Your Daily Dose of News That Matters in the Wonderful World of Wealth
Andreas from Elite Investor Club here with a news item that caught my attention today:
UK housing market is in neutral gear,say lenders
The UK’s housing market is in “neutral gear” and the general election will do little to change that, the mortgage lenders’ trade body has said.
The Council of Mortgage Lenders (CML) has said gross mortgage lending totalled £21.4bn in March, in line with the monthly average over the past year. But it was much less than the £26.3bn lent in March last year, when there was a surge in buy-to-let borrowing.
Then, landlords rushed to buy homes ahead of a rise in stamp duty. A 3% stamp duty surcharge was introduced in April 2016 on the purchase of any properties that are second homes. Since that surcharge came in, the buy-to-let market has become more subdued, as has the market for home movers.
However, the CML said this fall had been cancelled out by a pick-up in lending to first-time buyers. “There has been a shift towards first-time buyers and remortgage customers, away from home movers and buy-to-let landlords,” said the CML’s senior economist Mohammad Jamei.
The number of first-time buyers has increased steadily since early 2013, the CML said. In the 12 months to March this year, there were 342,000 first-time buyers, the highest figure for any 12-month period in the past nine years.
“For so long landlords have held all the cards but, with the various tax changes applied to buy-to-let, first-time buyers are firmly in the driving seat and are putting the pedal to the floor,” said Mark Dyason, director of mortgage broker Edinburgh Mortgage Advice.
The uncertainty created by a general election has traditionally put a dampener on the housing market, but the CML said that might not be the case this time around. Mr Jamei said, “We do not anticipate that the prime minister’s decision to call a snap election will have a large impact on the housing market.”
Howard Archer, chief UK economist at IHS Markit, said: “We expect house price gains over 2017 will be limited to no more than 2.5% – and it could very well be lower than that.”
UK inflation stays at three-year high of 2.3%
Economists warn rate will rise further as Brexit effect on sterling inflates grocery bills and eats into already strained household budgets
Rising food and clothing prices kept Britain’s inflation rate at its highest level for more than three years last month, putting household budgets under pressure as the Brexit effect on the pound worked its way through the economy. Official figures put inflation on the consumer prices index (CPI) at 2.3% for the second month running in March, in line with economists forecasts, as food prices rose at the fastest pace for three years, increasing 1.2% on the year.
Economists said inflation was likely to push higher in April and they warned the rising costs of essentials such as groceries were already eating into household budgets and leaving people with less cash to spend on other items. Reports from retailers suggest sales slowed in recent months.
“Today’s release confirms our expectations that 2017 will see the end of the consumer spending boom which has driven economic growth in recent years,” said Nina Skero at the consultancy, the centre for Economics and Business Research. “With the prices of essentials such as housing costs, food and transport on the rise, less money will be left over for discretionary spending. This is especially true given that wage growth is unlikely to keep up with the elevated inflation levels.”
Much of the pressure on inflation has come from the pound’s sharp fall against other currencies after last June’s vote to leave the EU. That makes imports to the UK more expensive, with firms now passing on those higher costs to shoppers. There has also been a marked effect on inflation in the UK and other countries from higher global oil prices. Inflation has risen above the Bank of England’s 2% target from just 0.3% this time last year, bringing an abrupt end to a brief period when Britons enjoyed incomes rising in real terms, or faster than inflation.
“Rising prices and sluggish pay increases mean that real earnings growth has now ground to a halt,” said the TUC general secretary, Frances O’Grady. “Without government action, another living standards crisis is on the cards. “We urgently need more investment in skills and infrastructure to build strong foundations for better-paid jobs. And it’s time to scrap the pay restrictions hitting midwives, teachers and other public servants.”
The Treasury said it was also taking action. “We are building an economy that works for everyone and helping families with the cost of living by cutting income taxes for 31 million people, freezing fuel duty and increasing the national living wage to £7.50 per hour,” said a Treasury spokesman.
Some economists predict inflation reaching 3% this year although few feel the cost pressures will push the Bank of England into raising interest rates from their record low of 0.25%. One of the nine members on the Bank’s monetary policy committee (MPC), outgoing policymaker Kristin Forbes, voted for a rate rise in March But the Bank’s governor, Mark Carney, and other policymakers have indicated they are happy to tolerate inflation being above their government-set target in return for supporting growth and safeguarding jobs with low borrowing costs.
‘Non dom’ tax change to hit thousands of returning expats
Thousands of Britain expatriates are facing significant tax bills if they return after new non-dom rules come into force next month.
The finance bill published this week will pare back the tax perks offered to people whose permanent home or “domicile” is outside the UK, imposing new limits on their ability to keep offshore income out of Britains tax net.
Permanent non-dom status will be abolished for anyone living in Britain for at least 15 of the last 20 years. Non-dom status for Britons who return to the UK but claim to have a permanent home abroad will also be removed.
The changes have caused consternation in Hong Kong and Singapore, where large numbers of British financial and legal services professionals work.
We have had a flurry of inquiries recently in respect to Brits returning to the UK for work or for their children’s education and these new rules are resulting in them having to think very carefully about the implications and their long-term plans, said Carlo Gray head of accountancy firm Buzzacott in Hong Kong.
The changes, introduced, to tackle what the government has described as fundamental unfairness in the non-dom regime, amount to the biggest changes to the tax rules since their introduction in 1914.
Martin Rimmer, head of tax for South East Asia at the Fry-Group in Singapore said the reforms would affect expats who had to return to Britain unexpectedly, perhaps because a family member was taken ill. “Life throws curveballs” he said, “I think it will affect thousands, if not tens of thousands of people whether they know it or not.”
The expats affected by the change are those born in the UK, starting life with a British ‘domicile or origin’, but who then went overseas and put down roots elsewhere, keeping their wealth outside the UK tax net, even if they then subsequently returned to the UK.
Peers Recommend financial education for 5 year olds
Children as young as five should be taught about personal finance in schools to boost financial literacy in later life and tackle the source of “rip off” credit charges, peers have recommended.
Introducing financial education to the English primary school curriculum would give children the life-long skills required to make the best choices about savings, borrowings and debt. “Understanding the basics of money has got to start earlier” said Claire Tyler who is chairwomen of the House of Lords committee on financial exclusion.
Children who had an early grounding in personal finance had “far less chance of being ripped off later in life”.Lessons would have to be age appropriate but Claire Tyler pointed towards evidence that attitudes towards money are typically fixed by the age of seven.
Primary schools need to teach the importance of money in people’s lives. Things have a cost. You need money to pay for it. You only have a certain amount, so what can you afford to buy?The committee has praised schools that had set up their own “banks” to establish the idea of saving from a young age. Financial education has been on the English secondary school curriculum since 2014, but according to Baroness Tyler it was being taught in a very patchy and inconsistent way. As the national curriculum only applies to schools run by the local authorities, free schools, academies and independent schools provided nothing at all.
The committee has recommended that financial education should be included within the Ofsted school’s inspection framework, and be included as part of teacher training. Baroness Tyler said that children between the ages of 11 and 16 should be taught about budgeting, paying tax, using credit cards and understanding how interest is applied to loans. This is about preparing, children for adult life, managing money, and learning how difficult life is if you haven’t got any she added.
Budget 2017: Off shore pension transfers face 25% tax charge
25% Could be deducted from schemes outside the European Economic Area.
Those looking to move a UK pension offshore face a 25% percent tax charge under a dramatic crackdown on pension transfers. The tax charge, announced in the Budget, will apply to individuals requesting transfers to qualifying recognised overseas pension schemes (QROPS) on or after March 9th 2017, the government said.
However, the 25 per cent tax charge will not apply if, from the point of transfer, both the individual and the offshore pension scheme are in the same country, both are within the European Economic Area (EEA), or the QROPS is provided by the individual’s employer.
If this is not the case, there will be a 25% tax charge on the transfer and the charge will be deducted before the transfer by the administrator or manager of the pension scheme making the transfer. Payments out of funds transferred to a QROPS on or after April 6th 2017 will be subject to UK tax rules for five tax years after the date of transfer, regardless of where the individual is resident, the government has said. This means that UK tax charges would also apply to a tax-free offshore pension transfer if, within five tax years, an individual becomes resident in another country. Philip Hammond said the measures supported the government’s objective of promoting fairness in the tax system.
“It continues to allow overseas transfers from pension schemes that have had UK tax relief that are made when people leave the UK and take their pension savings with them to their new country of residence,” the Government said.
From today, any new requests to transfer overseas will face a 25% charge unless the transfer is for ‘genuine reasons’. Situations such as where the person wants to transfer their pension to their new employer’s scheme, or to a pension scheme in the EEA are all allowed without charge. But where the transfer is to merely take advantage of different pension tax rules the chancellor is coming down hard.
The Treasury said only a minority of the estimated 10,000-20,000 transfers to QROPS each year would be affected by the new overseas transfer charge. But in policy documents published alongside the Budget, it also estimated the transfer charge would raise £65m in tax revenue in its first year and £315m over the five years from 2017/18. This charge has the ability to affect up to a quarter of a billion pounds of pension savings leaving the UK. This move also appears to be a significant shutting down of the QROPS market. The government has been increasingly concerned about the use of these schemes for the past few years and this appears to be a major move to reduce their use.
If you needed reminding that, now more than ever, you have to have the best tax advisers in your team, surely this latest clampdown is all the evidence you need. Our newly landed Elite Family Office might be worth a look…
The Decline and Fall of The Financial Advice Sector
The Heath Report looks at the changes in the financial advice sector since the big regulatory upheaval of the Retail Distribution Review in 2013. That was when advisers had to take new exams to stay in the industry and were forced to move to compensation by fees rather than commissions on financial products. The 2016 Heath Report confirmed what we have been hearing anecdotally – that people don’t like paying for financial advice! A staggering 10 million clients left the sector between 2013 and 2016. Just as significant, 6,000 advisers gave up the unequal struggle and left the business. Most of those that remain are approaching retirement age with no clear succession plans in place. Average client numbers per adviser have dropped from 405 to 195.
The net result of this wonderful new regulation purporting to help investors? Fewer people than ever are taking financial advice. And there are fewer people than ever still around to give it to them. Well done FCA, another triumph of state intervention in the financial markets!
Guess what? The FCA are now looking at the possible re-introduction of commissions for financial advisers – genius!
UK inflation rises to 1.8% spurred by weak pound and rising fuel costs
Production costs jump 20% in a year as pound’s sharp fall following Brexit vote ramps up imports bill just as oil prices start to bite
UK inflation climbed to 1.8% in January, driven by a jump in fuel prices, while the weak pound and rising oil price sent costs for firms soaring. The Office for National Statistics (ONS) said inflation was at its highest level since June 2014 and followed a reading of 1.6% in December. However, falling clothes prices have offset some of the upward pressure on inflation from fuel and food.
The inflation figures were accompanied by other data showing manufacturers fuel and material costs, known as input prices, jumped 20.5% year-on-year in January. The pound’s sharp fall since the Brexit vote has made imports to the UK more expensive and oil prices have been rising on the back of the lower production.
The latest pace of input price inflation was the highest for more than eight years. Companies passed on some of their higher costs and output price inflation rose to 3.5%, which is the highest for 5 years. Commenting on the consumer prices index (CPI), the ONS head of inflation, Mike Prestwood, said, “The latest rise in CPI was mainly due to rising petrol and diesel prices, along with a significant slowdown in the fall in food prices.” “The costs of raw materials and goods leaving factories both rose significantly, mainly thanks to higher oil prices and the weakened pound.”
The ONS said the rise in inflation, which measures the change in price for a wide basket of goods and services, was mainly down to pricier fuel, which went up 3.4% between December and January. There was also an upward effect from food, where prices were unchanged between December and January but had fallen by 0.6% between the same two months a year earlier. The ONS said that excluding volatile items such as food and fuel, core inflation held at 1.6% in January, lower than forecasts for it to pick up to 1.8%. Economists have warned that inflation will pick up further this year and that wage growth will struggle to keep pace, squeezing people’s incomes.
Responding to news of another rise in inflation, a spokesman for the Treasury said: “Employment has reached record levels and earnings have risen faster than inflation for more than two years. The government appreciates that families are concerned about the cost of living and that is why we are cutting taxes for millions of working people and have frozen fuel duty, saving an average driver £130 a year compared to previous plans.”
Next month’s budget must set out a clear plan for preventing another living standards crisis, families still haven’t recovered from the last one.
Demand for gold hits four-year high after Brexit and Trump votes
Political uncertainty drove investment demand up by 70% in 2016, while global demand was at highest level since 2013
The Brexit vote and the election of Donald Trump drove global demand for gold to a four-year high in 2016, as pension funds and other institutional investors piled into the precious metal while higher prices put consumers off jewellery purchases. Global gold demand rose 2% last year to reach 4,309 tonnes, the highest level since 2013, according to a report from the World Gold Council. This was largely driven by inflows of 532 tonnes into gold-backed exchange-traded funds (ETFs), which track the spot price of gold, marking the best year for ETFs since 2009.
Gold is seen as a safe haven in times of turmoil, and there was plenty of that last year. Alistair Hewitt, head of market intelligence at the World Gold Council, pointed to the shock Brexit vote and the election of Trump as US president, along with the upcoming Dutch, French and German elections.
The weaker yuan and low or negative interest rates also made gold more attractive, helping push up investment demand by 70%. Hewitt said that “2016 saw an unprecedented degree of political upheaval, which underpinned huge institutional investor flows into gold. ETFs are easy ways for people to access gold.” However, jewellery demand hit a seven-year low of 2,041.6 tonnes in 2016 due to rising gold prices for much of the year, while central bank purchases were the lowest since 2010, due in part to increased pressure on foreign exchange reserves.
Consumers in China and India, the world’s two biggest gold markets, bought less jewellery as the price of gold rose 25% between January and September. Prices then fell between October and December, which meant they were 8% higher over the year ending 2016 at $1,145.90 an ounce.
In India, the nationwide jewellers strike in effect shut down the gold industry at the beginning of the year, and in November rural communities were hit hard by the cash crunch caused by the withdrawal of high-denomination banknotes. But the effect is likely to be temporary, the good monsoon has boosted farmer’s incomes, making it likely they will return to buying gold in the coming months. The price dip in November, when Trump’s “positive growth rhetoric” led to the dollar and equity markets strengthening, contributed to a strong recovery in the bar and coin market in the final quarter. China’s retail investors in particular snapped up gold bars and coins.
Europe remains the second largest bar and coin market in the world. Hewitt highlighted changing tastes, with younger people in China preferring lower grade, branded jewellery to the top grade gold favoured by their parents’ generation design over quality. Younger Chinese also prefer to spend their money on travel rather than material things. In the US, yellow and rose gold have gained in popularity. Gold teeth continue to go out of fashion. For the first time in years, miners started exploring for gold again, spurred on by the rise in prices, and are looking to strike gold on the periphery of existing mines. But any discoveries would take several years to feed through into increased gold production.
Britain set for Economic battle between strong growth and soaring prices
Economic growth got off to a strong start in 2017 with expansion in every sector, indicating that the economy’s steady performance since the Brexit referendum will continue unabated for now. There are more signs of rising inflation, however, which threatens to squeeze business profits and household finances. Firms in Britain’s dominant services sector benefitted from rising demand for the sixth consecutive month, encouraging them to hire more workers again.
The purchasing managers’ index (PMI) came in at 54.5 in January, a slowdown from 56.2 in December, but still above the 50-level that indicates expansion. The combined index for all private industries stands at 55.5, also showing slightly slower growth than the 56.7 recorded in December.
Economists believe this points to economic growth of 0.5% in the first quarter, compared with 0.6% in the final three months of 2016. Encouragingly, optimism about the coming year has risen to its highest in one and a half years, improving across the board in all sectors to suggest that January’s slowdown may only be temporary. The main area of concern is the extent to which company’s costs are rising across the economy, with the rate of inflation accelerating to a pace not seen since before the global financial crisis.It comes after the Bank of England hiked is’s growth forecasts again, anticipating GDP will rise by 2% this year as the predicted slowdown caused by the EU referendum has not materialised.
The main impact of the vote will come through inflation, however. Sterling fell sharply in the wake of the referendum in June and that will push up import costs. Services firms joined their counterparts in the construction and manufacturing industries to report the fastest rise in input prices since 2008.
The PMI for input prices – the cost of sourcing parts and services, climbed to 68.8 across the economy. Meanwhile output prices, those passed on to customers, edged up more slowly to 55.3, indicating that companies may be absorbing some of the costs. Inflation is expected to pick up pace over the course of the year, potentially even outstripping wage growth, which would squeeze household finances.
The overall outlook for the future remains positive, according to the companies in the survey. The PMI component for future growth rose to 71.1, almost precisely matching the 71.2 score recorded in May 2016, the month before the referendum.
HMRC told to take a tough line with rich
MP’s have called for a tougher stance on taxing the wealthy, urging HM Revenue and Customs to tackle the perception that there are one set of rules for the rich and another for everyone else.
The public accounts committee said HMRC needed to assess what it could do to deter very wealthy taxpayers from bending or breaking the law. It said it was alarming that one in three of the wealthiest people in the UK, with assets of more than £20m, were under investigation by the tax authority.
HMRC’S claims about the success of its strategy to deal with the very wealthy just don’t stack up, said Meg Hillier MP, chair of the committee. If the public are to have faith in the tax system, then it must be seen to have fairness at its heart. It also needs to work properly in our view, HMRC is failing on both counts.
The cross-party committee questioned HMRC’S strategy of providing wealthy individuals with a personal customer relationship manager to make sure they pay the right amount of tax. It suggested this meant that they get help with their tax affairs that is not available to other tax payers. HMRC said that the vast majority of people in the UK pay all the tax they owe and the top 1% of earners pay more than quarter of all income tax.
There is no special treatment for the wealthy, and in fact we give them additional scrutiny, with one-to-one marking by HMRC’s specialist tax collectors, to ensure that they pay everything they owe, just like rest of us do. We have secured an additional £2.5bn from the wealthiest since 2010.
National Debt shoots up by £1400 for every person in the Country
The national debt rose by £1400 for every person in Britain last year, official figures showed today. The latest snapshot of the public finances from the office for national statistics showed debt hitting a mammoth £1.7 trillion in December 2016, as rise of £91.5 billion on a year earlier.
The UK added to its debt pile at a rate of £251million a day to leave the nation’s 65.1million people carrying an extra £1400 in debt each.
As a share of the economy the national debt is 86.2% of GDP, up 1.7 percentage points on a year earlier. According to the office for budget responsibility this benchmark will rise above 90% next year but Chancellor Phillip Hammond is only committed to putting debt as a share of the economy on a downward course by 2020/21 under looser fiscal rules.
There was better news on borrowing as the UK deficit fell to £6.9 billion in December. Overall in the nine months to December, the public sector, borrowed £63.8 billion, £10.6 billion lower than the same period a year earlier.
For the financial year to date, tax receipts are up 4.8% compared with a much smaller 1.4% growth in spending. Capital Economics economist Scott Bowman said “Receipts growth has been on a slight upward trend since May, adding to the evidence that the economy has held up well following the vote to leave the EU.”
Average Long Term ISA rate creeps up but still pays a measly 1%
The average long-term ISA rate has increased for the second time in two months, finally creeping back above 1%. However, the rise is minimal and rates remain appalling. The average rate of fixed ISAS of 18-months or more increased from 0.98% in November to 0.99% in December. The current rate is now just at 1%.
This time last year, the average rate was 1.88%. This is the difference between earning just under £286 interest in a year from the maximum annual Isa subscription of £15,240, and £152 at the current average rate.
The top rates have dropped too. In January 2016, the State Bank of India’s two-year Isa paid 2%. Now savers can expect just 1.2% from Aldermore Bank. A year ago, United Bank UK offered a three and five-year Isa which paid a top rate of 2.35% and 2.68% respectively. The positive increase to the average long-term fixed ISA rate will hardly see savers rejoicing in the streets, particularly as low rates are still rampant across the savings markets.
Much of the competition is being driven by smaller banks which do not offer ISAS themselves. The lack of other banks offering decent ISA rates means the market is likely to struggle. Experts have blamed the demise of ISAS on the introduction of the personal savings allowance in April 2016, as it meant savers could earn up to £1,000 interest without paying tax.
It prompted many savers to question the value of cash ISAS although experts warned savers not to dismiss the accounts, which are tax free on interest and withdrawals, altogether.Currently people who have yet to build up ISA savings would be better served by a high interest current account or regular savings account which pay the top rates on the market.
The UK’s economy is London-centric, Brexit is the chance to change that
If Brexit means leaving the single market and the customs union, as the prime minister told us last week, it is no great surprise to hear that major banks are planning to shift operations out of the UK. It could be the beginning of the end for an economic order that has favoured London’s status as a global hub for financial services, while whole regions of the country have been left stranded. Central London is the richest single area in Europe, while standards of living in West Wales and the Valleys are comparable to those in recent EU accession countries such as Poland and Hungary.
If the UK’s finance-led model is at risk of breaking down, we must begin the long task of building a new economic model that works better. The prime minister has talked about this, but it seems that her plan could be a race to the bottom on tax and regulation. That’s no help for communities that feel powerless or regions left behind by decades of industrial decline. Low tax and low levels of regulation are part of the problem, not part of the solution. People need more control over the decisions and resources that shape their lives, and a financial system that works for the long-term interests of society. The UK has one of the largest and most concentrated banking sectors. Unlike other countries, it has no significant local or regional banking presence. The UK’s banks have focused on lending to financial services and property sectors, where London dominates, rather than investing in production sectors which are more widely distributed across UK regions. Today less than 10% of total lending goes to business for productive investment.
Establishing local sources of finance should be a top priority for rebalancing the economy, regardless whether the banks relocate. Of the roughly 400,000 people who work in the UK’s banking sector, most work in domestic retail banking. Wholesale banking accounts for about 120,000 jobs and up t0 20% of these could be at risk following Brexit. However, a finance system focused on socially useful lending could create far more jobs indirectly than our current system.
This could begin by taking control of the taxpayer-owned RBS and transforming it into a network of local banks, each with a public interest mandate to promote the local economy. By helping to create and retain wealth locally, a new model of banking would invest in disenfranchised communities and breathe new life into them. A more extensive branch network, with decisions made at the local level, would create thousands of new, high-skilled jobs across the country.
Many of the places that voted overwhelmingly for Brexit were those left behind by a decline in British industry since the late 1970s. But these areas have also benefited the most from EU regional development funding and therefore stand to lose the most from leaving. A new industrial strategy and plan for regeneration is essential to boost the incomes and opportunities of these communities. This should be targeted towards new technologies, renewable energy and supporting local supply chains. The aim must be to invest in building the capabilities of people and communities, recognising that wealth is collectively produced by all of us and that the economy is only succeeding if it’s truly benefiting all of us.
If we are serious about a new industrial strategy, it can’t just be about picking a few sectors to “replace” finance and throwing some money at them. It must be about understanding the needs and assets of every community, and doing the difficult, boring work of building the infrastructure – financial, physical and social – that can help those communities achieve their potential. Brexit entails a once-in-a-generation reshaping of our laws, relationships and economy. The future of the country hangs in the balance, and it is up to us to build it.
Tax Alert for those who draw pension cash
Dipping into savings could trigger a cut to tax allowance
Over 55’s risk being landed with surprise tax bills, if they draw on pension cash, but continue working and building a retirement fund. This warning comes from advisers who say few savers are aware that taking pension cash could trigger a massive cut in their annual allowance from £40,000 to £4,000, severely restricting future pension building.
Those who dip into their pension savings while continuing to work and perhaps benefiting from a workplace pension, could see their annual allowance cut heavily, heightening the risk of tax bills if it is inadvertently breached. Currently, an individual can save £40,000 a year into a pension and receive tax relief. But this allowance is slashed to £10,000 in certain circumstances for over 55’s who have drawn on pension cash.
However, from April the government proposes reducing the lower allowance known as the money purchase annual allowance (MPAA) even further from £10,000 to £4,000. Savers must repay any tax relief they have received on savings that breach the annual allowance. It is very unlikely that people will be aware of this major cut in the limit on pension contributions. People that have work place pensions benefit from a contribution from their employer, which also counts towards the limit.
There may be some individuals who are attracted to the freedoms, who inadvertently bring themselves into the new MPAA of £4,000 and then must turn down what can be a very valuable contribution from their employer for the rest of their working life. People who had planned to ramp up their pension funding towards the end of their careers have most to lose if they inadvertently trigger the reduced annual allowance.