US election effects on the UK?

US election effects on the UK?


So some amazing news from across the Pond. I say this in that the pundits were all predicting a rather different outcome and hence why we are amazed at what really happened. Whether you like ‘it’ or not, the people of the US have spoken and who are we to criticise or be disrespectful at their choices or the reasoning behind them?

As with all premiers over there, we need to work with them for optimum benefit for us and indeed the world and personal insults don’t help one iota or, I suppose, commentary which might suggest that the majority of voters there is incapable of making a mature and rational judgment in regard to the party or candidate to secure their support, from the two offered. In fact, it does the opposite.

The US market liked it, the Dollar has risen and generally there are positive economic undertones. The fact that the main stocks were already very expensive didn’t stop them rising even further in price (over-value…) so we shall have to wait to see what happens. The imposition of tariffs is a concern but perhaps a post-Brexit UK:US trade agreement is back on the table when, nonchalantly, Mr Biden ripped-that-up. However, Republican control is more likely to be better for business there regardless, based on the Democrats’ policies presently.

Sadly, the sentiment here with our new government very much seems to note business will be stymied by the provisions made and despite the rhetoric of ‘growth’ (it is also not just what you do but what it is perceived you are doing. You can lose business, investment and tax revenues you have but even more importantly, you lose those which you are no longer attracting).

Will Mr Trump bring early ends to the Ukraine war and Middle Eastern conflict? I have far more confidence in him doing that than Mr Biden, so whatever your politics, let us trust and pray that is true.

Here at home, despite government borrowing rates escalating after the Budget as the jaw-dropping increases in borrowing and public sector spending growth have been digested, the Bank of England dutifully reduced borrowing costs by 0.25%. They should be lower but with the uptick in those bond yields, more cuts may be on the back-burner for longer now and inflation will be a problem again, as the cost rises percolate through, such as price rises to reflect the higher National Insurance costs for employment and the Minimum Wage. The position is exacerbated by US Bonds also sliding as greater borrowing is expected there, so a similar situation and one which will impact us.

However, whatever your views on the news this week, the world will not end, there are controls in place and we must not let our emotions drive our judgments or knee-jerk reactions and if we are unable to control those sentiments, then rely upon a balanced, independent adviser to guide you carefully and importantly, listen to what they say.

Advice at a time of need

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We have just had a frustrating and sad situation relating to the Pension Plan on behalf of a client who died under 75. It shows the need to have a trusted adviser on board and when you/the Family has that, then to ENGAGE with them in time of need.

The client died in 2021 and we sent a letter of condolence offering our assistance and guidance. Cutting a long story short, instead a lawyer was appointed and only recently have the proceeds for the Pension been distributed to the Children. Because the procedures were not completed within two years of the death, tax-free, the whole of the proceeds is subject to Income Tax at the beneficiaries’ highest rate.

We do our utmost to help clients but it is impossible to do so with those who don’t want it or who don’t respond – even in stressed times. I sense the law firm didn’t know of the time limit to avert this tax charge either, though I am not enquiring into that.

Budget continued

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Already some narrative is saying regarding pension and Inheritance Tax ‘don’t do anything but wait till the government changes in 2029’… of course the latter is not assured but… on pensions it is very difficult. Including these within estates is not good at all and contrary to the concepts introduced when the provisions were changed dramatically, of a prospectively inheritable pot for successive generations too.

However, taking the funds now and early isn’t necessarily a sensible idea as pensions still grow free of all tax so the gross roll-up has a value, whereas having cash in your hands will be subjected to swingeing taxes on the returns, etc. At least married couples can increase the timing by leaving their plans to their spouse (still no tax there) so will lots of death benefit nominations now need to change?

Will it be yet another encouragement to wealthy people to leave the Country to avoid the tax charge on them or their estates? Often it is the same people who are also going to be impacted by the other changes, like the removal of 100% on qualifying business assets – that matters a lot if it is some millions. Lifetime gifting and the seven-year rules are likely to be accelerated now too though clearly that’s not always a good idea for other reasons… and don’t forget to consider a small (and hopefully cheap!) life policy in Trust to cover unwelcome and unexpected death in that period.

There is an interesting pensions’ opportunity for those over 75. Did you know that if you are still working, your employer can contribute to a pension for you and secure tax relief on the cost (some pension providers decline such contributions though, I should add!)? I mention this as much as anything for the wealthy who may have a separate limited company, etc where they are directors and so they could orchestrate some tax savings in that way. The contributions must still be reasonable and linked to earnings received.

Following the thought, this could include ‘earnings’ from a property or investment company, one created even so that the inherent value on your demise may be significantly (and legitimately) below the market values of the assets it owns at that time, where the shares of private limited companies are valued on different criteria for IHT and CGT for example. Of course, you have to think about the hassle and administrative factors but if you have enough to substantiate that, it could be worthwhile. Indeed, the increase in Stamp Duty for second homes impacts buy-to-lets too – but limited companies continue to enjoy special tax benefits when owning property and it is much easier on death simply for your shares to be left to your beneficiaries as the company doesn’t die (so lots of estate and legal costs avoided at that stage). On pensions, I assume too more people will consider adding AIM shares to their strategies as these give 50% IHT relief after just two years, so some respite.

Investment wise, the market is signalling elevated concern about the levels of government borrowing required and Gilt yields have risen to their highest this year, way above the worst levels after Liz Truss and Kwasi Kwarteng’s ‘Budget’ but the Government isn’t mentioning that. That may deserve attention from a political perspective, let alone economically but it may mean that mortgage rates remain higher than they should be and crucially, that the State will end-up having to allocate more of its funds to servicing the colossal National Debt. That matters when it stands at £2.8trillion or whatever… the extra tax revenue raises can soon be consumed by higher interest charges so no gain made at all. On 1/1/24 the 10-year Gilt yield was 3.62% and has now exceeded 4.5%, a rise of 24%.

Good news/bad news

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JP Morgan Global Core Trust has approved the managed wind-down and believes that between 50-60% of the assets will be realised by the second quarter of 2025 with the rest over the ensuing 12 months. This was respected by the market which marked the shares up 9% (that’s a very nice return to expect for a whole year from a rather dull and low risk fund!). Whilst we wait, we receive high dividends and the shares still trade at a discount to the underlying assets’ value.

It may seem a tad dull compared to having one’s money in racy US Tech stocks but the risks are negligible and the upside as assured as anything can be and at the moment, the potential further rewards ‘out there’ with over-valued US stock do not substantiate the significant degree of risk which goes alongside that.

Wood (J) Group slumps by half on the results and announcing an independent review of contracts’ exceptional write-offs. It seems that some companies just cannot ‘get things’ right’ – frustrating indeed. Wood (J) Group slumps by half on the results and announcing an independent review of contracts’ exceptional write-offs. It seems that some companies just cannot ‘get things’ right’ – frustrating indeed. Still, they have rebounded somewhat today. Maybe BP or whatever should put them out of their misery and buy them cheaply!

Tax free cash from Pensions

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Apparently quite a significant number of individuals is now regretting taking their tax-free cash from their pensions in advance of the Budget and are trying to exercise the ‘cancellation terms’ right, to add it back to the plan again…

Clients rush to cancel tax-free cash take after Budget panic – FTAdviser

Whilst it is true we expected some attack on this provision so were pleased it was untouched, we did our utmost to discourage knee-jerk reactions as far as possible, as there are other consequences which people might not have considered – such as ‘in what tax-friendly receptacles would they then be able to put the capital’? Also, as tax free cash is a simple percentage, gross roll-up of returns in an untouched pension means an even bigger 25% tax-free lump sum down the line for most… that can grow exponentially.

My best wishes

Philip J Milton DipFS CFPCM Chartered MCSI FPFS FCIB

Chartered Wealth Manager

Fellow Of The Personal Finance Society, Fellow Of The Chartered Institute Of Bankers

 

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