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Keep an eye on your cash

Archive for March, 2016

Keep an eye on your cash

Wednesday, March 9th, 2016

The latest inflation figure has crept up again, but interest rates on cash haven’t followed.

Between December 2015 and January 2016, overall prices as measured by the Consumer Prices Index (CPI) fell by 0.8%. However, prices normally fall between Christmas and the New Year as the sales get under way and the festive travel price hikes are unwound. The latest turn of year drop was 0.1% smaller than that between 2014 and 2015, with the result that annual inflation nudged up by 0.1% to 0.3%, the highest since January 2015.

The low level of inflation prompted another of the regular letters between Mark Carney, Governor of the Bank of England, and the Chancellor explaining why the inflation target (2%±1%) had again been missed.  Mr Carney gave the same main reasons as he had previously: “falls in commodity prices; the past appreciation of sterling; and, to a lesser degree, below-average growth of domestic wage costs”.

The Bank’s latest projection for inflation, published in February, is that it is unlikely to reach the 2% central target until around the end of next year, based on the current market forecasts of future interest rates. These in turn suggest that base rate – 0.5% since March 2009 – will not reach 1% until around the end of 2018. In his letter to George Osborne, Mr Carney even said that “were … downside risks to materialise” the Bank could “…cut Bank Rate further towards zero from its current level of 0.5%.”

According to Moneyfacts, the average instant access account interest rate (excluding cash ISAs) is now 0.63%, the lowest since June 2014. In this environment it is more important than ever to review your cash holdings and make sure that you do not hold more on deposit than an adequate personal reserve. Too large a cash buffer can turn out to be a deadweight on your overall portfolio returns.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.  Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Tax planning: time to get ahead?

Wednesday, March 9th, 2016

As we near the end of the tax year, now is the time to consider not only year end tax planning, but also planning for the new tax year.

It is one of the features of the political cycle that the more difficult and less palatable legislation tends to come at the start of a parliamentary term rather than as an election nears. Tax changes are very much a case in point: the rises come soon after an election, the cuts shortly before the election. When 2016/17 starts there will be a number of important tax changes scheduled to take effect which need to be built into your financial planning:

  • Lifetime allowance The lifetime allowance effectively sets the maximum tax-efficient value of all your pension benefits. It started life in 2006 at £1.5m, reached a maximum of £1.8m and will be cut from £1.25m to £1m on 6 April 2016. It will be possible to claim some transitional protection, although final details are still awaited. 
  • Annual allowance The annual allowance effectively sets the maximum tax-efficient annual input to all your pension benefits, regardless of source. It started life in 2006 at £215,000, reached a maximum of £255,000 and is now £40,000. From 6 April 2016 a new tapered annual allowance will be introduced, which may affect you if your total income (not just earnings) exceeds £110,000. The taper will mean that your annual allowance could be as low as £10,000. 
  • Dividend taxation The new tax rules for dividends begin on 6 April. If your dividend income is less than £5,000 you will have no tax to pay, but if you have substantial dividend income – perhaps from a shareholding in a private company – then your dividend tax bill could increase. 
  • Personal Savings Allowance This new allowance will mean that if you are a basic rate taxpayer you have no tax to pay on the first £1,000 of interest, while if you are a higher rate taxpayer, then £500 will suffer no tax. In line with these new allowances, interest from banks and building societies will be paid without deduction of tax (but it will still be taxable).

If any of the changes gives you pause for thought, do contact us. Each one offers planning opportunities, not all of which are obvious.

The value of your investment can go down as well as up and you may not get back the full amount you invested. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

Breaking the PAYE code

Wednesday, March 9th, 2016

Your latest PAYE code may look a little strange.

It’s the time of year when HM Revenue & Customs (HMRC) sends out PAYE codes for the new tax year. Usually that means adjustments for:

  • An increase in the personal allowance, which in 2016/17 will rise by £400 to £11,000;
  • Changes in any benefit values, notably car benefit which could increase quite sharply if you have a low emission car; and
  • Collecting tax due from earlier years and, unless you have requested otherwise, tax due for the current year on certain investment income.

Reports suggest that HMRC has started to allow for the dividend tax changes and the personal savings allowance in setting 2016/17 codes. However, the results can be confusing, not least because HMRC’s starting point will be the dividend and interest on the last tax return which they received from you (hopefully 2014/15).

For example, if you are a higher rate taxpayer who had £7,000 of dividend income in 2014/15, HMRC will make the following calculation:

Dividends £7,000
Dividend Allowance £5,000
Taxable dividend £2,000
Tax due £2,000 @ 32.5% £   650

To collect this tax, HMRC will reduce your total allowances by £1,625 on the basis that 40% of £1,625 is £650, the amount of tax due.

Anecdotal evidence suggests that the HMRC process is not running too smoothly. There have been wrong calculations and instructions not to collect tax in-year have been ignored. Although in the end the full self-assessment calculation will sort out any errors, it is better to start off with the right numbers rather than wait for a surprise bill or delayed tax repayment. If you want a quick check on what your tax bill should be for 2016/17 – and ways you might reduce it – do talk to us.

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

March market commentary

Wednesday, March 2nd, 2016

February was another month where the problem for this commentary was what to leave out: the world is not short of ‘events’ at the moment.

In the Far East, North Korea successfully fired a long range rocket, causing consternation in Tokyo and Seoul. Closer to home, David Cameron returned from Brussels with his deal on the UK’s continued membership of the EU – causing consternation in Boris Johnson and Michael Gove.

World stock markets had another topsy-turvy month. There were plenty of alarmist headlines throughout the month – ‘global stocks tumble amid fear of worldwide recession’ – and an equal number of more comforting ones – ‘stocks recover as fresh stimulus planned.’ As we’ll see below, some markets went up in February, some went down – and a significant number remained unmoved by all the excitement.

Meanwhile, the great and good were mostly in a gloomy mood, with the Organisation for Economic Co-operation and Development (OECD ) cutting its forecast for global growth in 2016 from 3.3% to 3% and calling for urgent action from world leaders to tackle slowing growth.

The G20 finance ministers – meeting in Beijing – declared that Britain’s possible exit from the EU could ‘shock’ the world’s economy, citing it as a major danger to world trade.


That possible exit from the EU – the so-called ‘Brexit’ – was February’s big story in the UK. The referendum on Britain’s continued membership was confirmed for Thursday June 23rd, with David Cameron claiming that his deal gave Britain a ‘special deal’ with the EU. Michael Gove was the first cabinet ‘heavyweight’ to declare his opposition, suggesting that the deal was not legally binding and could be challenged in the European Court. He was swiftly joined in the Leave camp by Boris Johnson as the battle lines for the Referendum were drawn.

Meanwhile, one prominent supporter of Remain, Chancellor George Osborne, had other things on his mind as he prepared for the Budget on March 16th. ‘Market turmoil could punch hole in Osborne’s projections’ said the Guardian – and so they could. The Chancellor’s plans to eliminate the deficit are very much dependent on continued growth: he won’t have viewed the news that the Eurozone has slipped back into recession with much enthusiasm.

There certainly wasn’t much to cheer the Chancellor at the beginning of the month, with the CBI reporting that Britain’s growth in the three months to January was the slowest since May 2013. Shell confirmed 10,000 job losses as their profits fell sharply, obviously not helped by the continued fall in the oil price. A report estimated that the North Sea could lose 150 oil platforms over the next 10 years if the price of oil doesn’t recover.

The Bank of England added to the Chancellor’s gloom, cutting its forecast for growth this year to 2.2%, having predicted 2.5% in November. Finally, it was reported that the UK’s trade gap for 2015 was at a record level, reaching £125bn from a previous high of £123.1bn.

…Then the cavalry arrived. Figures for the three months from October to December showed that UK unemployment had fallen by another 60,000 to 1.69m with more than 31.4m people now in work – the highest since records began in 1971. The rate of unemployment remained at 5.1%, a ten year low.

Aston Martin announced it was to create 750 jobs in Wales to build the new DBX – presumably in time for the next Bond film – and Aldi announced the opening of 80 new stores, which would lead to 5,000 new jobs. Ominously though, the British Retail Consortium ended the month by warning of 900,000 potential job losses in retail over the next ten years as firms faced the triple threat of online competition, the new living wage and the apprenticeship levy.

How did the stock market react to all this excitement? With studied indifference: despite some fluctuations throughout the month, the FTSE 100 index of leading shares ended the month at 6,097 – up just 13 points from its starting level of 6,084.


Perhaps the most significant news for the Eurozone economy came at the end of the month, with figures showing that consumer prices in February fell by 0.2%. These figures dashed hopes that the European Central Bank’s efforts to boost prices was working and increased the likelihood of further stimulus measures being announced in March.

Inevitably it was energy prices which forced prices down, as they fell by 8% in February, following a 5.4% fall in January.

Overall, the Eurozone economy had grown by 1.5% in 2015 (with the wider EU economy growing by 1.8%). The German economy continues to power this growth, but there is an increasing feeling among some European leaders that the cautious approach which has served Germany so well is now holding back the weaker economies in Europe.

In company news, Ford Europe started cutting jobs as it looked to make savings of $200m and there was more bad news for Volkswagen as it admitted that it will not release its results (which had been due on March 10th) or hold its shareholders’ meeting on time. It ‘needs more time to work out its accounts’ as a result of last year’s emissions crisis.

Finally, France put the UK to shame when it refused to strike a deal on tax with Google. The French authorities have demanded €1.6bn – equal to £1.3bn and ten times the amount the UK settled for.

Despite this show of Gallic strength, the French stock market retreated slightly in February, falling by 1% to 4,354. The German DAX index was down by 3%, ending the month at 9,495.


As this commentary was being compiled on the morning of Tuesday March 1st or ‘Super Tuesday’ as it is known in the US, around a dozen states were holding their primaries for the US Presidential race. By the time you read this, we could well be down to just two runners in that race – Donald Trump and Hillary Clinton.

Whoever replaces Barack Obama will have the usual mix of good and bad economic news to deal with. The US economy added 151,000 jobs in January, pushing the unemployment rate down to 4.9%. However, this was far fewer than the 292,000 jobs created in December and US markets gave the figures the thumbs down.

Better news came later in the month as growth figures for the final quarter of 2015 were revised upwards to 1%, from a previous 0.7%. Not that it had any impact on the US balance of trade deficit, which is consistently above $40bn each month. For December 2015 it was $43.3bn as the country continues to add another $1tn of foreign debt roughly every two years.

None of this bothered Wall Street, though. Having fallen on the jobs data, the Dow Jones index had recovered by the end of the month, ending February at 16,516 for a very small rise of 50 points.

Far East

February opened with confirmation that Chinese manufacturing was down for the sixth month in a row as the Purchasing Managers’ Index for January fell to 49.4 from December’s 49.7 – the lowest level since 2012.

However, speaking at the meeting of G20 finance ministers in Shanghai, Chinese finance minister Lou Jiwei sought to reassure everyone, stating that China ‘could tackle the pressures it is currently facing.’

Things cannot be all bad in the Chinese economy as Beijing has just overtaken New York as the billionaire capital of the world. According to a new report, it leads by 100 billionaires to 95, with Shanghai also on the list at number five.

Despite the slowing economy, China continued to churn out its relentless trade surplus, recording a figure of $63.3bn for January.

Over in Japan, the news was less good, with confirmation that the economy had contracted by 0.4% in the fourth quarter of 2015, and the stock market tumbling into bear territory.

Commentators were asking if this signalled the end of ‘Abenomics’ – the economic policy of Prime Minister Shinzo Abe, which has been an attempt to reverse 20 years of stagnation in the world’s third largest economy.

The Government has expanded Japan’s monetary supply, increased spending and reformed the economy to make it more productive. If those measures are not working, it is difficult to see where the growth in the Japanese economy will come from.

Meanwhile, the South Korean Government was also announcing a fresh stimulus package, following a raft of disappointing data for the export-dependent nation. The stimulus package will include an extra 6tn Korean won (£3.42bn) in public spending.

Unsurprisingly, it was a gloomy month for Far Eastern stock markets. China’s Shanghai Composite index was down 2% to 2,688 and the Hong Kong market fell by 3% to 19,112. The Japanese market was down by 9% to end the month at 16,027. Meanwhile, the South Korean index maintained its reputation as the world’s dullest market: it rose by an earth-shattering 0.26% in February to close at 1,917.

Emerging Economies

There was no such gloom on the Russian stock market, which maintained its reputation for rising in the face of all economic evidence to the contrary. It was up by 3% in February, from 1,785 to 1,840. There was also good news to report (finally) for the Brazilian stock market, which was up 6% in the month to 42,794. No such joy in India though: it may now officially be the world’s fastest growing economy, but the stock market slipped back 8% in February to close the month at 23,002.

The Indian budget at the end of February was focused on maintaining the pace of economic growth and also on boosting the rural economy, with the Government promising to spend £9.15bn on rural development and higher incomes for farmers.

February also saw the signing of the Trans-Pacific Partnership trade deal, which covers twelve nations and accounts for 40% of the world’s economies. The deal has been five years in the making, and the signatories now have two years in which to ratify the pact.

And finally…

Having just devoted around 1,700 words to the world economy and the constant need for increased productivity, let’s dedicate the final section of this month’s report to a man who hasn’t quite had ‘productivity’ at the top of his to-do list. Spanish civil servant Joaquin Garcia has just been fined €27,000 after it was revealed that he has set some sort of world record by pulling a six year ‘sickie.’

Mr Garcia’s job was to supervise the building of a waste water treatment plant – on which there presumably hasn’t been much progress. Despite having an office opposite ‘el funcionario fantasma’ or the phantom official, as he was dubbed by newspapers, Mr Garcia’s boss didn’t notice his absence, which only became evident when our hero qualified for a long service award.

Mr Garcia – no doubt exhausted by the excitement – has since retired…

Click here to view sources

Time to think about your ISA

Wednesday, March 2nd, 2016

As the end of the financial year draws ever closer, it’s important not to forget about any ISA (Individual Savings Accounts) you have and any remaining payments that you’re allowed to make. The maximum allowance for ISAs for the 2015/16 financial year is £15,240, so it’s important that you invest any funds that you have left to pay into your ISA as close to that amount as possible, as soon as you can.

The amount will reset again on 6th April 2016 whether you have paid in the maximum amount or not – it cannot be carried over to the next year – so make sure you take advantage of your full allowance whilst you can.

If you’re still not completely up to speed on ISAs, there are essentially two different types available: cash ISAs and stocks and shares ISAs. You are entitled to open one of each ISA in any financial year. If you have just one ISA, then £15,240 is the maximum amount you can pay into that account over the financial year.

Until a couple of years ago when the ISA system was overhauled, if you opened two ISAs in one year, that maximum investment amount had to be split in a prescribed way between your two accounts. However, since the system was overhauled in 2014, if you open both types of ISA in one year then the amount can be split between the two accounts however you wish. For example, if you were to invest £10,000 into your cash ISA in one financial year, you could then invest a maximum of £5,240 into your stocks and shares ISA that year. You can even choose to invest the full amount into a stocks and shares ISA should you wish, which you couldn’t do under the old system.

The main draw of investing your money into an ISA is, of course, that any money you pay in is exempt from taxation on withdrawal, allowing you to potentially build up interest on invested funds much more readily than in other forms of savings or investments. It’s typically considered a good idea, therefore, to take full advantage of any ISAs you have before 5th April this year, if you are in a position to do so, or you will be missing out on the tax-free savings you’re entitled to.