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The Top 35 Next Generation Advisers 2017

Congratulations to Jenni on making it into ‘The Top 35 Next Generation Advisers 2017’ as seen in Citywire dated 21 November 2017

Jenni Robinson

Technical Analyst, HFS Milbourne

Age 29

A member of the Personal Finance Society, Jenni Robinson has achieved levels 2, 3, 4, and 6 qualifications at the professional body. She has been at Guildford-based HFS Milbourne for a year and a half, having previously been a paraplanner at PSFM.

Robinson supports the firm’s senior advisers, as well as being involved in cashflow planning, research and introducing new technologies.

JK Rowling would be her ideal dinner guest, as she has many unanswered questions about the Harry Potter books that even the depths of Reddit cannot answer.

Top 2017 achievements

Robinson says her aim for the year was to complete all necessary chartered financial planning exams, which involved sitting seven exams. She is awaiting the results and hopes to achieve fellowship before she turns 30 next year

 

Rise in popularity for venture capital trusts

New figures from HMRC show a large jump in VCT investments in 2016/17.

In September HM Revenue & Customs (HMRC) issued updated statistics on the funds raised by venture capital trusts (VCTs). These showed that investment during last tax year reached £570m, an increase of over 28% on 2015/16. This was the highest level of VCT capital raising since the 2005/06.

The rising popularity of VCTs, despite their high risk nature, is due to a variety of factors:

  • The reductions in the both the lifetime allowance and the annual allowance in recent years have made pension contributions no longer a tax-efficient option for a growing number of high earners. At worst a contribution could attract no income tax relief, but still produce a retirement benefit that suffers up to 55% tax.
  • HMRC’s successful campaigns against artificial tax avoidance schemes and a changing public attitude have discouraged the use of aggressive, loophole-seeking arrangements.
  • The VCT market has matured, with a steady pattern of fund mergers creating larger, more liquid VCTs with fixed costs spread more thinly. The sector now has assets under management of over £3.6bn.
  • The VCT tax reliefs are attractive:
    •  Income tax relief of 30% on up to £200,000 investment per tax year, provided the shares are held for five years and you have paid enough income tax to match the relief you claim

       Tax-free dividends – a saving of up to 38.1%.

      No capital gains tax – a saving of up to 20%.

In the run up to the Autumn Budget there has been a large crop of VCT share issues, partly driven by expectations that the Budget will alter VCT investment rules. If you want to know which VCTs are still available to new investors, please talk to us.

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 value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

A pensioners’ bonanza?

State pensions will rise by 3% next April, but it’s not all strictly good news.

On the day that a CPI inflation rate of 3% was announced, the BBC website covering the rise had a picture of pensioners “dancing for joy”. The supposed reason for their jollity was that the 3% September inflation figure was the one that would be used to fix state pension increases from April 2018.

The BBC’s response was understandable, but simplistic. Pensioners will be no better off because their increased income is, in theory, matched by increased prices. In practice they may be marginally better or worse off, depending upon how their spending pattern compares with the “shopping basket” used to calculate the CPI. The twelve components of that index showed annual inflation ranging from 4.3% (alcoholic drinks and tobacco) to 1.4% (miscellaneous goods and services).

…and on private pensions?

At least state pensions have inflation linking. Such protection is by no means certain among private pensions. Most large occupational final salary schemes offer inflation-proofing to their pensioners, although outside the public sector schemes increases may be capped. In the past, many people drawing benefits from personal pensions and similar arrangements have chosen to buy an annuity with no inflation protection. While the initial (level) income was much higher, its real value was steadily eroded by inflation. For example, £1 in September 2007 now has a buying power of 78.7p, based on CPI inflation.

Have your retirement plans allowed for retirement inflation? In today’s annuity market, an inflation linked annuity for a 65-year old costs about 60% more than its non-increasing counterpart. You may well choose not to buy any form of annuity at retirement, but the costs of providing enough to be ‘dancing for joy’ will still be substantial.

Occupational pensions are regulated by The Pensions Regulator. 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.

A different ending for Japan’s election gamble

Not all snap elections turn out the same way…

A right of centre Prime Minister calls an election before the end of the government’s term to take advantage of rising poll numbers and seeming disarray amongst the opposition parties. What could possibly go wrong?

In the UK, the answer was close to everything. Japan, as often happens, is a different matter. Last month, Prime Minister Shinzo Abe went to the polls a year early, seeking a mandate to continue his tough stance to North Korea and “Abenomics”, his three-part economic policy (which includes a sales tax hike in 2019).

Initially, it looked as if Abe had miscalculated, but by the time the polls closed on 22 October, he and his coalition partners had secured a “super majority” – more than two thirds of the seats in the House of Representatives. Abe could now become Japan’s longest-serving prime minister, as the next election is four years away, after the Tokyo Olympics.

The news of Abe’s victory was welcomed by the Japanese stock market, which is relieved that “Abenomics” will continue. Economists expect this will mean more financial stimulus, with ultra-low interest rates for the foreseeable future. Such a backdrop ought to be good news for Japanese shares, which have risen over the past five years that Abe has been in power.

However, research suggests that that most investors, both inside and outside, have so far been unenthusiastic about Japanese companies. The lack of interest is even more surprising given that Japan represents about 8% of global stock markets and has marginally outperformed the world average over the past five years. Abe’s victory and the certainty it brings could mark a rekindling of interest.

If you are one of those who has paid little attention to Japan in recent years, why not talk to us about your options on investing in the world’s fourth largest stock market?

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.

Almost but not quite – near miss on inflation helps boost interest rate

September inflation was just low enough to spare Mark Carney writing to the Chancellor. And helped spur the first interest rate rise in a decade.

Source: National Statistics

Each year the Chancellor of the day gives the Bank of England an inflation target to meet. Ever since Gordon Brown changed the inflation index used to the Consumer Prices Index (CPI), that target has been 2%. The Bank is given a leeway of 1%, so provided the annual CPI figure is between 1% and 3%, it is deemed to be meeting its target.

Once either boundary is crossed, the Governor of the Bank of England must write a letter to the Chancellor explaining why inflation is off target. Three months’ later the Governor must repeat the process unless inflation has returned to its allotted corridor.

Some economists thought that last month that the Governor, Mark Carney, would be picking up his pen to explain to Philip Hammond why inflation was running at over 3%. It would not have been Mr Carney’s first letter – as the graph shows, he has also had to exercise his correspondence skills in explanation of a sub-1% rate: the last of those letters was sent at the end of 2016.

Not over yet

In the event, Mr Carney’s pen was unused, but by the thinnest margin possible as the figure hit 3%. Even the Governor now thinks that the next CPI number will see his letter-writing resumed. That is one reason why the Bank decided on a 0.25% interest rate increase at the beginning of November. What happens next is less clear. The Bank expects inflation to decline gradually as the impact of the pound’s post Brexit fall disappears from annual comparisons. However, the Bank’s latest Quarterly Inflation Report sees inflation only back at close to 2% by mid-2020, conditioned on a gently rising path of Bank Rate”.

The November rate increase was accompanied by a statement that the “any future increases in Bank Rate would be expected to be at a gradual pace and to a limited extent” In other words, should you be hoping that deposit interest rates are going to catch up with inflation, you could have a long wait. If you are holding larger sums on deposit than required for your rainy day needs, talk to us about your other options.

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.

Venture capital schemes: changes afoot?

A consultation paper issued in August could mean changes to venture capital schemes.

At the start of the holiday season the Treasury issued an open consultation paper entitled “Financing growth in innovative firms”. Its focus was on what has become known as ‘patient capital’, which the Treasury defined as “long-term investment in innovative firms led by ambitious entrepreneurs who want to build large-scale businesses”.

The paper considered existing investment incentives, such as Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs), which have been around for many years. Under the heading of “Relative costs of current interventions” the Treasury noted that “Industry estimates suggest that the majority of EIS funds had a capital preservation objective in tax year 2015/16, and around a quarter of VCTs have investment objectives characteristic of lower risk capital preservation”.

The paper then went on to ask a leading question: “Are there areas where the cost effectiveness of current tax reliefs could be improved, for example reducing lower risk ‘capital preservation’ investments in the venture capital schemes?”

A little over a month after the paper was published, a curious thing happened. One VCT, withdrew a new share issue which it had launched just six days earlier. The decision to pull the issue “…was made in light of ongoing discussions in respect of investment in asset-based businesses following publication …of the consultation document”.

At the time of writing none of the other open VCT issues had been withdrawn, but if you are considering VCT (or EIS) investment now or later this year, please contact us for an update on the situation. VCT are classed as high risk investment and only suitable for a small number of investors

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 value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

Gearing up for the Autumn Budget

The Chancellor has announced the date of his first Autumn Budget as Wednesday 22 November.

The second Budget of 2017 will be both Mr Hammond’s first Autumn Budget and the first Budget after the general election.

Traditionally, the first Budget of a new parliament is the chance for a Chancellor to administer the “medicine” of tax increases. Doing so at this stage gives the electorate the maximum time to forget the measures before returning to the polls. However, on this occasion the Chancellor will probably be more constrained. Mr Hammond does not have carte blanche, even though in theory the government has a majority for Budget legislation, thanks to support from the DUP. His own backbenchers can block the best made plans, as the Spring Budget climb down on class 4 national insurance contributions (NICs) showed. So, what can we expect on 22 November?

Less space for manoeuvre

The answer is less clear than usual. For many years the contents of the Spring Budget have been widely trailed in the preceding Autumn Statement. In 2017 there has been no such statement ahead of the Autumn Budget – the first of the new Spring Statements will not arrive until 2018.

The latest government finance figures suggest that the Chancellor will be borrowing less than was projected in March, giving him some wriggle room. However, there are many demands on any spare cash he can find, from replacing the lost extra class 4 NICs income to addressing calls for higher public sector pay and reduced tuition fees.

In the summer, David Gauke, the secretary of state for work and pensions and former Treasury minister, told a conference that he did not foresee any “fundamental” changes to pensions tax relief.

Nevertheless, there remains a possibility that the Chancellor could make some further tweaks to the rules on pension relief, such as another reduction in the annual allowance. If you are considering a pension contribution in this tax year, making it before 22 November could be a wise precaution, but do check with us first on how you are affected by the existing rules.

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 value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

Markets look to an early interest rate rise

The Bank of England has signalled that interest rates may rise soon.

Early in September, the money markets were expecting the first Bank of England interest rate rise to occur in late 2018, at the earliest. A month on, the markets’ view was that there was a near 80% probability of a 0.25% base rate increase in November, with a rate rise a virtual certainty by the following February.

There are two main reasons for the markets’ U-turn:

  • The September inflation figures (3.0% for the CPI, 3.9% for the RPI) were higher than expected. At this level, Mark Carney, the Bank’s Governor, has to write a letter to the Chancellor explaining why inflation is more than 1% above target.
  • At its September meeting, the Bank of England’s rate-setting Monetary Policy Committee (MPC) gave a clear warning that developments were pointing to a tightening of monetary policy “by a somewhat greater extent over the forecast period than current market expectations”.

The likelihood of an imminent rate rise does not mean that further rate rises will follow at every meeting of the MPC, taking rates back up to historically ‘normal’ levels. The Bank has regularly said this will not be the case and in September it stated that “any prospective increases in Bank Rate would be expected to be at a gradual pace and to a limited extent”.

Outside the money markets, other markets immediately reacted to the new interest rate picture in a predictable way: the pound rose on the foreign exchange markets, while the prices of government bonds (gilts) and UK shares fell.

A rise in UK rates looks set to be accompanied by further Interest rate increases in the United States and the announcement of a tapering of quantitative easing in the eurozone (although euro interest rates are unlikely to move).

The prospect of a new interest rate environment makes it an appropriate time to review your investments and consider what changes, if any, need to be made. The sooner you start on this process, the better: as September showed, market movements can come suddenly.

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.

Cash ISAs losing favour

New statistics from HM Revenue & Customs (HMRC) show that cash withdrawals from individual savings accounts (ISAs) are probably more than matching fresh contributions.

In the world of ISAs, cash ISAs have long attracted more contributions than their stocks and shares counterpart. However, the pattern has started to change, as the graph below shows.

Source: HMRC

In the last tax year, contributions to cash ISAs fell by a third according to the latest HMRC data. They still amounted to over £39 billion, but the total held in cash ISAs increased by just £1.26 billion between April 2016 and April 2017. Once a year’s interest is allowed for, even at current miniscule rates, that suggests more money was withdrawn from existing ISAs than flowed in through new contributions.

There are some good reasons why cash ISAs are going out of favour:

  • ISA interest rates have been low for some years. The top rates for instant access are just over 1.0%, while the best five year fixed term rate is 2.15%. Neither compares well with inflation, currently at 2.9% on the CPI yardstick and 3.9%, as measured by the RPI.
  • The introduction of the personal savings allowance (PSA) in 2016/17 has meant that many people have no tax to pay on the interest they earn from non-ISA accounts. If you are a basic rate taxpayer, £1,000 of interest is tax free, while if you pay tax at 40%, £500 of interest suffers no tax. If you are an additional rate taxpayer, you do not receive a PSA.
  • For wealthier investors, the reforms to dividend taxation – and the likely reduction in the dividend allowance from £5,000 to £2,000 next April – has made the tax shelter offered for dividends by stocks and shares ISAs relatively more attractive.

If you hold money in cash ISAs, it may make sense to review whether you should continue to do so. You could find yourself earning more interest outside an ISA or gaining more tax benefits from a stocks and shares ISA. For a discussion on your options, please talk to us.

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 value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

The ascendancy of Equity Release continues

Please find below a link to an article in the autumn edition of the Surrey Lawyer
Equity Release by HFS Milbourne Financial Services