The uses of investment losses…

The Covid-19 pandemic has seen the values of many investments fall. But lower values can have a useful upside.

Source: Data from

‘It’s an ill wind that blows nobody any good.’

So it is with the drop in the value of shares and investment funds that has occurred since the start of 2020. It’s worth remembering, however, that paper losses are just that unless and until you sell or otherwise dispose of the investments concerned. Only then do they become real losses.

One perhaps unexpected opportunity lower values offer is that they make it easier to restructure or rebalance investment holdings. Often long-term employees of listed UK companies build up substantial shareholdings in their employer as a result of share schemes, such as the tax-favoured share incentive plan or SAYE plan. The end product can be a ‘portfolio’ heavily weighted towards just one company’s shares – the same company that is the investor’s salary provider and pension funder.

The averaging of prices that goes into a capital gains tax (CGT) calculation can make it difficult to sell down such an outsized holding without facing a tax charge. Now that the value of those shares might have fallen by 20% or more, there is greater scope to create a more balanced portfolio before tax looms into view.

Estate planning is another area to focus on. If you make an outright gift of shares or holdings in funds, then for CGT purposes you are in the same position as if you sold the holding. Here lower values have three benefits:

  • The taxable gain is reduced or even transformed into an allowable loss.
  • Your gift has a lower worth than it would have done at the start of the year, so if it does fall back into the inheritance tax calculation under the seven-year rule, it will have a smaller impact on your estate’s inheritance tax calculation.
  • Any recovery in value occurs outside of your estate.

There are several other ways to utilise market falls in your planning but, as always, make sure you take advice before taking any action.

The value of your investment can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Tax treatment varies according to individual circumstances and is subject to change

The Financial Conduct Authority does not regulate inheritance tax advice.

Rise in lockdown will writing highlights forward planning needs

One perhaps unsurprising side-effect of the Covid-19 pandemic has been an upsurge of interest in wills and estate planning. However, the lockdown is constraining options.

Press reports have suggested that the increased interest in will writing has been particularly high among those in the older age brackets who are more vulnerable if they become infected.

At the best of times, a will is often left on the ‘to do’ list, rather like the tax return or fixing the next dental appointment. That procrastination helps explain why it is reckoned that more than half of adults do not have a will. The tax return and dental appointment have obvious prompters – 31 January and a toothache – but until now writing a will generally has not had the same impetus. Deferral is an obvious reaction to contemplating our own demise, but now Covid-19 has forced that uncomfortable consideration upon many of us.

A period of statutory self-isolation is not the ideal backdrop against which to draw up a will. The Law Society has succeeded in having solicitors “acting in connection with the execution of wills” classed as key workers by the Ministry of Justice, but that still leaves several problems. In England and Wales, the Wills Act of 1837 requires the person making the will (the testator) to sign it and for their signature to be witnessed by at least two individuals. That’s not so easy with the stipulated two metres of social distancing…To complicate matters further, if those witnesses are beneficiaries under the will, the act of witnessing means they forfeit their entitlement.

In Scotland one witness is required and measures have been introduced to allow signing to be witnessed via video calls with solicitors. The Law Commission has accepted that digital signatures for deeds are valid under English law but made a deliberate exception for wills. The Commission’s decision was driven by a concern about the vulnerability of some testators. As it is, there is already a growing number of wills which are being challenged in the courts.

The lesson to be drawn is obvious: just as the roof should be fixed when the sun is shining, so too should a will (and the associated estate planning and lasting powers of attorney) be sorted before their possible immediate need becomes apparent. When we get to the other side of this pandemic – which will happen – make sure that writing or updating your will is on your ‘do’ list, not the ‘to do sometime’ list.

The Financial Conduct Authority does not regulate tax and trust advice, estate planning or will writing.

Crisis lessons – spotlight falls on social security net

The Covid-19 pandemic has highlighted many aspects of life which had previously gone unnoticed or ignored and found the holes.

The full extent to which supply chains are global is an obvious example. Our reliance on internet connections and their surprising robustness when the world turned to Netflix and Zoom is another. Of crucial importance to many people, that governments around the world latched onto quickly, was the need to bolster the poor protection provided by their social security safety nets.

In the UK, measures taken include:

  • Scrapping the four-day waiting period before statutory sick pay (SSP) began to be paid to employees suffering from Covid-19 symptoms – the self-employed do not qualify for SSP. The move sounded more generous than it was, as SSP is £95.85 a week.
  • Adding £1,000 a year to the standard allowance under Universal Credit, to bring it approximately into line with the value of SSP at £410 a month for a single person aged 25 or over (£594 for a couple).
  • Rolling out the Coronavirus Job Retention Scheme and the Self-employed Income Support Scheme (SEISS) to replace the earnings of those put out of work by Covid-19’s impact. The maximum payment under both schemes is £2,500 a month, with the SEISS paying out as a single three-month lump sum capped at £7,500. This compares with a standard Jobseeker’s Allowance of £73.45 a week (£116.80 for a couple).
  • Legislating to prevent evictions for three months and demanding mortgage lenders, credit card companies and others grant three-month payment holidays.

Some of the changes made by the government may endure – it will be hard to reinstate the former Universal Credit standard allowance, for example – but others are too costly or disruptive to maintain.

Whether or not you have benefited from any of the Covid-19 measures, it is worth considering how you and your family finances would have fared if instead of a pandemic, you faced the more common risks of losing your job or even dying. There would be no enhanced state safety net in those circumstances. The lesson, like some of those other Covid-19 insights, is one often ignored: you need to have your own protection in place, be it through insurance and/or a sufficient rainy-day fund.

Out with the old and a boost for the new for children’s savings

2020 sees an old plan mature and its replacement given a boost.

Be prepared to feel just a little old: the first Child Trust Funds (CTFs) will mature on 1 September this year, when their owners reach the age of 18.

CTFs were first launched in 2005, when nearly every child born on or after 1 September 2002 became entitled to a government payment of up to £250 (£500 for those from lower income families). At the age of seven a second state payment of £250/£500 was made until August 2010. Additional subscriptions from parents, family and friends were allowed, up to £1,200 a year initially. All government payments stopped on 3 January 2011, after which no new CTFs were created, but existing CTFs have continued to run their course towards their age 18 maturity date.

Earlier this year, regulations were introduced which will mean that when a CTF matures:

  • its owner can draw its value; or
  • the CTF’s value (or part of it) can be invested in an ISA; or
  • if the CTF provider receives no response from the CTF owner, the proceeds will be transferred to a ‘protected account’ where it will continue to enjoy freedom from UK income tax and capital gains tax (CGT).

HMRC set up many CTFs under a default procedure because the initial £250/£500 government vouchers were not redeemed. These and other ‘lost’ CTFs can now be traced using a form on the HMRC website.

In November 2011, the Junior ISA (JISA) was launched as a CTF replacement, to which no government payments are made. JISAs had a slow start, but their popularity has grown over the years. They were given a boost in the March Budget, when the annual subscription limit – which also applies to CTFs – was more than doubled to £9,000 for 2020/21. All other ISA limits were unchanged.

If you are concerned about university costs for your children or grandchildren, JISAs (and their CTFs predecessors if already subscribed to and not yet at maturity) are worth considering as a tax-efficient way to build up the necessary funds, as some 18 year olds will discover in a few months’ time.

The value of tax reliefs depends on your individual circumstances.

Tax laws can change.

The Financial Conduct Authority does not regulate tax advice.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

The inheritance tax dog that didn’t bark…

One of the few surprises in March’s Budget was that the Chancellor never mentioned inheritance tax (IHT) or expected simplification measures.

Before 11 March there had been much speculation that the Budget would introduce a range of changes to IHT. This was more than just the usual press kite-flying, as the Office of Tax Simplification (OTS) had published two reports on the reform of the tax: the first emerged in 2018, with the second issued last July, in time for the Autumn Budget that never happened.

The OTS made a number of proposals for simplifying IHT including:

  • replacing the many lifetime gift exemptions, such as the £3,000 annual exemption, with a single personal gift allowance;
  • reforming or replacing the valuable, but little used, exemption for regular gifts made out of income;
  • abolishing the taper relief on lifetime gifts tax while simultaneously shortening the seven year look-back period for lifetime gifts to five years; and
  • removing the capital gains tax (CGT) exemption on death when 100% IHT business relief applies.

The extent of work done by the OTS and the many issues it flagged up mean that the reform of IHT is unlikely to disappear from the Treasury’s agenda. Proposals may therefore emerge in the next Budget, due this Autumn. It is conceivable that, by then, the Chancellor will be looking at IHT as one way of raising extra revenue to help pay down the debts building up in the wake of the Covid-19 pandemic.

In the meantime, for some families, their potential IHT bill falls by up to £20,000 from 6 April as the residence nil rate band increased by £25,000 to £175,000 (subject to taper for estates above £2 million). Taken together with the nil rate band, still frozen at £325,000, that means a couple could now have a combined total nil rate band of £1 million.

The absence of any measures in the Budget has kept open some estate planning opportunities which could have disappeared in March. This stay of execution could prove to be a good time to review your IHT planning.

The value of tax reliefs depends on your individual circumstances.

Tax laws can change.

The Financial Conduct Authority does not regulate inheritance tax advice.

A change to the annual allowance taper

One of the more controversial pension tax rules was slightly reformed in the Budget.

The annual allowance effectively sets your tax efficient limit for the total amount of pension contributions that you and your employer can make in a tax year. If the limit is exceeded, then you essentially receive no tax relief on the excess. That can result in a large employer contribution landing the employee with a tax bill.

The annual allowance was originally introduced at the level of £215,000 in 2006, then rose to £255,000 in 2010/11, before being cut to £50,000 in 2011/12. The reductions were meant to limit the cost of tax relief, but in 2014/15 a further reduction was made to £40,000 and tapering was introduced for high earners from 2016/17. The taper process meant that for the highest earners, the annual allowance was reduced to a minimum of £10,000.

As time has passed, the net cast by tapering rules has captured a growing number of people. Among those have been NHS consultants and GPs, whose NHS pension scheme has generous benefits and thus high (but notional) contributions. As a consequence, some senior NHS staff have turned down additional work, refused promotion or even opted for early retirement.

The Chancellor addressed the issue in his Budget by increasing both the thresholds relevant to taper by £90,000. In 2020/21, nobody with total income of up to £200,000 (after deducting personally made pension contributions) will be subject to the tapering rules. However, there are some losers from the Budget changes, as the minimum annual allowance has been cut to just £4,000 for the highest earners.

There had been rumours of more radical changes to pension taxation, such as limiting tax relief on contributions to basic rate only. These might still appear in the Budget due in Autumn. In the interim, if you have been affected previously by taper relief, you may now be able to increase your pension contributions.

The value of your investment can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

The last cut is the deepest…

The Bank of England’s two unscheduled base rate changes in March took interest rates to a new all-time low.


The Bank of England’s 0.5% cut in its base rate to 0.25% on Budget Day (11 March) was far from being a complete surprise. The previous week had seen its US counterpart, the Federal Reserve, make its own 0.5% cut in response to worries about the impact of Covid-19 on the global economy. The Bank of England’s cut was accompanied by other technical measures to facilitate lending to small and medium enterprises as the Chancellor announced a raft of provisions to deal with the pandemic.

Four days later, on a Sunday evening, the US central bank announced another 1% cut in interest rates, taking them down to 0.00%–0.25%. On 19 March the Bank of England returned with its own interest rate scissors, snipping a further 0.15% off the base rate, taking it down to 0.1%.

As the graph shows, the UK base rate is now below the 0.25% level set in the aftermath of the Brexit referendum result in summer 2016, where it remained for over a year. What happens on this occasion will depend on how long and how deep the economic impact of Covid-19 will be. The former governor of the Bank of England, Mark Carney, had long expressed a view that negative interest rates would not suit the UK and his successor, Andrew Bailey, is unlikely to disagree.

As demonstrated on 11 and 19 March, the Bank of England has other weapons in its armoury alongside interest rates. For example, it has restarted quantitative easing (QE) – often erroneously described as printing money – and relaunched its cheap loan programmes to commercial banks, conditional upon them lending on to businesses rather than using the funds for consumer finance or residential mortgages.

For some while the mantra on interest rates has been ‘lower for longer’; now it almost seems ‘lowest forever’. That has potential ramifications for many aspects of your financial planning, including retirement income and long term investment.

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

New state pension rates keep UK last in the league tables

The government has published the revised level of state pensions and other benefits for 2020/21. But Britain remains last in the state pension league table.

In April 2020, the new state pension will increase by 3.9% to £175.20 a week – £9,110 a year. The old state pension, which is payable to anyone who reached state pension age before 6 April 2016, also increases by 3.9% to £134.25 a week. Other state pension benefits, such as additional state pension, will rise by 1.7%, in line with Consumer Price Index (CPI) inflation to last September. The higher increase for the two main pension benefits is the result of the ‘triple lock’, which means that both increase in 2020/21 in line with earnings rather than prices or a 2.5% floor.

At £9,110 a year, the new state pension is nearly £3,400 below the personal allowance and even below the newly increased level at which individuals start to pay national insurance contributions. The latest global annual survey by the Organisation for Economic Development (OECD), published in November 2019, showed that in terms of mandatory pensions for those on average earnings, the UK was at the bottom of the pile. The OECD average for state pensions is 49.0% for men and 48.2% for women of average earnings. The figure for the UK state pension represented only 21.7% of average earnings. At the top of the OECD league, Austria, Italy and Luxembourg all offer pensions that exceed 75% of average earnings.

The UK has regularly appeared at or very near the bottom of the OECD pension league table, often swapping the wooden spoon ranking with Mexico. It seems unlikely that this situation is going to change any time soon. The last major change to UK state pensions took effect four years ago, when the single tier new state pension replaced the combination of the basic state pensions and, for employees, state second pension scheme (formerly the State Earnings Related Pension Scheme). The underlying aims of the reform were to raise retirement income for low earners while simultaneously reducing the long-term cost to the Treasury.

The October 2012 introduction of pension automatic enrolment added a second tier of private pension provision, but minimum contributions are at modest levels and the self-employed are not included. If you want to enjoy your retirement, the message from the latest state pension increases is to make sure your plans are not relying on state provision.

The value of your investment can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

National Savings takes the axe to interest rates

National Savings & Investments (NS&I) has announced interest rate cuts to most of its products.

If NS&I did not exist, it is hard to imagine that it would be invented now. Once upon a time it was a useful way for the government to raise cheap money from the general public, whereas today it is exactly the opposite.

If HM Treasury needs to borrow – as it always does – it can raise billions by selling government bonds (gilts) to institutional investors at an interest rate of under 1%. For example, at the time of writing, the yield on ten-year gilts was just 0.47% – less than one third of January’s 1.8% inflation rate.

With such low-cost money available in wholesale amounts, it was not surprising that in February NS&I announced a raft of interest rate cuts, all to take effect from 1 May 2020:

Product Current rate New rate from 1/5/2020
Direct Saver 1.00% gross/AER 0.70% gross/AER
Income Bonds 1.15% gross/1.16% AER 0.70% gross/AER
Investment A/C 0.80% gross/AER 0.60% gross/AER
Premium Bonds 1.40%

24,500:1 monthly odds of winning


26,000:1 monthly odds of winning

The premium bond changes mean that from May, 98.95% of all winning draws will be for the minimum prize of £25. However, as the table shows, the underlying prize interest rate for premium bonds is markedly better than what NS&I is offering on its other variable rate products. Indeed, if your interest income exceeds your available personal savings allowance (£1,000 for basic rate taxpayers, £500 for higher rate taxpayers) and you have used your £20,000 ISA allowance, the likely meagre returns on premiums bonds are relatively attractive.

NS&I also lowered the rates on their fixed rate products – Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates. These are not on general sale and are only available for reinvestment of maturing plans.

NS&I’s move can be expected to encourage another round of cuts among deposit-taking institutions, even though the Bank of England rate has remained unchanged since July 2018. If you need income from your savings, then you must either resign yourself to these ultra-low rates or accept some risk to capital. For example, the average yield on UK shares is now about 4.3%.

The value of tax reliefs depends on your individual circumstances.

Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

NICs – a tax by any other name?

The new National Insurance Contributions (NICs) scales for 2020/21 were announced ahead of today’s Budget, with one slight surprise hidden in the numbers.

Are NICs a tax?

Over many years, Chancellors have tried to convince the public that they are not. It has always seemed easier to say that NICs are going up by 1% than to announce the same increase in income tax rates, even if the net effect for the working population is virtually the same. NICs are still vaguely associated with the NHS and social security benefits in the public’s mind, partly because qualification for some benefit entitlements depends upon NIC payments. However, from the Treasury’s viewpoint, NICs are just another source of revenue.

This year the Treasury seems to have decided – at least temporarily – that NICs are a tax. At the end of January, it ran a news story with the headline ‘31 million taxpayers to get April tax cut’. It sounded like an official Budget leak, but it wasn’t.

The announcement referred to an increase in the level at which employees and the self-employed start to pay NICs. As trailed in the Conservative party election manifesto, this trigger point will rise from £8,632 in 2019/20 to £9,500 in 2020/21. In practice the limit would have risen to £8,788 anyway, as it is automatically inflation-proofed unless the Chancellor decides otherwise.

The net result is a maximum saving of around £104 a year if you are employed and pay class 1 NICs and £78 if you are self-employed paying class 4 NICs. The Treasury’s new release says that “…the government has set out an ambition to raise the National Insurance thresholds to £12,500”, but that aspiration – worth up to another £360 a year – has no timescale attached to it.

If you are an employer, you may be surprised to learn that the threshold at which employer class 1 NICs for an employee start to be charged in 2020/21 will not rise to £9,500 but benefits only from the inflationary uplift to £8,788.

The maximum combined employer/employee rate of NICs is 25.8% (13.8% + 12%), so NIC planning can be as important as other tax planning. For the options available to you – as an employer, employee or self-employed – you need expert advice.

Tax laws can change. The Financial Conduct Authority does not regulate tax advice