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Own a second property? Look out for Capital Gains Tax changes.

Archive for the ‘Commentary’ Category

Own a second property? Look out for Capital Gains Tax changes.

Wednesday, September 25th, 2019

There have been several changes relating to Capital Gains Tax (CGT) over the past few years. The coming years are set to bring more. Here’s our summary of some of the more important changes coming that might be coming into effect from April 2020. 

If you are thinking about selling a residential property in the next year or two, you need to know about proposed changes to the capital gains tax rules for disposals from April 6th 2020. 

If you only own one property and have always lived there, you should not be affected. However, if you own more than one property or you moved out of your only property for a period of time, you might face a capital gains tax bill. 

The two main changes you should be aware of are: 

Final period exemption 

The last period of ownership counting towards private residence relief will be reduced from 18 months to just nine. Currently, the final period exemption allows individuals a period of grace to sell their home after they have moved out. However, the government feels that individuals with multiple residences have been taking advantage, hence the reduction.   

Lettings relief

Lettings relief is set to be removed, unless you live in the property with the tenant. For UK property, HMRC must be notified and tax paid 30 days after completion rather than the January following the end of the tax year in which the disposal took place. Failure to pay on time will result in HMRC imposing interest and potential penalties. 

With no transitional measures in place, this means that higher-rate taxpayers previously expecting to benefit from the maximum potential relief of £40,000 could be lumped with £11,200 extra tax overnight. 

Here’s an example of how the new taxes could influence a sale:

Steve, a higher rate taxpayer, bought a flat in April 2009 for £100,000. He lived there for 6 years until April 2015 before moving out to live with his partner. He let the flat until 2020 when he sold it for £300,000. The sale was completed on 4th June 2020. 

If the contracts were to be exchanged before the April 2020 changes, a CGT of £6,618 would be due. However, after the deadline a CGT of £21,636 would be due, payable seven months earlier – this is due to there being a lower period of private residence relief and a lack of lettings relief. 

The next steps

The two above changes are set to be enacted as part of the 2020 Finance Act and at the moment are not definite. The consultation to these steps closed on 5th September 2019. Assuming that draft provisions reach the Finance Bill 2019-20, we will have to see if any changes are made to either after it is debated in Parliament. 

Marshmallows and financial planning

Wednesday, September 11th, 2019

The Stanford marshmallow experiment is one of the most famous pieces of social science research out there. It has arguably influenced the way that many people live their lives, in addition to providing plenty of fun and interest for those with young children who are in the ‘I’ll try this at home’ camp.

So what is the marshmallow test? 

A marshmallow is placed in front of a child, they are told that they can have a second one if they can go 15 minutes without eating the first one – then they are left alone with the marshmallow.

As you can imagine, many children ate the marshmallow as soon as the door closed, others fidgeted and wiggled as they tried to restrain themselves, eventually giving in. A handful of children managed to wait the entire time. 

Following the experiment, the children were monitored as they grew up and it was found that those who waited for the second marshmallow performed better in exams, had a lower likelihood of obesity, lower levels of substance abuse and their parents reported that they had more impressive social skills. 

In other words, it could be said that the ability to delay gratification is a trait that leads to valuable rewards in the future. 

So how does this relate to financial planning?

The results from the experiment can easily be applied to the way you save and invest money. Simply put, if you save rather than spend now, you’ll gain greater rewards in the future. 

How do you delay gratification?

Cutting out frivolous and impulsive purchases are a good start. Think to yourself: ‘do I really need this?’ Do you have to buy a coffee from the coffee shop near work? Do you have to eat out twice a week? Small acts of restraint can lead to a big pay off in the future. 

When it comes to building a financial plan, it’s important to identify the levels of savings required for achieving goals in the future. Are you aiming for an early retirement or buying a holiday home? Setting out these goals early and developing a plan will help you to streamline your saving strategies so that you remain on track. Just remember, one marshmallow now or many marshmallows later.   

Whatever you want to purchase: a boat, a house or a car, delayed gratification is an extremely valuable skill to learn when it comes to achieving your financial milestones. The more you see your savings grow, the more motivated you will be to keep going. It’s good to see your hard work pay off and over the span of a few years, you could see dramatic increases in your wealth and financial security. 

Blockchain: What is it?

Wednesday, September 4th, 2019

If you’ve been following the advance of technology in the financial sector over the past decade, you’ve no doubt heard of blockchain, the record keeping technology which had its first real world application with Bitcoin. It is often described as a “distributed, decentralised, public ledger.” Though there are simpler definitions out there.

Importantly, blockchain has been cited as having the potential to significantly change the way we carry out financial transactions online. So what does it all mean?

At blockchain’s most basic level, it’s just that – a chain of blocks. The block is a piece of digital information which is stored in a public database, the chain. Rather than having one entity looking after the books, you have many computers working together. 

What is a block? 

Blocks are made up of three chunks of information:

  1. Date, time and amount.
  2. The transaction participants. Though instead of using your name, your purchase is recorded without any identifying information – you have a unique digital signature, kind of like a username. 
  3. Each block stores information that distinguishes from other blocks and is referred to as a “hash”. Think of it as a unique code to record the transaction. 

How does it all work?

When a block stores new data it is added to the blockchain. However, four things must happen for it to do so:

  1. A transaction has to occur.
  2. The transaction must be verified. This is usually done by a large network of computers across the globe. 
  3. The transaction must be stored in a block. Often with many other transactions. 
  4. The block must have its own unique hash. 

When that new block is added to the blockchain, it becomes publicly available to view. That’s right, anyone can see it. Looking at Bitcoin’s blockchain, you can see that each block has a time, a location and who it is relayed by. 

Is it private?

Anyone can view the contents of a blockchain. Users can also opt to connect their computers to the blockchain network. Their computer then receives a copy of the blockchain which is updated automatically when a new block is added. This might mean that a blockchain has thousands (sometimes millions) of copies. With such information being spread across such a wide network, it makes it very difficult to manipulate. Think of it as a massive verification network. 

The only information about users is limited to their digital signature or username. 

Is it secure?

Blockchain is, for the most part, secure. After a block is added to the end of a blockchain, it’s difficult to go back and edit the contents. Say a hacker wants to edit a purchase you’ve made on Amazon so that you made two purchases instead of one. When they edit the purchase it’ll change the hash (the unique code). A block contains both the hash of the current block and the hash of the previous block. 

In order for a hacker to change a single block, they would need to change every single block after it on the blockchain. Recalculating all those hashes would need an immense amount of computing power. The cost of organising an attack would vastly outweigh the benefits. 

So there you have it…

A quick summary of blockchain and how it works. If you want to get into the nitty gritty and find out more, the web is full of information on how it works and how it may change the way we do things in the future.

September Market Commentary

Wednesday, September 4th, 2019

Introduction 

August is traditionally known as the ‘silly season’. The great and the good are on holiday. Nothing is happening: there are no world events. So the newspapers have to resort to any number of peripheral and not-at-all-serious subjects to fill their columns. 

Not this year. 

Most of the headlines in the UK concerned Brexit. This Commentary is written on 1st September with no idea what will have happened by the end of the week, never mind by 31st October when the UK is – currently – scheduled to leave the European Union. 

But the big story of the month was not Brexit, but the continuing trade war between the US and China. The President didn’t mince his words: 

“Our country has lost, stupidly [sic], trillions of dollars to China over many years. They have stolen our intellectual property […] and they want to continue. I won’t let that happen! We don’t need China and, frankly, would be far better off without them. […] Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies home and making your products in the USA.” 

China was not slow to respond as these words went hand-in-hand with another raft of tariffs. China has hit back against the Trump administration with a drastic exchange rate devaluation, almost guaranteeing a superpower showdown and a lurch towards a full trade war. The yuan blew through the symbolic line of seven to the dollar for the first time since the global financial crisis. […] The calculated action by the People’s Bank threatens to unleash a wave of deflation across the world and risks pushing East Asian countries and much of Europe into recession. It is certain to provoke a furious response from the White House. 

Capital Economics commented rather more succinctly that Beijing had taken the fateful step of ‘weaponising’ its currency. 

It is therefore hardly surprising that Reuters described the world economy as ‘probably being in recession with most business indicators flat or falling.’ And this was reflected on world stock markets, as none of the major markets we cover managed to gain ground in August. 

UK 

Boris Johnson ‘enjoyed’ his first full month as Prime Minister with Brexit dominating the agenda: as always there is a special Brexit section below, so let’s push it to one side for the moment. 

Figures released in the middle of the month showed that the UK economy had contracted for the first time since 2012, shrinking by 0.2% between April and June. However new Chancellor Sajid Javid has said that he does not expect the UK to slide into recession. 

There’s plenty of gloom on the UK’s high streets. July 2019 was the worst month on record for retail sales growth as consumer spending fell to a record low. Unsurprisingly this will result in job losses – Tesco is to cut 4,500 jobs at its Metro stores – and store closures. Shoe retailer Office is to close half its UK stores and empty shops are at their highest level for four years. 

There was one ray of sunshine – literally – as the good weather saw pubs and restaurants post modest monthly growth, although those with the beer glass half empty will point out that restaurant closures are continuing to rise. 

There was, though, plenty of news for those who prefer to see their glass as half full. 

Figures for June confirmed that wage growth had reached an 11 year high at 3.9% and that the employment rate was at its highest since 1971. The rate is estimated to be 76.1% with 32.81m people in employment – 425,000 more than a year ago. 

There was plenty more good news: Derby train maker Bombardier won a £2.34bn contract to make trains for the Cairo monorail, beating off ‘pharaoh-cious’ competition from Chinese and Malaysian firms. Overall, exports from the UK were up by 4.5% in June, the best performance since October 2016. 

There was also news of booming investment in the UK tech sector, especially from the US and Asia, as tech start-ups attracted a record $6.7bn (£5.58bn) in funding in the first seven months of this year. 

Mortgage lending also jumped to a two-year high as figures for July confirmed the approval of 67,306 mortgages, up from 66,506 in June. 

It wasn’t just the high street where there was bad news. Belfast ship maker Harland and Wolff – the firm best known for building the Titanic – called in the administrators, putting 120 jobs at risk. Optimism in the UK services sector also fell sharply and – in line with the rest of Europe – output was down in the UK car industry. 

Unsurprisingly, the FTSE 100 index of leading shares – along with the world’s other markets – had a difficult time in August, falling by 5% to 7,207. The pound was unchanged in percentage terms, ending the month at $1.2165. 

Brexit planning 

This section could be out of date within a matter of hours. 

Over the last month we have Boris Johnson in talks with Angela Merkel and Emmanuel Macron. One of his key demands has been the removal of the Irish backstop: do that, he has said, and then we can talk about the rest of the Withdrawal Agreement. 

His threat has always been that the UK would otherwise leave the European Union with ‘no deal.’ There seems to be a growing number of MPs getting ready to fight the Government and oppose a ‘no deal’ by seizing control of the House of Commons agenda – possibly aided by the Speaker – and making ‘no deal’ illegal. The Government hints that if this happens they will simply ignore the legislation. 

All this is, of course, set against the background of the Prime Minister’s decision to prorogue parliament (ending what has been a very long sitting) in readiness for a Queen’s Speech. Depending on your view, this is either a ‘coup against democracy’ or a perfectly normal decision by the Executive. 

As of early September, the country faces a possible General Election on 14th October, with the Prime Minister and Jeremy Corbyn trying to outwit each other. As we said earlier, there’s every possibility this is old news by the time you read this. 

Europe 

It was hard to find much good news in Europe. The month opened with the news that growth in the Eurozone economy had slowed as German output fell to a six-year low and the manufacturing sector continued to struggle. Germany’s overall Purchasing Managers’ Index was down to a 73-month low of 50.9 as the economy dealt with the US/China trade tensions, the overall global slowdown, weak demand from China and the uncertainty over Brexit. 

Against this, the service sector did well and wages rose, as the Eurozone reflected what is now a familiar pattern for so many developed economies. 

Figures in the middle of the month confirmed that the overall German economy had shrunk by 0.1% in the three months to June. A similar story in the three months to September would see Europe’s biggest economy officially in recession. 

August saw the return of political uncertainty in Italy – inevitably leading to a sell-off of Italian bonds and a fall in the stock market – as Matteo Salvini, leader of the right-wing League party, called for a snap election. 

By the end of the month a new government had been formed without Mr Salvini, as the anti-establishment Five Star movement formed a new coalition with the centre-left Democratic Party (PD). “We consider it worthwhile to try the experience,” said Nicola Zingaretti of the PD. We shall see…

Despite the gloom it was a relatively quiet month on Europe’s major stock markets. In keeping with the majority of world markets both Germany and France were down, but not significantly. The German DAX index dropped 2% to 11,939 while the French stock market fell just 1% to end the month at 5,480.  

US 

Given its impact on the wider world economy it seemed sensible to cover the US/China trade dispute in the Introduction, so this section deals purely with matters domestic. 

August started with a spat between the President and the Federal Reserve, as the Fed – as expected – cut US rates by 0.25% to a range of 2% to 2.25% and the President – as expected – said that it wasn’t enough. Federal Reserve Chairman Jerome Powell described the cut as a ‘mid-cycle adjustment to policy.’ His boss demanded ‘an aggressive rate-cutting cycle that will keep pace with China, the EU and other countries around the world.’ 

A few days later it was announced that the US had added 164,000 jobs in July – well down on the 224,000 jobs created in June but broadly in line with expectations. Unemployment remained flat at 3.7% and hourly earnings were 3.2% up on the same period last year. 

There was worse news later in the month as inflation rose to 1.8% (from a previous 1.6%) thanks to rises in gasoline and housing costs. This, of course, means that the Federal Reserve are likely to be more cautious about future rate cuts, which will presumably not do much for the President’s temper. 

In company news, Uber’s shares dropped 13% as it unveiled what were coyly termed ‘disappointing profit figures’ but which were really a thumping record loss of over $5bn (more than £4bn) for the three months to June 2019. Meanwhile co-working space provider WeWork unveiled a loss of $900m (£750m) in the first six months of the year and announced that it would seek a stock market listing. Whatever happened to that quaint notion of companies making a profit and paying a dividend to shareholders? 

By the end of the month the President was back on the attack, confirming that he was planning a new, temporary cut in payroll tax in a bid to further boost the US economy. “A lot of people would like to see it,” said the President. 

Wall Street generally likes to see news of tax cuts, but in August there were just too many worries about the trade war with China for the Dow Jones index to make any headway. It was down 2% in the month, closing at 26,403. 

Far East 

All roads in the Far East led to Hong Kong in August as the pro-democracy protests continued and the authorities became more and more determined to quash them. The month ended with tear gas, water cannons and threats of five-year jail sentences for anyone taking part in the protests. 

Throw in the continuing trade war between the US and China and August was inevitably a difficult month for the region’s stock markets, as we will see below. 

The month had also started with another trade row, albeit on a much smaller scale. Japan has removed South Korea from its list of ‘trusted trading partners,’ citing security concerns and poor export controls. Unsurprisingly, Japanese car sales in South Korea duly slumped. 

There are now growing fears that the US/China trade war and general worries about the global economy will push some of the smaller, ‘innocent bystanders’ in the Far East – such as Hong Kong and Singapore – into recession. 

In the region’s company news Samsung launched a range of new phones – but Samsung heir Lee Jae-yong, along with disgraced former President Park Geun-hye, now faces a retrial on bribery charges. Meanwhile China’s leading specialist facial recognition company Megvii decided to seek a stock market listing. 

Inevitably the pro-democracy problems and general unrest in Hong Kong had to impact economic growth at some point. Figures for the second quarter of the year showed that the economy had grown at just 0.5% year-on-year, which was below expectations. So it was no surprise to see the Hong Kong stock market down by 7% in the month, as it closed August at 25,725. 

China’s Shanghai Composite index was down 2% at 2,886 and the South Korean market fell 3% to 1,968. Japan completed a miserable month for the region’s stock markets as it dropped 4% to close August at 20,704. 

Emerging Markets 

It is easy to think that the big story in Emerging Markets was the fires in the Amazon rainforest. The G7 offered Brazil money to combat the fires – which President Jair Bolsonaro immediately rejected as he traded insults with French President Emmanuel Macron. 

Of greater long term significance to the financial markets – and the wider economy of South America – might well be the political and economic developments in Argentina. Both the peso and the Argentinian stock market plunged after a shock defeat for President Mauricio Macri in mid-month primary elections. The peso fell 15% against the dollar, while some of Argentina’s leading stocks lost 50% of their value. 

In early September, the Argentine Central Bank imposed currency controls as the crisis deepens, with the country also looking to suspend debt repayments to the International Monetary Fund. 

Fortunately, it was a much more sober month for the three major emerging stock markets we cover. The Russian market barely moved at all, rising just one point in the month to 2,740. The Indian market was also unchanged in percentage terms, closing August at 37,333 and, despite all the controversy and criticism of the government’s response to the fires, the Brazilian stock market was down just 1% in the month at 101,135. 

And finally…

All too often, the news was depressing. That is especially true if you are one of the directors of that well-known financial institution the Bank of Mum and Dad, now one of the biggest mortgage lenders in the UK. 

According to recent figures from L&G the Bank of Mum and Dad lent (or gave) a total of £6.3bn last year to help its children get on the housing ladder. The UK’s 10th biggest mortgage lender, the Clydesdale Bank, lent just £5bn. 

The average amount lent by the Bank of Mum and Dad is £24,100 – up by £6,000 on the previous year. But not content with running a bank, it appears that Mum and Dad have decided to diversify – and the Hotel of Mum and Dad is doing record business. 

According to the Office for National Statistics a quarter of the young adults in the UK – those aged 20 to 34 – live at home, with the number growing steadily over the past 15 years. According to a survey by MoneySuperMarket of 500 adults living at home and 500 parents who had adult children living with them, the ‘kidults’ were at home for an average 9.7 months and cost Mum and Dad £895 as they emptied the fridge, had their washing done for them and demanded that the old people open a Netflix account. 

This year the stay has extended to more than 10 months and the cost has escalated to more than £1,600 as water, heating and electricity costs have risen at the hotel. 

Apparently many of the guests are also demanding a steady stream of takeaways. A welcome distraction, perhaps, from reading the latest Brexit updates.

The generational gap in savings

Wednesday, August 21st, 2019

A new report by Scottish Widows (SW) has found that savings habits among younger people are rather lacking when compared with older generations. 

14% of people aged 20-29 are not saving any money, whereas 20% are saving between 0-6% of their wages and 26% are saving between 6-12%. That leaves only 40% of people between the ages of 20 and 29 making what SW deems to be ‘adequate’ savings (12% and upwards). 

The figures differ for those over 30 where 59% of savers are saving adequately. 

Scottish Widows outlines that the central problem with savings in the UK is that people simply aren’t saving enough. This could be attributed to the decline in defined benefit pension schemes and wider economic challenges. Though progress has been made, with record highs in the adequate savings category, according to SW, this is still not enough. 

The lower level of savings among younger people is likely to be a reflection of differences in priorities. SW’s study found that 45% of younger savers (under 30s), the highest of any age group, are saving towards medium-term goals such as buying a house. 27% were found to be saving for the long term and 28% were saving for rainy days. 

SW notes that the savings gap for young people “is perhaps unsurprising but nonetheless worrying.” Those under 30 are at a time where long-term saving can be hardest, yet investment growth can be advantageous. SW outlines how younger people are missing out on “the power of compound growth.“ 

They later go on to present four interlocking issues that have led to this general lack of savings made by younger generations:

  • Most people remain disengaged with long-term savings – 38% of people are not aware how much they are saving 
  • Financial pressures – 28% of individuals earning between £10,000 – £20,000 say they’re not saving at all
  • Self-employed individuals are being left behind – 41% of the self-employed aren’t saving at all
  • Home ownership is a struggle for young people – 56% of 20-29 year olds say they have not saved for a deposit

Scottish Widows then set out a number of reforms that would benefit savers: 

  1. Raise pension contribution rates – a new level of 15% to give people a chance to maintain their quality of life during retirement
  2. More flexibility between pensions and property – including the ability to use some retirement savings to help with the purchase of their first property
  3. Create better education and guidance – which includes information on the role of property and pensions in retirement
  4. Provide a hardship facility – allowing some savings to be used to avoid problem debt
  5. Ensure the self-employed have access to similar benefits as those in employment

Though there are marked improvements from last year’s report, it seems there is still a long way to go in terms of saving habits in younger individuals. As suggested above, there may even be a requirement for governmental reform in order to achieve the goals that Scottish Widows have set out.

For advice on how to develop savings plans to stand the test of time, don’t hesitate to get in touch.  

IR35 reforms: what you need to know

Wednesday, August 21st, 2019

Changes to  IR35 legislation are coming into effect in April 2020. IR35 legislation is designed to target “disguised employment” between firms and freelancers. This is where a company hires freelancers and contractors to undertake work, yet they are effectively employees of the company. It also affects freelancers who operate as sole traders or limited companies. The change in 2020 shifts the onus onto employers in relation to proving the contractor’s self-employed status. 

Who will be hit the most by the IR35 changes?

Many industries rely heavily on freelance workers. The trade off is simple – the more freelancers operating in a sector, the heavier the effect. In a document published in 2018, HMRC predicted that 90% of freelancers who fall within IR35 are not complying with the existing IR35 rules. It’s clear that from April 2020, private sector businesses will need to do more to comply with the legislation.

What are the critics saying?

The general view is that the reforms will increase burdens and costs on businesses during a time of uncertainty and change, whilst also having to comply with many other acts of legislation that are evolving in all areas. 

The fact that HMRC have lost a number of tax tribunal cases surrounding IR35 also illustrates the point that there is a possibility for different conclusions to be reached on the same facts and for tribunals to even take opposing views against HMRC. 

So, as we can see, the influences of IR35 are not quite as definitive as HMRC would like. 

How can a firm protect themselves? 

HMRC has a tool named CEST that determines whether an individual should be classed as employed or self-employed for tax purposes although concerns have been raised around the tool due to its rate of accuracy. HMRC says that the tool arrives to a conclusion 85% of the time, leaving 15% of cases pending further investigation. 

There has even been debate between HMRC and professionals around the validity of those percentages. This is further highlighted by a number of high profile cases involving television hosts and broadcastersthat have gone against HMRC. 

Here are a few extra tips to make sure your firm is compliant:

  • Develop a robust process for recording the use of freelancers centrally. 
  • Determine how those contracts are being carried out. 
  • Use CEST as a starting point. CEST can be very black and white, however, so it’s best to also develop a back-up process. 
  • Identify who IR35 will apply to and make sure they’re trained to comply. 
  • Monitor each freelancer’s status and re-run status determinations periodically (every 6 months is a good rule of thumb). 
  • Ensure that there is an appropriately drafted contract for each engagement which reflects the working arrangements and status determination. This will give the business the right to deduct PAYE and employer NICs from the fees if required. 
  • Decide which freelancers are critical to the business and for whom the business is prepared to pay extra due to IR35. 
  • Consider looking into business processes to determine if any changes are required. 

With over 1.4 million British freelancers working across all sectors, IR35 is set to affect many working relationships all over the country. Making sure your firm is compliant with the changing legislation is critical to avoiding any HMRC investigations.

For more expertise on changing legislation in the world of tax, don’t hesitate to get in contact. We’re here to help.

August Market Commentary

Wednesday, August 7th, 2019

Gold hit a six-year high as nervous investors looked for alternatives to stock markets. The IMF cut global growth forecasts amid continuing trade tensions.

In any normal month these would have been perfectly normal introduction, but July was not a normal month. With Boris Johnson becoming UK Prime Minister and sweeping into 10 Downing Street on a wave of promises to deliver Brexit ‘do or die’ by 31st October – only a handful of months away. 

How you feel about that commitment will almost certainly depend on how you voted in the 2016 Referendum. If you voted Leave then Boris is showing real leadership, we finally have a Prime Minister who is negotiating from a position of strength and he has achieved more in a week than Theresa May achieved in three years.

If you voted Remain then Johnson is threatening the union of the UK, driving the pound to dangerously low levels and risking – if not actively seeking – a catastrophic ‘no deal’ exit on 31st October. 

The one thing we think you can now say is that the UK will leave the European Union on 31st October. The public commitments to that date have been so clear that any backtracking is unthinkable. But there remain any number of imponderables, as we discuss in the Brexit section below. 

And so to the other world news that made the headlines in July. And yes, gold did hit a six year high of $1,450 (£1,190) an ounce as jittery investors looked for a safe haven. Gold is up by 6% over the last month and 12% in the last year as the US/China trade dispute, lower growth prospects for world trade and worries about inflation if the US Federal Reserve cut interest rates all added to investors’ uncertainties. 

Meanwhile, the International Monetary Fund (IMF) has trimmed its growth forecasts for the global economy for both this year and next year. Growth for this year is now forecast to be 3.2% – down from the 3.3% forecast in April – with growth for 2020 forecast to be 3.5%. Growth “remains subdued” said the IMF, with an “urgent need” to reduce trade and technology tensions. However, the IMF did raise its forecast for UK growth, from 1.2% to 1.3%. 

July was a generally uninspiring month for world stock markets. Of the major markets we cover in this Commentary only four made gains, and none of those gains were significant. Let’s look at what happened in more detail.

UK 

June was a wet month and UK high street retailers duly reported a ‘wash out.’ Total sales decreased by 1.3% in the month, taking the yearly average down to a 20-year low according to research from the British Retail Consortium. 

Bookmaker William Hill added to the gloom with plans to close 700 shops – putting 4,500 jobs at risk – and there are suggestions that up to 3,000 betting shops could close up and down the UK as gamblers increasingly move online and the reduction in stakes on fixed odds betting terminals starts to bite. 

And it is not just betting shops. A report from Retail Economics predicted that internet shopping will overtake physical stores by 2028 as deliveries become faster, cheaper and more convenient. The trend will be driven by millennials and Generation Z, who will form 50% of the adult population in the next decade. Ten years from now our high streets will be very different places – if they exist at all. 

Away from the high street there was good news in July though, as Amazon (who else?) announced plans to create up to 2,000 new jobs, taking its UK workforce up to nearly 30,000. 

Japanese telecoms company NTT announced that it would be opening a global HQ in London for one of its subsidiaries and at the end of the month Hitachi Rail announced a £400m investment at its plant in Newton Aycliffe, County Durham.

Jaguar Land Rover also unveiled an investment of ‘hundreds of millions’ to build a range of electric vehicles as its Castle Bromwich plant, which will secure the jobs of 2,700 workers at the plant. But – as there was across Europe – there was also bad news for the UK car industry, with Nissan threatening to cut 10,000 jobs worldwide and the Society of Motor Manufacturers and Traders saying that overall investment in the industry has ‘plummeted.’

From the roads to the rail. Boris Johnson has long been sceptical of HS2 and the chairman of the project has now written to the Department of Transport saying that it ‘cannot be delivered within its £56bn budget and the cost could rise by £30bn. There is bound to be a review of the project but meanwhile the Prime Minister used a speech in Manchester to commit to a faster trans-Pennine rail link – something the North of England has long needed. 

Let’s end the new Prime Minister’s first UK section with some more good news. ‘Fintech’ (financial technology) investment is booming in the UK and 2019 is set to be a record year, as funding reached £2.3bn in the first six months of the year. And household finances are looking up – June saw consumers saying they were optimistic about their personal finances for the first time this year. 

Also looking up was the FTSE 100 index of leading shares, which closed July up 2% at 7,587. But if the stock market was going up, the pound was definitely going in the other direction with the financial markets anticipating a ‘no deal’ Brexit. The pound closed the month down 4% against the dollar at $1.2218. 

Brexit 

To no-one’s surprise, it was Boris. The result was, perhaps, closer than many had predicted but Boris Johnson comfortably beat Jeremy Hunt in the vote by Conservative members, kissed the Queen’s hand and took over from Theresa May as Prime Minister. He duly appointed Sajid Javid as Chancellor, and we can expect a radical Budget when the new man in 11 Downing Street presents it. Whether that will be before or after 31st October remains to be seen, but one suspects that the speech – and the measures proposed – will be in stark contrast to anything Philip Hammond might have had in mind. 

Boris Johnson has had meetings in Northern Ireland, having already visited Scotland and Wales. He has demanded that the Irish backstop – the most contentious part of Theresa May’s Withdrawal Agreement – be scrapped and he’s been met with the predictable response from Europe. 

Are we now headed for a ‘no deal’ Brexit? Boris Johnson says he doesn’t want that, but has ramped up preparations just in case, with Sajid Javid committing an extra £2.1bn and meetings of the relevant Cabinet committee taking place every day. 

There remains, however, a significant number of MPs vehemently opposed to ‘no deal’ and the Government’s majority is wafer-thin. It’s unlikely, but you cannot rule out a General Election before 31st October and there will certainly be further attempts in parliament to thwart a ‘no deal’ Brexit. Meanwhile the Brexit Party and the hard-line Eurosceptics will be holding the Prime Minister’s feet to the fire.

‘May you live in interesting times’ is supposedly a Chinese curse. If nothing else the next 90 days in UK politics will certainly be interesting.

Europe 

There was plenty of economic news in Europe in July, but we should perhaps start in the corridors of power where, after much talking, negotiating and deal-making, German Defence Minister Ursula von der Leyen emerged as the only name on the ballot paper to replace Jean-Claude Juncker as European Commission chief. 

Von der Leyen makes no secret of her wish to move to closer European integration and – while the headlines were all about how her appointment will impact Brexit – she could, in the long run, be very bad news for a country like Ireland, which has benefitted from a lower corporation tax rate. 

It was all change in the top jobs as Christine Lagarde left the IMF to take over as head of the European Central Bank. 

Lower down the bankers’ food chain it was very much all change at the beleaguered Deutsche Bank as it announced plans for 18,000 job losses. There are rumours that the bank’s customers are pulling out $1bn (£800m) a day amid worries about the bank’s continuing solvency. 

There was also more gloom for the European car industry as car sales dropped by 7.9% in the European Union in June, the biggest fall since December and 130,000 registrations down on the same period last year. 

More generally the German manufacturing recession worsened as the Purchasing Managers’ Index for the sector dropped to 43.1 from 45.0, with any figure above 50 reflecting ‘optimism.’ This was the lowest level since 2012 as export orders showed their sharpest decline for a decade. 

How did all this translate onto the European stock markets? The German DAX index was down 2% in July to 12,189 while the French stock market fell just 20 points – unchanged in percentage terms – to 5,519. In Greece the market rose 4% to 900 as the centre-right under Kyriakos Mitsotakis won the snap general election. 

US

It was a good start to the month in the US, as figures for June confirmed that 224,000 jobs had been created against the expected 160,000. Normally this would have persuaded the Federal Reserve to keep interest rates on hold 

However, revised figures at the end of the month showed that the US economy had grown by less than expected in 2018, increasing by 2.5% and missing the President’s target of 3%. 

With Donald Trump continuing to describe the Fed’s decision to keep interest rates on hold as a ‘faulty thought process’ something clearly had to give and it duly gave on the last day of the month, as the Fed reduced US interest rates for the first time since 2008. The rate was cut by 0.25% to a target range of 2-2.25% but this wasn’t enough for the President. He scorned Federal Reserve chairman Jerome Powell on Twitter: ‘As usual, Powell let us down.’ 

In company news, there was the now seemingly-monthly bad news for Facebook, which faced a $5bn (£4.1bn) fine over privacy breaches, while US Treasury Secretary Steve Mnuchin criticised its plans for a crypto-currency, telling a press conference that it could be used by money launderers and terrorist financiers and was a national security issue. 

Apple posted a small rise in sales for the third quarter of its year – although iPhone sales and profits both dipped. Alphabet (Google’s parent company) and Amazon posted more impressive figures, with both firms reporting sales increases of close to 20% for the latest quarter. 

Meanwhile Elon Musk – of Tesla, SpaceX, the Boring Company and other future fame – brought us what may be his most revolutionary project yet. His company Neuralink revealed a brown and white rat with thousands of tiny electrodes implanted in its brain. It is, apparently, the first step towards linking the human brain to artificial intelligence, with the company betting that millions of people will eventually pay to become cybernetically enhanced. 

If Wall Street was cybernetically enhanced in July it wasn’t by much. The Dow Jones Index rose by just 1% in the month, closing at 26,864. 

Far East 

There was plenty of news in the Far East in July, but one story dominated all the others. The month began with Hong Kong leader Carrie Lam condemning the extreme use of violence as pro-democracy protesters stormed the parliament building. 

The protests continued throughout the month, and it seems inevitable that they will go on into August, quite possibly with ever increasing violence. Beijing – through the Hong Kong legislature – is determined to stamp down on any show of dissent and when then-Foreign Secretary Jeremy Hunt tried to intervene he was told in no uncertain terms to show some respect.

Away from the protests figures confirmed that China’s economy had grown at just 6.2% in the second quarter of the year. Obviously ‘just’ is a relative term, but this is the slowest rate of growth in China since the 1990s. 

Unsurprisingly the continuing trade tensions with the US meant that both China’s exports and imports were down when figures for June were reported, with exports down by 1.3% and imports down by 7.3% as domestic demand slowed. With China’s economy now driving so much growth around the world – not just in the Far East – it was hardly surprising that the IMF reduced its projection for global growth this year. 

In South Korea, Samsung announced that it was finally ready to sell its long-awaited folding phone after the April launch was delayed due to problems with the screen. The phone will go on sale in September in selected markets but – with the phone costing nearly $2,000 (£1,630).

A week later, Samsung faced rather bigger problems than fixing the screen on a folding phone, as the world’s biggest smartphone and memory chip manufacturer saw profits fall 56% in the three months to June. Samsung said results were in line with expectations as it blamed the continuing China/US trade war and a trade dispute between the South Korean and Japanese governments. 

It was – perhaps unsurprisingly – a disappointing month on Far Eastern stock markets as three of the four major markets fell.  China’s Shanghai Composite Index was down 2% to 2,933 while the Hong Kong market was down by 3% to 27,778. South Korea suffered a sharper fall as the market dropped by 5% to end July at 2,025. The one bright spot was Japan’s Nikkei Dow index, which was up 1% in the month to 21,522. 

Emerging Markets 

It was a relatively quiet month for our Emerging Markets section. Of the three markets we cover, Brazil was the only one to make any gains in the month with the stock market rising just 1% to 101,812. The Russian market slipped back by a similar amount, closing down 1% at 2,739. However, India suffered a sharper fall, sharing the month’s wooden spoon with South Korea as it fell 5% to end July ay 37,481. 

And finally…

News from the French Civil Service: Auditors for the Provence-Alps-Riviera region published a report in July showing 30 ‘ghost’ civil servants had been paid more than £22m to do nothing for the last three decades. Their jobs were phased out in 1989 but they continued to be paid, much to the embarrassment of the French President.

But, of course, we now know that the real way to riches is through your teenage son’s bedroom. Worried that he’s spending far too long in there playing video games? Nonsense, he’s working on his future career. July saw 16 year old US teenager Kyle Giersdorf win $3m (£2.46m) as he became world champion of the computer game Fortnite. 

With two British teenagers also picking up major prizes, it’s becoming an even bigger challenge for parents trying to convince their kids to wash the dishes. 

Facebook to launch new currency

Wednesday, July 17th, 2019

Is this a megalomaniac move by Zuckerberg or a futuristic step into a brave new tomorrow? 

Social media titan Facebook has unveiled plans to launch a new digital currency by the name of Libra, with their eyes set on a 2020 release. The company says that consumers will be able to make payments with the currency via its own apps, as well as via the messaging app WhatsApp. Firms such as Uber and Visa are also slated to adopt the currency in the future, according to Facebook. 

According to the company, paying with the currency is something you can do “as easily and instantly as you might send a text.” From 2020, users will be able buy Libra via its platforms and store it in a sort of ‘digital wallet’ named Calibra. 

Concerns have already been raised around the security of users’ money and data, as well as the potential volatility of the currency. Facebook has addressed these concerns, saying that Libra would be backed by real assets and be independently managed. 

According to Facebook, its Calibra payments system will have strong protection to keep money and personal data safe. It also said that the Calibra system would use the same verification and anti-fraud processes used by financial institutions and credit card providers, and would refund any money stolen. We currently await further details on these statements. 

In an attempt to build trust in Libra, Facebook has been engaging with central banks, regulators and even governments. Meetings have been made with officials from the Bank of England and the US Treasury to help ease Libra’s entry into various national markets. 

This isn’t a new foray by Facebook – over a decade ago it attempted to launch its own virtual currency named ‘Facebook Credits,’  a sort of virtual currency that enabled people to purchase items in apps and on the social media site itself. The project failed to garner any popularity, however, and was scrapped.

While the currency has been given the green light in the US, it may struggle in places such as India, who have recently introduced stricter regulations surrounding cryptocurrencies. 

The world holds its breath for more information surrounding Zuckerberg’s newest attempt at innovation. For more information on Libra, watch this space. 

Making Tax Digital: are you onboard?

Wednesday, July 17th, 2019

A survey of small to medium-sized businesses, conducted by the Independent, has found that 11% of UK companies are unaware of new ‘making tax digital’ requirements.

As of 1st April, more than one million firms with annual taxable income over £85,000 are now required by law to submit VAT returns online. The same rules will then apply to trusts, local authorities, not-for-profits and public corporations from October. This is all part of HMRC’s new Making Tax Digital (MTD) initiative.

Of all the businesses leaders who responded to the survey, 46% of those who believed they were compliant with the new rules were found not to be, whilst 25% of compliant companies believed they were underprepared. 

HMRC have been quoted to be taking a “light touch” approach towards penalties during the first year of the law’s implementation. However, this is only where they believe businesses are doing their best to comply. 

Only 13% of respondents said that moving to MTD was more time consuming than they thought it would be. Showing that the government’s plans to slow the pace of mandation might be working. MTD will not be mandated for taxes other than VAT until at least April 2020. Further to this, the government announced in March that any new taxes or businesses will not have to worry about the legislation until 2020. 

Businesses also need to keep digital records from the start of their accounting period using MTD-compatible software. It’s best to do some research into which software may be best for you, as many providers offer extra benefits that might be of help. The government has even provided a handy search tool to help businesses find the right MTD-compatible software to suit their needs.

Rules for MTD VAT rules can be found here

For more information on the government’s MTD initiative and how to best prepare yourselves for the new era of digital taxation,  get in touch. 

What is a green mortgage?

Thursday, July 4th, 2019

Back in 2017, the UK government published their Clean Growth Strategy, a report that included plans to work with lenders in order to create “green mortgage products,” that are able to “take account of the lower lending risk associated with more efficient properties and the reduced outgoings for customers living in more efficient homes.”

More recently in June 2019, The World Green Building Council Europe launched a new report: ‘Creating an energy-efficient Mortgage for Europe: the supporting role of the green building sector.’ So steps are certainly being made all over the world to introduce green mortgages into the market, but what exactly are they?

Green mortgages in the UK are mortgages that support energy-efficient homes. Barclays launched their first green mortgage back in April 2018, partnering with construction companies all over the UK in offering green mortgages on energy-efficient new builds. The home has to have an energy efficiency rating of 81 or above, or be in energy efficiency bands A or B, to be eligible.

Analysis by the Bank of England in October 2018 found that homeowners living in energy-efficient properties are less likely to be in payment arrears. The study of 1.8 million properties found that around 1.14% of energy-inefficient homes are in mortgage payment arrears, compared with 0.93% of energy-efficient properties, concluding that “energy efficiency of a property is a relevant predictor of mortgage risk.”

In support of these new energy efficient mortgages, providers are offering reduced rates for those looking to purchase property. The premise is simple: those owning energy-efficient homes are less likely to be in arrears, therefore carrying reduced risk to the lender.

These new mortgage options herald a more ethical, mutually beneficial approach to lending that fits within the new swathe of greener policies being enacted by governments around the world. Craig Calder, Director of Mortgages at Barclays, says that: “Green Mortgages need consistent support at the highest levels if they are to become the norm rather than a strand of alternative lending.”

With more and more companies seeking to improve their energy efficiency and their carbon footprint, financial opportunities such as green mortgages may become the norm. However, with such schemes still being relatively new, it seems that only time will tell.