Blog - Page 5 of 9 - Harley Financial Services Ltd

The Budget

Chancellor George Osborne delivered the first Conservative-only Budget in nearly 20 years, and announced a series of bold measures affecting business, tax and welfare in his 2015 Second Budget. 

Heralding this Budget as a ‘big Budget for a country with big ambitions’, the Chancellor unveiled his announcements with the stated aim of moving from a ‘low wage, high tax, high welfare economy to the higher wage, lower tax, lower welfare country we intend to create’.

Acknowledging the ongoing risks posed by the global economy, the Chancellor reported that the Office for Budget Responsibility had revised down its economic growth forecast to 2.4% for 2015 and announced that a budget surplus will now be reached a year later than planned, in 2019/20.

In a series of moves designed to incentivise UK businesses, the Chancellor announced future reductions in corporation tax to 18%. Meanwhile, a new apprenticeships levy will be applied to all large firms.

Key announcements on personal taxation include an increase in the basic income tax personal allowance threshold to £11,000 next year, and a rise in the basic rate limit to £32,000. The pensions tax relief annual allowance for the highest earners will be reduced from next year, and a new Green Paper will propose radical changes to the pension saving system.

A new, compulsory National Living Wage will apply for those aged 25 and above from next April, while working parents will receive up to 30 hours a week of free childcare for 3-4 year olds from September 2017.

Changes to the inheritance tax rules will include a new main residence allowance starting at £100,000 and rising to £175,000 by 2021. This could allow families to pass on up to a total of £1m to their children without paying inheritance tax.

Further measures to clamp down on tax evasion and aggressive tax avoidance are expected to raise an additional £5bn and the Government will abolish permanent non-dom status from April 2017.

If you would like to discuss how these changes impact on your own personal financial planning then please get in touch.


The Greek Tragedy Continues

Should Greece fail to reach an agreement with its creditors, a vote will take place on 5th July as to whether to accept the terms of the troika (ECB, IMF and the EU) in order to secure monies so that Greece can honour its debt repayments. A “no” vote essentially means the Greeks have voted to leave the euro. Even a “yes” vote may not solve the problem. The deal offered may no longer be available come the 5th.

Given the above it is no surprise that Greece has limited the amount to be withdrawn from ATMs and has imposed capital controls. This may make the economic situation even worse. Imports can no longer be paid for and people will have less physical cash to spend. Unsurprisingly stock markets around the world have fallen given the uncertainty.

The Greek economy is only 2% of the economy of the euro area. So by itself this will not have a material impact on euro zone growth. However it is the sentiment towards other highly indebted countries that is more important; the likes of Spain, Portugal and Italy. Should confidence deteriorate towards their economic prospects then the euro crisis will continue for some time.

Get in early with your ISA

You only receive one Individual Savings Account (ISA) allowance each tax year. Since it cannot be carried over into the next tax year, if you do not use it, you will lose it forever. The annual ISA allowance for 2015/16 has risen from £15,000 to £15,240.

Plenty of investors wait until the very last minute to use their ISA allowance but there is no reason to delay. In fact, investing early allows you to gain maximum benefit from the associated tax breaks – for example, the earlier you put your money into a deposit account, the more interest you will earn.

When investing in stocks and shares for your ISA, it may seem seductive to try to ‘time’ your investment by buying when prices appear cheaper. However, even experts rarely manage to ‘time’ the market successfully on a consistent basis, so non-experts are unlikely to fare any better. If you are concerned about market volatility, regularly ‘drip-feeding’ money into the market can reduce the risk of buying when prices have peaked, while ensuring you invest at a range of different price levels. This system can offer long-term benefits, particularly for nervous or first-time investors or during periods of significant market volatility.

Ultimately, regardless of how you invest your money, you only receive one ISA allowance for each tax year, and therefore it is best to begin your research early and speak to your adviser about all your options.

Risk Free Retirement?

New pension freedoms came into play in April and this has led to a big increase in media coverage of retirement.  We have noticed in some of these articles that it is mentioned that clients don’t want to take any risks in retirement so they choose products which they see as being risk free.  However, is there such a thing?

The short answer is no.  One or more of the following risks will impact on you irrespective of which vehicle you choose to provide your retirement income.  You should therefore consider these before making your decision:

Credit Risk is the risk that any provider could go bust.   All providers have different financial strengths and broadly speaking, the higher the financial rating, the less chance of failure.

Mortality Risk is the risk that you could die prior to “getting your money back”. Spend too little and leaving a lot of pension unused, or spending too much and outliving your pension pot.

Annuity Rate Risk is the risk that annuity rates may decrease in the future prior to you purchasing your annuity.

Capital Risk is the risk that capital may be eroded.  When an annuity is purchased capital risk disappears as the capital has been spent.  However, if you choose one of the other options available, managing income levels to protect capital and/or sustain income levels is important.

Investment Risk is the risk to future benefits due to investment performance. This risk only applies where there is an investment link, so once again conventional annuities are not affected by this.

Inflation Risk is the risk that the real value of your income may be eroded by inflation. Unless an inflation linked income is available this risk will continue to exist.

A successful retirement strategy will rely on suitable planning and capital management. Focussing solely on income or capital value and not on the various risk factors can lead to unwelcome outcomes.

Plan for political uncertainty this May

There has been much said about the uncertain outcome of the upcoming election. Between now and the end of May the volume of noise is only going to increase.  A wide array of potential outcomes seem possible – a majority government, multiple coalition variants or minority government are all in play.

Taking a directional view on the outcome of the election is at best difficult and seems likely to hinge as much on luck as good judgement. There is a lot more water to flow under the bridge before the election and the minor parties will have a significant role to play.

Even if we did have conviction in a particular political outcome, it is even harder to translate that into short or medium term market effects.  Our preference is to ensure that our clients’ portfolios remain invested in a manner that does not expose them to unnecessary and unrewarded risk. This sentiment is key to how we are approaching the UK General Election.

The one thing we can be reasonably sure of is that the volatility in domestic markets and sterling will increase as a result of the election uncertainty. This increase in volatility is already beginning to manifest itself in volatility across asset classes.

It is not clear that the market is pricing in the full extent of the uncertainty or a long enough window. However, it seems likely that volatility could be more pronounced and last for a longer period of time after the election date.

New tax year, new pension freedoms.

Well the new tax year is here and the new pension freedoms have come along with it.  Unless you have been out of the country for the last year you will no doubt be well aware that sweeping changes to pension rules will now give savers much more control over their money.  The shake-up is one of the coalition government’s biggest reforms, allowing people who have saved into a pension to do what they want with their money.

Whilst increased choice and flexibility is normally a good thing, we have serious concerns that many individuals will make bad choices that could impact on them for the rest of their lives.

For those that deal with it through a financial planner, there is probably no need for concern, as a decent financial planner will be able to guide you through the minefield.  However, what happens to those that don’t have the means to pay for professional advice, or simply don’t want to?

Well the government has launched PensionWise, which is a free “guidance” service. This is essentially a step up from the DIY route, as they will provide you with plenty of information and you then make up your own mind.  They won’t be able to provide any advice on your tax position or the types of product or investments that would best suit your circumstances, but they will highlight the main points you need to think about.

Will this be enough to avoid another pension scandal?  Only time will tell.  However, we will not be surprised if the pensions industry is being battered again in the media in another few years as a result of high numbers of pensioners making bad choices at this time.

Are you ready for tax year end?

The tax year end is almost upon us, so if you have not made use of your annual allowances, then you only have a very short time to act.

The most obvious allowance to make use of is your ISA allowance.  This is a use it or lose it allowance, so if you are a taxpayer then why not take full advantage of one of the few genuine tax free options available to everyone?  Even if you are unsure how you want to invest the capital right now, placing it into a Cash ISA prior to the tax year end will ensure you make use of the allowance and you can then take time to consider your options fully, and if appropriate, transfer your ISA to something more suitable.

Pensions also get a lot of attention at this time of year, and with good reason.  They are a very tax efficient way of saving for retirement due to the tax relief given on contributions.  Combine the tax efficiency with the new freedoms that will come into play in the new tax year and pensions are set to become an essential component for almost anyone saving for the future.

One of the less well used allowances is the Capital Gains Tax annual allowance.  If you hold assets that are subject to CGT, such as shares or unit trusts, then making use of your annual CGT allowance on a regular basis can make a real difference to your net returns.

Despite what the politicians would have you believe, the amount most of us pay in tax is on the increase.  Income tax, Capital Gains Tax, National Insurance, VAT, Inheritance Tax, road tax, insurance premium tax….. the list goes on.  With that in mind, checking the tax efficiency of your portfolio and making use of the various allowances should be a normal part of your financial planning strategy – unless of course you enjoy paying tax!

Pensions Freedoms

The countdown to the Government’s announced pensions freedoms has entered its final month and all signs point to an increase in activity for those looking to sort out their pension arrangements and take advantage of the new options.

The already heavily diminished popularity of annuities looks set to be compounded by the relaxation of drawdown regulations, likely signposting more people utilising drawdown arrangements. Whilst a degree of uncertainty pervades and last minute regulation continues to be hammered out, we have already seen a very noticeable increase in the enquiries we are receiving from retirees and those approaching retirement.

Although the Government is providing free guidance on the matter via Citizens Advice, there are so many potential pitfalls for the average investor that many will opt for proper financial advice from a regulated adviser instead.  We can only hope that the vast majority make that choice, or the pensions industry could be looking at another scandal in a few years time.

Press Release

On 29th March the Sunday Telegraph will publish the first Top Rated guide to UK professionals. The guide will feature Falkirk’s very own Douglas Harley from Harley Financial Services Ltd who qualified for inclusion in the Top Rated Independent Financial Adviser (IFA) category.

Comments Douglas Harley: “A supplement that helps people to find the best professionals is long overdue so I’m thrilled that the Sunday Telegraph is putting together such a comprehensive guide. As a Chartered Financial Planner, being recognised as Top Rated in my profession is important to me and being featured in this inaugural guide is exciting.”

Douglas achieved Top Rated status thanks to support from existing clients. In the past 12 months more than 15 clients have positively reviewed Douglas on, the leading rating and review site for professionals. Reviews on the site are all independently verified meaning that people looking for a local professional can feel confident that they’re contacting a trusted individual.

Continues Douglas Harley: “I’d like to thank all my clients for their continued support and give special mention to those who took the time to write such wonderful reviews. It’s always nice to get positive feedback but to be featured in a national paper as a result is the icing on the cake. Thank you!”


The power of tax-aware compounding

There is still some controversy over whether or not Albert Einstein can be credited with saying, “Compound interest is the most powerful force in the universe.” However, there is much less controversy surrounding the actual benefit that compound interest has on a portfolio over time.

You may be aware of another force that can have a powerful impact on a portfolio in a less desirable way: taxes. Have you considered the impact that taxes can have on a portfolio’s ability to compound returns?

It’s fairly simple: by reducing the tax drag (the amount of wealth lost to tax) on a portfolio, the portfolio is left with a larger asset base, which benefits over time from the compounding of returns. Coupled with a long investment horizon, this reduction in tax drag can create significant improvements in total wealth.

For the 15 years ending June 2014, the average fund in the Morningstar U.S. equity category gave up 1.03% of its return to taxes annually.  The compounding effect of 1.03% average annual tax drag over 15 years represents a 16.4% return degradation.

The good news is that a portfolio’s tax drag can be reduced using various tax wrappers and strategies – such as ISAs, annual CGT allowance, pensions, offshore bonds, etc.  Have you considered how much value compounding could contribute if you proactively used tax-aware investment strategies early? The earlier you can discern their suitability and place taxable assets into tax-managed products, if that is an appropriate course of action, the greater the impact of a reduction in tax drag can have.

Of course, avoiding taxes or even minimizing taxes shouldn’t be an investment goal unto itself.  In the end, it all goes back to helping maximize your after-tax wealth.


Source: Russell Investments