Wednesday 30 March 2011

The Story Behind The Credit Crunch

On Monday evening I went along to see a special screening of the film "The Inside Job".  This is an Oscar winning documentary by Charles Ferguson. Here is the trailer as a teaser.


It is an amazing film and I would encourage everyone to see it. You won't like it - in fact it will make your blood boil. I was there with guests and supporters of the highly creative and innovative "Tipping Point Film Fund" which supports provocative and challenging non-fiction films with an international reach. The TPFF is a not for profit co-operative raising donations from individuals, groups and organisations who believe in using the power of film to make change. TPFF provides development and production funding, as well as campaigning outreach support to each film we work with. These elements combine to make Tipping Point Film Fund a unique and exciting new venture.

The film speaks for itself, but we were also able to talk with John Christensen, Director of the Tax Justice Network, who had quite a lot to say about the state of Economists, the tax system and how we might raise awareness of the great injustice that has been done to most of the world with the failure of anyone to be held to account for the credit crunch.

The film is deliberately provactive, but I find it hard for anyone to believe that what we have lived through and the many millions that continue to suffer more significantly as a result of unregulated greed is a system that  is simply a "part of life". I obviously deal with lots of people working withing the financial services industry and have never yet met anyone that deliberately wants to ruin other people's lives. Yet with weak regulation - particularly of the derivative markets and frankly the lending policy of most banks, this is what we are left with. As yet little has changed. It is fairly normal human nature to quickly forget and move on, yet the crisis could happen again and next time... well it could be a lot worse.

Sorry if you find this too political, but I don't think that as a financial adviser I should keep quiet when something stinks. I am obviously passionate about creating and preserving wealth and financial security for my clients, but I don't have any client that wants wealth at any price.





Business Update

Not just good with food, but also good with making a profit, The Co-operative Group reported an increase in pre-tax profits of £545.7m for 2010, compared with £367.9m the year before, whilst group sales rose almost 10% to £13.7bn. Here is their "revolution" video - have a look.




Don't forget that this extra profit is all subject to corporation tax which all goes to help reduce the national deficit. This is a rather different story than that of "the one that got away" Northern Rock, that is effectively owned by us all is to make a further 680 of its remaining 2,600 employees redundant by the end of the year; the news comes after the nationalised bank announced a £232m operating loss for 2010. Not such good news.

The white van driver may be happy that Vauxhall’s Luton factory has been awarded a contract in a joint venture with Renault to build the next version of the carmaker’s Vivaro van from 2013, but the local Luton economy will also benefit from securing up to 6,000 jobs and saving the plant from closure.

Meanwhile the prestige sports-car maker Porsche will start a £4.4bn share sale at the end of this month to reduce its debt to £1.3bn. Its a shame they don't reduce the price of their cars too.

The hoo-hah surrounding airport owner BAA has been concluded with the not terribly surprising news that they have been ordered to sell Stansted and either Glasgow or Edinburgh airports by the Competition Commission following a ruling by in 2009 that the Airport operator must sell three of its seven UK airports; BAA has already sold Gatwick. I doubt that this will have much impact on your choice of airport though.

Pharmaceutical giant AstraZeneca has reached agreement on tax payments and will pay £690m to cover US tax payments between 2000 and 2010; as a result earnings this year will be higher for the Anglo-Swedish drug maker as it will be paying lower taxes.Their 2010 annual report is here.

The world's biggest miner BHP Billiton keeps digging and announced it’s expanding its Australian mining projects, worth £5.9bn in capital investments, as it tries to keep up with rising demand in Asia. The pace of change in China remains rampant as does its hunger for resources to make it into the world's leading economy - Asia’s biggest refiner Sinopec reported net profits for 2010 were £6.8bn, 13.7% higher than the year before, as domestic demand and rising oil prices increased.

Monday 28 March 2011

Tax Year End

The tax year end is now just a little over a week away. Ideally we could do with cheques to arrive at our offices by Friday 1st April 2011, the 5th April this year falls on a Tuesday and we need to be certain of receiving payments for pensions and ISAs etc that you want to fall within the 2010/11 tax year to arrive in good time.

Finally becoming Equitable

Equitable Life are beginning to dish up some revenue to policyholders. They plan to hand out 12.5% of policy values to policyholders, this is effectively taken from their reserves which they suggest have been built up sufficiently. This is presumably a part of a long drawn out closure and "profit sharing" which by these maths looks likely to take 8 years. Never-the-less this is good news for anyone with the misfortune to have an Equitable Life policy. The full press release is found here. Oh and here's an Equitable Life advert... in which Buzz Aldrin features. Regrettably the signs of overambitious nonsense were there to see at the time, in truth it was easier to put man on the moon than keep a guaranteed annuity rate of over 14%.

Thursday 24 March 2011

A Question of U Turn Economics?

It would appear that a room full of economists are about as good at predicting the future as the weather forecasters. We have all read and heard the arguments about inflation creeping (or spiking) into our spending patterns and having a negative effect upon the money in our pocket, but now it seems that several of them believe that inflation is under control and could even morph into deflation. Quite a U-Turn.

One does have to question the validity of such statements and I cannot help but feel that there is a degree of spin going on so as to push the Bank of England not to raise rates. Several of these economists met today and appear to agree that inflation will be pushed down sharply next year to move below the Bank of England’s 2 per cent target, and say it is possible we will see deflation next year. The wonderfully named "Office of Budget Responsibility" (sounds like a Two Ronnies sketch) has forecast that inflation will peak this year before starting to come down next year and returning to the 2 per cent target by 2013.

There was a Treasury select committee meeting today following the Budget. It was asked whether the basis for the Budget and forecasts were or are sound. The now famous Roger Bootle who predicted the crash and ended up having the last laugh on those that did not take his book too seriously, said: “My own view it is the standard thing to do to assume that inflation will go back to target. The forces are in place to bring inflation sharply down next year. I doubt it will stop at the target and we will actually end up with inflation much lower than 2 per cent and not only that but inflation will be driven into negative territory.”

The National Institute of Economic and Social Research  (NIESR) also gave evidence to the committee and sugggested that the prospects for inflation were uncertain, with a 90 per cent chance that in 2012 inflation will be somewhere between 0 and 4 per cent. (I can hear you laughing!) Yes believe it or not a statement that a range of between 0% and 4% is what some people think is a reasonable outcome for their time and employment at NIESR.

This is all somewhat of an about turn at a time when the calculator gang over at the Office for National Statistics put a figure on the Consumer Prices Index measure of inflation which rose from 4 per cent to 4.4 per cent in February, the highest level since 2008.

Convinced enough to bet your mortgage on this? me neither.

Budget 2011: New IHT Rule

The Chancellor introduced an alteration to the Inheritance Tax rules in yesterday's Budget. This will possibly help chairities with perhaps slightly larger gifts.

Example 1

Let us suppose that an estate is worth £800,000 and that the couple have died without using any other forms of tax planning. Prior to the budget the tax levied would be 40% of the balance above the nil rate band (with a couple, this is effectively doubled from £325,000 to £650,000) so 40% of the remaining £150,000. An IHT payment of £60,000 to HMRC. The balance of £740,000 would be paid to the beneficiaries of the Will.

The Budget states that if 10% of an estate is gifted then the tax liability would also reduce by 10% from 40% to 36%.

Returning to our example, an £800,000 estate, gifted £80,000 leaves a £720,000 estate (£80,000 to charity). Using both nil rate bands (£650,000) the taxable estate is £70,000 which would not be taxed at 40% resulting in a payment of £28,000 but 36% resulting in an IHT payment of £25,200. The beneficiaries of the Will inherit £694,800.

The only change in the rule is the reduction to the IHT tax from 40% to 36% as any gift to charity from an estate is paid tax-free to the charity and falls outside the estate for tax calculations.

Please note that the nil rate band of £325,000 per person is frozen until April 2015. However after this date CPI (Consumer Price Index) will be applied to the allowance.

Example 2

By way of another example, say a larger estate worth £10m and assuming that no other tax planning has been performed. Before the budget, the tax liability would have been £3.74m with the remaining £6.26m passing to beneficiaries of the Will. In the new Budget a gift of £1m must be made to charity leaving an estate of £9m. If this sum had been given before the Budget the resulting tax payment would be £3.34m following the Budget it is reduced to £3.006m a saving of £334,000. The beneficiaries inherit £5.334m.


My Thoughts
 
I'm not sure how much headline this small change will create. In practice, it would be difficult to be specific about specific amounts of money given to charity as the estate would need to be valued at the date of death, so using the first example, if you had decided to leave your favourite charity £80,000 this may not actually be 10% of the estate. The value will fluctuate on a daily basis. So in order to take advantage of the new legislation you would actually need to amend your Will to make a provision to gift 10% of the net value of the estate to charity. This is perfectly possible to do, but of course may not take account of your family circumstances at the time. Only 1 in 7 people have a valid Will which in of course suggests that few people really plan ahead. So whilst, this is good news potentially for Charities, in practice unless you amend your Will few will see the benefit, unless you have already made a provision to give a sum that is probably substantially more than 10% of your estate. So if this is something that you wish to do (and remember IHT legislation does alter) you need to pay a visit to your Solicitor to review your Will. There is a guide to making a Will within the resources section of my website.

Wednesday 23 March 2011

Budget Information

I will post a few of the key points that are more likely to be of interest to most clients as I digest the contents of the Chancellors Budget. Running at a mere 104 pages, you will appreciate that I have not yet uncovered all the detail. No doubt tonights news will have a fair amount to say, which will  probably merely reinforce views of the Coalition Government. I'm reminded that "we" often look for evidence to support our already formed opinion.

In truth, I have to admit that most Budgets sound fairly sensible - generally having an attempt at trying to grow the economy and improve society. The constant noise playground antics of the House of Commons does little to really leave us feeling that politicians are mature adults, but as individuals, most of us would probably admit that they do seem to be. I will do my best to get beneath the spin, I suspect that, as with most Budgets there is a significant amount of "moving the deckchairs around" let us hope that it is one that actually achieves some of the sentiments outlined - for all our sakes.

Who has eaten all the pies? Business Updates

It seems that someone has been eating an awful lot of pies. I'm not sure if the news that the UK’s largest bakery has increased sales and profits dramatically is good for the health of the nation, but it is certainly adding to the wealth of the nation. Greggs, which has 1,500 stores, has announced  £52.2m of profit in 2010- a new  record; it said that profits were up by 7.9% from a year ago, although same-store sales were up by just 0.2%. Which seems to suggest that efficiency was found in reducing cost rather than increasing sales... perhaps those pies weren't quite so large as before. This is washed down with the news that the UK’s biggest pub group Punch Taverns is to split in two, halving its business to 3,000 pubs, having struggled with debts of £3.3bn last year.

2011 Royal Mail Thunderbird stamps
Royal Mail announced it will cut more than 1,700 jobs of which 1,000 are managers. One of the main criticisms of Royal Mail is that it has become bloated on management and this represents a significant effort to address that criticism. The plan is to close two mail centres in London as it expects the volume of mail posted in the capital to have halved from 2006 levels by 2014; the company said it had cut 65,000 positions since 2002. This is a reflection of the world turning to online functionality, no more bank statements, mobile phone statements through the post. So we are all as safe as houses then...sadly I expect our rather poor postal service in SW20 to worsen rather than improve.

As we have all been hoping and praying that the Japanese can avoid nuclear meltdown, our thoughts returned again to how we use and generate energy. Centrica, has announced that it will purchase New York-based energy retailer Gateway Energy Services, which has 275,000 gas and electricity customer accounts, for £55m. Meanwhile Essar Energy reported pre-tax profits for 2010 rose to £365.5m from £285.7m the previous year, whilst revenues were up 42% to £10bn; the Indian energy giant, which joined the FTSE 100 in June last year, also benefited from new power stations in the emerging country.

The world of telecoms continues to remain one of the frontiers of competitive market share action as AT&T announced that they will buy rival T-Mobile USA from Deutsche Telekom AG, making it the largest mobile phone company in the US, in a deal worth £24bn; this will give the US phone company about 43% market share, ahead of industry leader Verizon Wireless. The world's largest potential market for mobile usage is naturally in China. So it is interesting to note that China Mobile reported net profits rose 3.9% to £11.3bn while revenue was up by more than 7%; having the most subscribers in the world, the mobile phone operator has said its profits increased as more music and video was downloaded.

So here is the "headsup" on the look of the logo that may one day appear on your emailed mobile statement.

David Pointers Budget Summary

David Pointer of Open Tax Consultancy comments on today's budget.

"Last year on taking office the Government agreed a new path for making changes to the tax code, to start the process a draft Finance Bill was published in December 2010 for consultation. We therefore already knew many of the Budget changes including some of the proposed allowances and tax rates for income tax and corporation tax".
David went on to say that new headlines as the Chancellor sat down included the reduction of corporation tax by 2% rather than 1% with effect from April followed by 1% reductions after that. Also the suggestion of a combination of income tax and national insurance into one tax, which is long overdue as is the introduction of a statutory residence test mentioned by Mr Osborne.

The Chancellor’s suggestion that the 50% rate of tax may have a limited life was welcome but received with a good spoonful of skepticism. A 10% discount on inheritance tax for people leaving 10% of their estate to charity is an interesting addition as is the cut in the tax on petrol which is now a huge burden on the household budget.

Moving forward the new Office of Tax Simplification is suggesting more wholesale changes to many areas of taxation including the taxation of small business and the future of small burdensome, outdated tax reliefs.

With the firm background need to balance the country’s books and address the dreaded deficit David added "I really believe we should expect further more regular announcements on perceived tax avoidance, continued reform of the corporate tax system which is now out of kilter with other taxes and perhaps headline grabbers -and vote winners - such as the higher taxation of UK non domiciled individuals".

David Pointer is a tax specialist working in central London, he runs Open Tax Consultancy and helps high net worth clients with sophisticated tax compliance and planning needs. If it would be helpful to meet David then please get in touch.

Friday 18 March 2011

Long Run Wins It

Today was perhaps the biggest day in horse racing for many people. The Cheltenham Gold Cup is one of the top horse racing events of the year and today's race was "a modern classic". It was won by Long Run and as so often seems the case with horse racing, there is something of story behing the horse and team that won just ahead of two previous winners Denman and Kauto Star.

It was good to know that even in horse racing, it is better to look at life in the long run. It is certainly true of investing. I happened to be in the car on the way to a meeting, the radio was on and the BBC commentary was certainly exciting! You can listen to it again here.

2010/11 End of Tax Year Guide

For those of you that enjoy the rush that a deadline brings. Here is a guide to the end of the tax year 2010/11. Obviously if you wish to invest money before the end of the tax year into your ISA or pension, you should get in touch as soon as possible.

New Guides Available

We have put some good guides within our resources section for you to view. The guides are about inheritance tax planning, ISAs, investment planning, wealth management.


Merchant Investors Name Change

Its the season for name changes, Merchant Investors are rebranding themselves as Sanlam Investments and Pensions. Much more of a mouthful but reflecting the fact that MI has been part of the Sanlam Group for several years (since 2003).

There's a new website and the changeover should take place from the start of the new tax year on 6th April 2011 when the new website will go live. Sanlam is a South African company, formed in 1918.

Thursday 17 March 2011

Rising Interest Rates - Summer 2011

I have been in semniar mode most of the day today. I have heard five presentations from some of the more currently successful fund managers. All of them were suggesting interest rates would rise this year. Prior to the horrendous Japanese disaster - six days of hell and counting.. the general sentiment was that they expected UK interest rates to rise in May. They were all of the view that this would probably now be delayed a little, perhaps until July. In terms of the size of rate rises, the only one willing to put a number on things suggested a rise of 0.75% this year (in all by the end of 2011) and a further 0.5% in 2012. If he is right, this would see the Bank of England base rate rise from 0.5% to 1.25% and then reach 1.75% by the end of 2012. Still incredibly low. Of course the consensus may be wrong and we shall have to see what happens at the next MPC meeting.

Wednesday 16 March 2011

Lloyds Bank still getting mortgages wrong?

OK, contraversial issue here. We all know that Banks are not popular. This is largely due to the credit crunch, which was partly caused by irresponsible lending - which meant that many of us had large mortgages approved and so fed the property price boom - which was really little more than self inflated borrowing and a general lack of supply, not genuine "market forces". Anyhow, with all the horrendous press that Lloyds have had - and my blog about them recently was not exactly favourable, they have launched a new 95% mortgage facility for first time buyers. 

On the one hand this appears to be good news. However there is a catch. This is only available where a "helper" (or a local authority) signs up for their "lend a hand scheme" and effectively underwrites what used to be called the mortgage indemnity guarantee (MIG) by providing Lloyds with a 20% deposit. This is really an insurance polcicy against default on the loan. So the local authority is stumping up cash to underwrite a nationalised bank to get first time buyers into a property market that is still overpriced. So in practice, this is nothing more than a 75% mortgage. True some interest will be paid to the "helper" for their 20% deposit with Lloyds (by Lloyds... oh that's you and me still isn't it?). I'm not exactly jumping with joy at the prospect of further ineptitude from Banks are you?

Loans can range up to £350,000 for a first time buyer - so assuming that this sum is 95% of the purchase price which would be about £368,421 with a maximum deposit of £18,421.... which probably still requires an income of £100,000 to secure the £350,000 loan... for a first time buyer! So at the top end I don't see these selling like hot cakes and the scheme seems to have more than a whiff of hot air about it, but hey... its for the journey...the question is surely TO WHERE?


Business News Update

There has been some good news in the construction industry, with Bovis, the housebuilders, reporting a 6% increase for 2010 pre-tax profits, achieving £18.5m compared with £7.5m the previous year, as more homes were being purchased as well as the cost of building homes reduced. This news comes in the week that Lloyds are beginning to offer first time buyers 95% mortgages again. So there are signs of improvements in the property market.

Mr B is expanding again - Virgin Atlantic announced it is to create 450 jobs in the UK, 350 cabin staff and 50 pilots, as the airline giant will begin a new route between Manchester and Las Vegas as well as an increase in London departures to the Caribbean and Ghana. Great news for a summer outside the UK.

Wolrd famous investment guru, Warren Buffett of Berkshire Hathaway (perhaps the most boring investment website ever?) is to buy Lubrizol in a cash deal worth £5.6bn - 28% above its latest market valuation; the chemicals firm saw net income rise by 46% last year to £468m. I'm guessing that this will be one to watch!

The markets are buying themselves, the US technology exchange Nasdaq is to make a £7.5bn bid for NYSE Euronext, whilst seeking £3.2bn of debt to fund the offer; the deal will compete with the £6.4bn deal between NYSE and Deutsche Boerse already agreed between the two companies' boards in February.

Monday 14 March 2011

Japanese Earthquake

The earthquake and tidal wave in Japan is a horrific reminder that the world we inhabit makes life precarious. The Japanese have lived with frequent reminders that their nation happens to be located in a part of the the world where earthquakes are common. They have planned for such events and done about as much as humanly possible for a nation to do at this point in history. Many of their preparations have been proven to be of tremendous value, reducing damage and loss of life, but there is only so much that can be planned for. Sometimes, we simply cannot do enough.

Financial planning is no different, a good, robust plan will take account of most circumstances that life can offer, but however much wealth or insurance one has, it is not real security. We live with the reality that we are stewards of a planet that is really a very large ball of fire covered in rock and water. Some things we can change, others we cannot. Our inability to control the universe and play "god" ought to be apparent to us all, but invariably our world is full of "leaders" that seem to forget this basic truth and are intent only on  protecting their own deeply flawed ego. The essence of being human, seems to me to be more about how we respond to suffering and loss as we learn from experiences and find the energy, courage and hope to build again.

Thursday 10 March 2011

Business News Update

There has been some good news over the last week that may have escaped even the keenest eye. Jobs are being created as a result of Jaguar Land Rover signing supply contracts exceeding £2bn with UK companies for its new Range Rover Evoque model; some 1500 jobs are being created in Merseyside.

Marketing giants WPP’s profits in 2010 were a staggering £851m, almost a third up from the previous year, thanks in part to a rebound in US advertising in Q4. This suggests that manufacturers believe that the US consumer has money to spend.

One of our "beloved" nationalised banks, Northern Rock reported a loss of £232.4m for 2010; the nationalised bank said it was making progress and is in talks on returning to private ownership. This may be somewhat premature but as with other banks, demonstrates that repairs are being made to balance sheets. Mind you I still don't really understand how bonuses are awarded for lossmakers and for effectively doing your job.

The politically sensitive nature of the media has been exposed to some extent again as News Corp owner Rupert Murdoch came under pressure to increase his £7.8bn takeover bid for the remaining stake in BSkyB. The media mogul, who also owns the Times and Sun newspapers, has been trying to ensure his offer avoids issues with the Competition Commission.

Lego prove that childrens toys - or at least good ones, are fairly recession proof. They reported a pre-tax profit of £563m in 2010, a massive rise of 63% from the year before, thanks to its Harry Potter range; the Danish toy manufacturer also reported that sales grew by 32% to £1.8bn and now claims to be the world's fourth largest toy manufacturer with a global market share of 5.9%.

There is gold in the ground... along with many other things...a consortium of Japanese and South Korean firms has bought a 15% stake in Brazil's rare earth mining company Companhia Brasileira de Metalurgie e Mineracao in a deal worth £1.9bn. This is further evidence of the growing confidence in Brazil as an investment region.

Tuesday 8 March 2011

When it is not what it says on the tin...

There is a really good free tool called "Managed Fund Analyser" that can be used by advisers and clients to review the level of volatility and risk associated with certain funds. This is a free tool provided by Skandia, market leaders in investment platforms.

You can select from Unit Trusts, Life Funds, Pension Funds and even Offshore Funds and then select from certain ABI sectors - typically Cautious Managed and Balanced (a couple of others too). I think pretty much all of the funds are shown (within the related categories) and this allows you (or me) to compare certain funds based upon historic data. The results are troubling.

On the whole this information adds weight to the argument in favour of passive investing (something that we focus on with our clients) as there is very obvious evidence that the extra charges for a manager are invariably not worth the cost. In addition, the level of risk being taken is out of sync with the original mandate that both the adviser and client thought was the case. This demonstrates the vital importance of regularly reviewing your investments...and pensions...and investment based life products.

All in all, this is a fabulous tool that Skandia have provided free of charge, but the conclusions are very concerning for investors. For example, pension funds that are alledgedly "Balanced Managed" are considerably towards the high to very high risk end of the spectrum over 3 years. This is in part due to the credit crunch admittedly, but it would do little to help an investors confidence and suggests that the Fund Manager may not be as balanced in their management as advertised.

Monday 7 March 2011

Market Round Up

You can find the market data for the year up to the end of February 2011 in our monthly market report. This reveals that so far in 2011 the biggest increase has been in Oil. This will come as little surprise to anyone that has understood that the middle east is having something of a power stuggle. Oil has risen 18.7% in the year to date. Few of us will be quite so pleased when we fill up our cars in the forecourts. There has been a direct knock-on effect with the Baltic Dry Index (an index made up shipping prices for "dry" cargo worldwide). This index has fallen nearly 30% in the first two months of this year. Not to worry though, our clients do not have money in this index. FTSE100 up 1.6% for the year to date, most western markets are performing better to date than the UK, with the Asia Pacific region being the notable exception.

Diversity and a long-term view is everything!

Friends Life

Further to my post about Friends Provident and AXA, here is the new Friends Life logo and details from the horse's mouth. This is a link to the leaflet that is being mailed to policyholders. The AXA rebranding to Friends Life begins next Monday on 14th March 2011.

Friday 4 March 2011

Tax Year End 2010/11 - Time for Action

David Pointer is a tax specialist working in central London. Here are a few of the key issues as we run up to the end of the 2010/11 tax year. David runs the Open Tax Consultancy and helps high net worth clients with sophisticated tax arrangements, if you think that this is relevant to you please get in touch.

With the end of the tax year only four weeks away people are busy taking out ISAs and topping up pensions, these simple but effective steps show that tax planning is no longer the kingdom of the rich and famous. A warning bell then, have you looked at your tax profile recently, taken stock of your personal tax situation and that of your family? Have you considered the various tax reliefs and tax efficient investment opportunities available to you? Are you sure you understand what you can claim and as importantly what will ruffle the feathers of the tax man?

For the more straightforward a good start is to think about what reliefs can be claimed, the annual capital gains tax exemption is a good example - £10,100 of tax free gains each year or £20,200 if you are married. If inheritance tax planning is an issue have you used the annual exemptions for this year and last year? Do you understand exempt gifts out of income? For the more adventurous amongst us there is perhaps Venture Capital Trusts that gives income tax relief for investing or the Enterprise Investment Scheme that boasts income tax relief, the opportunity to defer the capital gains tax payable on other assets sales and inheritance tax exemption, all freely on offer and, subject to ticking all the boxes needed, perfectly agreeable to HMRC.

In writing this I should also say it’s very important to remember that there is a close interaction between investment choice, personal circumstance, portfolio balance and taxation...... just because an investment offers a tax break does not give it a Midas touch. Tax relief can certainly be used to enhance considerably investment returns but if you can’t get your money back when you most need it then all that glistened may well not have been tax gold. So clever advice is to talk to people who collectively know their tax and investment onions, which is where Solomon's and Open Tax Consultancy can help

With the government spending squeeze and taxes on the rise people more than ever are looking to plan their tax pain away, charity it seems has never been closer to home. Tax by definition is taxing.

Green Energy - A Boost for Your Businesses

There are £550m of Government loans available to businesses as a new initiative to get business to conserve energy and use it more efficiently. This is all due to a deal announced yesterday between Siemens and the Carbon Trust.

The loans will be provided by Siemens Financial Services in the UK, with the Carbon Trust assessing the cost, energy and carbon savings of the plans proposed by companies. The Carbon Trust anticipates it will generate lifetime energy cost savings of £1bn and 5.5m tonnes of carbon, which is fairly impressive!

The scheme will be available from 4th April 2011 and any energy equipment is eligible as long as it meets the scheme's energy-saving criteria. This replaces the current scheme through which the Carbon Trust made interest-free loans of up to £250,000 each to small to medium-sized enterprises for energy efficiency ends later this month on 28 March.

The loans will be made at commercial rates for periods of one to seven years and sums from £1,000 to several hundred thousand pounds.

Chris Whitelock of Pure renewables says: "This is a very welcome initiative at a time when government-backed 'green schemes' are becoming more diluted with every passing day.  Previous Carbon Trust industry loan arrangements have been difficult to implement with eligibility being limited to unrealistic payback timescales on renewable systems of just 4 years.  Hopefully this new scheme will broaden the application of renewables in the industrial sector to a level which will actually make a tangible difference to both energy costs and carbon emissions. At last, it looks like we're getting something with substance."

Government Promise Red Tape Reduction

At last nights Mansion House dinner, Vince Cable discussed how the Government is keen to help small businesses by cutting the amount of red tape. He is reported in the Financial Times to have said:

"I confess to a certain exasperation with commentators and opposition politicians who, for reasons of ignorance, amnesia or mischief, assume away the past and expect that the Government can somehow guarantee an immediate, miraculous return to rapid economic growth through some all-encompassing plan. Developed economic markets cannot be made to grow like the Soviet Union.”

If you own your business, do let me know if you find any reduction in red tape.

Friday Morning Hope

Half full or half empty, becomes a fairly silly perspective when you come across something like this. At the end of a week, I'm trying to reflect on what has been achieved, what I am thankful for, not the seemingly endless list of things to do, have and want. Here's an incredible short video, hopefully to pep up your Friday.

Thursday 3 March 2011

Revolution - could it happen here?

In the last 3 weeks we have all witnessed the revolutions occuring in the middle east. Out with the old and in with the new. In regions that have little experience of democracy this is a significant moment in their history.

Here in Britain, we take our democracy fairly lightly most of the time and indeed over the last couple of years our politicians have been found wanting.

The Budget is now set for 23rd March - 3 weeks time. The Budget has a significant impact on most of us - not just in terms of how much we spend filling up at the petrol station, but the wider social and econmic map that unfolds. The Chancellor is open to suggestions and representations as he and his team put together the Budget. You are invited to have your say.

I quote: "A Budget representation is a formal written representation from an interest group, individual or representative body to HM Treasury with the aim of commenting on Government policy and/or suggesting new policy. HM Treasury welcomes representations as part of the policy making process."

You can make your representation by clicking the link here to HM Treasury.... I wonder if you could start a revolution? let me know if you decide to have your say.

Tax Reliefs Review - Handed to Government

I have previously covered the fact that the OTS was reviewing a variety of tax reliefs. Today they have published their report. Remember that the purpose of the exercise is not to reduce or incease tax, but to review and simplify.... so here is the 191 page report!

The report recommended that 45 reliefs should be abolished; 17 reliefs should be simplified and 54 reliefs should be retained.  They also found that there are 8 expired reliefs which should be removed from legislation. The recommendations have been submitted to the Chancellor ahead of Budget 2011.

Most of those rleiefs that are being reccomended for abolition are really not that significant. Life Assurance Premium Relief (LAPR) which was scrapped on life assurance policies from March 1984 - some 27 years ago, is still available to some policies (taken out over 27 years ago). This is a tax complication and is being proposed for abolition. An unusual relief is for "Black Beer" which is exempt from excise duty. This benefits one beer producing company and is generally not consumed outside of Yorkshire, the exemption dates back to the 1930's and is also being proposed for abolition.

In terms of the recommendations for simplification - the main headlines will be Enterprise Investment Schemes, Venture Capital Trusts and Entrepreneurs' Relief. I cannot find anything in the document relating to inheritance tax, pensions, ISAs or Investment Bonds. However, there is a call for the Government to review IHT, but the OTS felt that this should be a top-down approach rather than altering the various associated reliefs available, so this does not mean that IHT has escaped a review - probably deferred. To quote the review:

During the review, a number of key themes have emerged:

Merging income tax and NIC – this is a long term project of structural reform that would deliver major simplification;

Employee benefits and expenses – The longer term aim would be to align the treatment of employee benefits, with shorter term aims of simplifying many minor benefits with a de minimis limit of £100/£500, or amending the current £8,500 threshold;

Inheritance tax and trusts – the reliefs for inheritance tax are integral to the policy and we consider that a more appropriate approach would be to review the tax as a whole;

Capital gains tax, particularly as applicable to companies – the capital gains systems for individuals and companies have drifted apart, with gains by individuals taxed at a lower rate than income to reflect inflation, whereas companies are still required to calculate indexation. Our aim would be to realign the treatments and simplify the tax, but as there are changes in relation to corporate capital gains expected in Finance Bill 2011, this is clearly a longer term project; and

Environmental taxes – Both landfill tax and aggregates levy should be reviewed, as both regimes contain basic charging provisions with numerous exemptions and it may be more appropriate to define what is caught rather than what is excluded.

In summary, this is what the OTS would suggest to the Government (Treasury):

Predictability: Objectives for major reform to be set out, including how they will be taken forward and the timetable;

Stability: Majority of changes to be announced at least three months prior to the start of the tax year in which they come into effect or publication of the Finance Bill in which they will be included;

Simplicity: Setting up of the OTS and ensuring that simplification is at the heart of the Government’s agenda

Scrutiny: More legislation to be published in draft, to allow for pre-legislative scrutiny; and Transparency: Tailored Tax Impact Assessment, replacing the current Regulatory Impact Assessment used across Government, plus more information to be published on costing of tax policies, improved supporting documentation accompanying tax changes, and consideration of greater use of sunset clauses for post implementation evaluation.

iPad 2 - So good they made it twice

I'm not a gadget guy (at least I don't think I am) - but sometimes there is something that comes along and just seems to be fantastic. The iPad is due to see its first successor launched later this month, in theory coming to the UK on 25th March. So, just in case you are thinking of spending the money now, it may be worth holding on a few weeks.

The genius of Apple marketing and design speaks for itself. Its not everyone's cup of tea, but this is certainly a revolution in the IT world.

Wednesday 2 March 2011

2010/11 Tax Year End - Pension Allowances

Several changes to pension’s legislation are due to take effect from 6 April 2011, now only a few weeks away.

One of these changes affects the Annual Allowance, which in some cases will limit the amount of tax privileges available on pension savings. The Annual Allowance is to reduce from £255,000 to £50,000. This presents an opportunity for some individuals to make use of the higher allowance before the end of this tax year, after which the opportunity will be lost.

Up to 6 April 2011, there may be an opportunity for individuals to pay contributions into a pension arrangement, and/or for employer contributions to be paid, up to the existing Annual Allowance of £255,000. The tax treatment of such contributions depends on whether the member is a high income individual or not. In brief:
Income* less than £130,000

• Up to £255,000 from all sources, including employer contributions, may be paid in the current tax year as long as the test against the Annual Allowance can be made in this tax year.

• To do this for large contributions, the pension input period (PIP) needs to end before 6 April 2011 so that contributions do not fall into the 2011/12 tax year and risk exceeding the new reduced Annual Allowance .

• If the PIP is shortened to end before 6 April 2011, it may be possible for further contributions to be paid, potentially up to the current Annual Allowance.

• A decision can then be taken on whether or not any further contributions will be paid in a new PIP which will end in the 2011/12 tax year.

• Full tax relief will be granted on personal or third party contributions paid up to 100% of UK relevant earnings .

• Employer contributions will receive corporation tax relief if the “wholly and exclusively” rule is satisfied.

* Relevant income is as defined by HMRC in their guidance for registered pension schemes at RPSM15101000 (as amended)
Income More than £130,000
If an individual has relevant income* of £130,000 or more in this or the previous two tax years, he or she is affected by the anti-forestalling provisions. On the basis that the individual does not have a protected pension input amount exceeding £20,000:

• Total personal contributions of £20,000 (up to £30,000 in some circumstances) may be paid and receive full tax relief in the current tax year.

• Company contributions will receive corporation tax relief (if these meet the “wholly and exclusively” rule) but the individual will be subject to the Special Annual Allowance (SAA) tax charge for any contributions (including employer contributions) in excess of £20,000 (or up to £30,000 if a higher SAA applies)

• Any personal contributions paid in excess of the SAA in the current tax year will receive basic tax relief

• Any contributions paid in excess of the new reduced Annual Allowance in a PIP which ends on or after 6 April 2011 will suffer a recovery charge. Excess contributions will be treated as the top slice of an individual’s income, meaning that all tax relief will be lost on that excess amount.

Other advantages for any higher and additional rate tax payers in making pension contributions can include:

• Reducing their liability to higher or additional rate tax
• Reducing their adjusted net income to below £100,000 in order to reinstate their full personal allowance.

Income £130,000 and restricted
Individuals with relevant income of £130,000 or more, who are currently restricted to tax relievable contributions of between £20,000 and £30,000 have an opportunity to make up for some of the shortfall from 6 April 2011 by using the new form of carry forward.

Time is running out, so if this is an issue for you - where you have significant earnings or wish to make pension contributions in excess of £50,000 please contact me as soon as possible for specific personal advice. The above is nothing more than explaining some of the key issues, more information is available on the HMRC website - which I have linked to throughout this piece.

Importantly for pensions:

£10,000 cheque = £12,500 invested (gross) with basic rate tax relief. Higher rate taxpayers can reclaim a further 20% relief on the £12,500 - another £2,500. So in practice, the net cost of a £12,500 pension investment is £7,500 for a 40% taxpayer. One of the few instances in life where you actually get some significant money back from HMRC as the "norm".