that Iceland was refusing to guarantee the deposits of UK-based savers. This controversy, combined with Northern Rock’s collapse in 2007 and subsequent concerns about toxic debt within the banking system, triggered new debate about compensation schemes for savers.
Global stock markets experienced heavy losses
Financial markets experienced wild swings during 2008, and movements of four per cent in a single day were not uncommon towards the end of the year. The MSCI World Index fell by over 40% during 2008, and every major market experienced heavy losses, with the American stock market plumbing depths not seen for over five years. Corporate profits are under pressure; companies are cutting or cancelling dividends, and high levels of redundancies are swelling unemployment statistics as firms do whatever they can to cut costs, shore up their profits and stay afloat. Higher unemployment is likely to compound pressure on economic growth as consumers tighten their belts and stop unnecessary spending.
Propping up the financial system
Amid the financial and economic turmoil, governments and central banks have worked hard to prop up the financial system. After some political wrangling, the US agreed a rescue package worth US$700 billion intended to help bring back confidence in the financial system and encourage banks to restart lending activity. A subsequent package worth a further US$800 billion was agreed in November. The European Commission announced a spending plan to boost the eurozone economy worth €200 billion, while the UK government announced measures to help shore up the UK economy in its annual pre-budget report.
Interest rates tumbled
Interest rates provided some of the most dramatic headlines during 2008. UK interest rates began the year at 5%, and ended the year at 2% – their lowest level for over 50 years – amid growing fears about the risk of deflation and concerns about the worse-than-expected economic downturn. Meanwhile, American interest rates reached an all-time low of 0.25% as the Fed attempted to kick-start economic growth and control price stability. The Fed’s actions have increased speculation that the Bank of Japan might cut Japanese interest rates from their current level of 0.3%. Elsewhere, interest rates in the eurozone ended the year at 2.5%, but have been tipped to fall as low as 1.75% during 2009.*
So what will 2009 bring?
The International Monetary Fund (IMF) expects world economic growth to slow from 5% in 2007 to 3.75% during 2008 and to just over 2% in 2009, and this decline is likely to be led by the major economies. The IMF expects the UK economy to experience a particularly significant decline of 1.3% during 2009, while, the all-important US economy is forecast to contract by 0.7% next year. **
Although analysts still await official confirmation, the UK and US economies are widely considered to have fallen into recession some months ago, and this has already been discounted in share prices. Nevertheless, businesses, investors and analysts remain preoccupied by the possible length and severity of the recession, and are likely to keep a sharp lookout for evidence that the economy is either improving or deteriorating. As we say goodbye to 2008 and head into 2009, this uncertainty is likely to keep investors’ nerves on edge, and ensure that share-price performance remains volatile.
Sources:
* Bloomberg, 15 Dec 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=azuNjokrEk88&refer=home
** International Monetary Fund, 6 Nov 2008
http://www.imf.org/external/pubs/ft/weo/2008/update/03/index.htm#table1
Capital Gains Tax
Friday, February 27th, 2009 | Financial Digest | No Comments
Capital Gains Tax: by Paul Kennedy
What was the biggest event of last year and what does that mean for 2009? 2008 was a year when big themes dominated the agenda and gallons of ink will be spilled retelling all the events and crystallising their meaning.
If only to avoid the worst losses, investors have needed to be on the right side of the big bets – oil and financials; emerging and developed markets; and the shifting dominance of the biggest currencies. Finding oneself on the wrong side of those trades would have cost dearly yet, amid the investment turmoil, one of the most significant events of the past year became somewhat forgotten – the introduction of the 18% capital gains tax (CGT) rate.
Last March, the financial crisis began a new phase as vultures gathered in the skies above Bear Stearns and the US administration orchestrated JP Morgan’s purchase of the stricken investment bank. At the same time Alistair Darling confirmed a new simple flat rate of tax of 18% was to apply to capital growth, bringing an end to the previous more complex regime where rates could be as high as 40%, reducing down the longer an investment was held.
Of course, there is no connection between these two events except the month they occurred, but both deserve a place in the record of 2008’s significant moments. One will be remembered as a watershed in this financial crisis, the other will have a profound and lasting effect on how investors in the UK approach their fund buying.
The introduction of the new rate of CGT started to bring a real focus to how tax is applied to the two main investment wrappers – investment bonds and collectives. Until last March, many in the industry were at ease with the investment bond’s unofficial default position but afterwards, when the Chancellor had moved the tax goal posts, it became even clearer the same client in the same investment fund could be at a considerable advantage holding their investments in one wrapper rather than another.
The extent of the difference the wrapper can make is as startling as any of the major financial events of the year and it is not hard to imagine that, in the real world, it might make as much of a difference to a client’s end investments as any of the year’s big investment trades.
We performed some analysis – simple mathematics – to establish which type of investment wrapper is better for investors. This found, for example, the return for a higher-rate tax payer investing for capital growth would be up to 70% better if their investments were wrapped in a collective rather than a bond. In any other year this news would have grabbed the headlines, but the other events of 2008 meant it was but a whisper in the wind of the financial storm.
The conclusion of the analysis is that different investors with different investment needs will need to consider carefully their choice of wrapper. Until last March, lump sum investing was a simple ‘one, two, three’ process where the adviser assesses the client’s appetite for risk and their investment needs, then devises an asset allocation before selecting the best funds. But there is now a fourth dimension – tax planning. With such a difference in their client’s ultimate return at stake, it simply cannot be ignored. So in 2009, as investors gingerly return to the markets and their appetite for risk is rediscovered, advisers will need to establish their process for understanding the implications from a tax perspective of investing in one wrapper or another. This year we must also start to tackle the thorny issue of what do with an existing investment that is palpably now in an inefficient tax wrapper. Whether investors return with new money or not, there will remain a need to review existing wrappers to ensure they remain in the interest of the investor.
In the past, suggesting one wrapper over another might have been done at the expense of efficiency – a client with a variety of investment bonds and collective investments would be a complex account to manage. But with the rise in popularity and usability of neutral platforms, which offer all wrappers as a simple option after the main investment selection and consolidate them thereafter, the decision is much less, well, taxing.
The platform will also offer clients consolidated tax statements, reporting tools and, now income can be drawn regularly and automatically from capital if required, the option to initiate a regular withdrawal plan. This can be especially useful for investors looking to make the most of their CGT-free allowance each year as part of their income.
For much of the coming 12 months, finance and the dire state of the world’s economy will continue to dominate the headlines. At some point during the year, that will change and more positive news will emerge. Before that, advisers can help their clients with the good, albeit less exciting, news of CGT.
Paul Kennedy is head of trusts & tax planning solutions at Fidelity FundsNetwork
On your best behaviour
Friday, February 27th, 2009 | Financial Digest | No Comments
Investors are strange creatures: they wait until the market has risen before they put money in and then sell out when the market has plunged – or worse, hold on to a floundering stock, waiting for it to get back to the value they paid for it.
Why do we behave irrationally? We would not wait for the price of our morning coffee to go up 20% before buying it, so why do we do this with investments? Why do we panic when markets drop, even though we knew it would happen? And why do we become attached to lame ducks when selling them and moving on would get our money back quicker?
Many theories abound: go back as far as the 18th century and economists such as Adam Smith were seeking an explanation of why markets behave as they do. One that has gathered force of late is behavioural finance.
Behavioural finance suggests people often make decisions based on so-called rules of thumb, rather than after rational analysis. Technically referred to as heuristics, it involves understanding that the way a problem is presented can affect the outcome (a process called framing). Therefore, market inefficiencies are not the only way to explain outcomes that go against rational expectation.
Two of the most influential psychologists in the field are Daniel Kahneman and Amos Tversky who, in 1979, published a paper comparing models of rational economic behaviour with decision-making during times of risk and uncertainty. Their theories sought to explain anomalies in the way investors and financial markets react.
These theories help explain how we all got pulled into phenomena such as the technology boom (mostly too late to make any real money), despite the irrational theories that tend to support them.
They also help explain why we sell out of a falling market, just when our loss is at its greatest, and why we hold on to ‘loved’ investments long after they have started to go wrong. And it is why we shy away from markets that have underperformed, despite indications of great potential.
Increasingly, asset managers are using pricing models to take behavioural biases into account, as they believe it gives them an advantage. If you understand these theories, you could have that advantage too. It can be difficult to swim against the tide but, in the long term, you may be very glad you did.
The burden of IHT
Friday, February 27th, 2009 | Financial Digest | No Comments
Despite the threshold rising to £624,000 for married couples and civil partners, (£312,000 for individuals) the boost in house prices over recent years means inheritance tax (IHT) could still be a concern for many people. It is therefore sensible for investors to consider the potential liability they may be leaving behind.
For most, the key contribution to the value of their estate will be the family home but it is not the only asset that counts. For example, ISA investments shelter investors from capital gains and income tax but not from IHT. Property held abroad also counts towards the total. The problem with IHT is not just that it has to be paid, but that it generally has to be paid quickly. Therefore, without a little planning, the family home or other heirlooms may need to be sold to meet the bill.
However, there are things you can do to offset the impact. For example, you have an annual gift allowance of £3,000 a year. Certain gifts for weddings, from parents, grandparents and even friends, are also exempt. Other useful tools, despite recent changes, include loan trusts and discounted gift schemes – indeed, there are a myriad of options available, some more complex than others.
This, along with the changes in legislation as the Government looks to close potential tax loopholes, mean it is always worth getting professional advice on the best way to ease any burden on your estate.
CALL US ON 0845 30 50 222
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UK Business News
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