Well, the world is still coming to terms with what has been unleashed upon it and the volatility in the financial markets as a result. Not only have shares been shaken-up but other things are not necessarily reacting as they ‘should’ and perhaps for ‘other’ reasons. I am also taking this opportunity to wish you a lovely Easter and full of relaxation as well as reflection at this difficult time for world economics – and indeed other problems still pervading of course.
For example, government bonds should be safe in difficult times and as interest rates fall, their values should rise but not if China decides to dump colossal amounts on the world stage in reaction to penalties against it and buys gold as an alternative reserve currency. And then we have a 90-day moratorium and markets show colossal gains before slumping the next day again – just imagine if you had liquidated the day before – or even that same day but earlier. We are running-out of superlatives to describe the moves; are the markets’ reactions whiplash or whipsaw (or can you think of something else to describe them)…
What about commodities? Recession is now expected as a consequence of these tariffs as consumers and businesses have to pay whopping prices for imported goods which have suffered these taxes (that can mean goods which have been in and out of the US system too even if sold by a ‘neutral’ country later) but they’ll also suck money out of US consumers’ pockets too. Oil (North Sea Brent) is the lowest it has been since 2021 and that’s a positive to help protect us but the cheaper this fuel becomes, the less attractive are more expensive renewables too – and as we know, we are piously not encouraging the use of our own in the North Sea, especially by taxing operators out of economic reality.
Energy companies, which still make-up a large chunk of the UK stockmarket index, are also hit thus but still, the cheaper prices should feed-through into cheaper transportation for goods we buy and heating costs overall and of course oil is used to produce so many products too and across the world from where we import them so they can be cheaper. Pharmaceuticals are also quite big here and the latest is that tariffs on these giants may be engaged too. Early next week we have a missive going to all investing clients but how to write that with an ever-changing landscape?
At home, giving the Chancellor some credit but the economy grew by a surprising 0.5% in February. However, I am afraid the higher costs of living imposed by her won’t be helpful going forward, in the face of an economic storm and yet more uncertainty.
Swingeing double Council Tax on second homeowners has gone from the sublime (no tax or Business Rates on them at all) to a double penalty and that will affect property prices, especially at the top end and in holiday hot-spots but it will impact the buy-to-let market as well and is forcing owners to sell-up as the cost and regulatory burdens now are excessive. And if you have an empty residence for 10 years (for whatever reason) the Council can charge you 10x the Council Tax – is that fair? It is your asset and should such a penalty apply, whether the reasons for being unoccupied are sane or not? That isn’t the point.
In the same breath we read that even after yet more increases in Council Tax, whilst councils plead they don’t have enough for their social concerns, in reality 25% of everything collected goes to fund their salary-related pensions, salaries also raised for of course.
Cash-strapped councils to cut gold-plated pension contribution
This is all at the same time we learn that top Council executives are on a gold-plated race to the top, competing with each other to pay their leaders ever more money, all out of the same pot (and of course costing yet more in pension fund contributions again). Should there be a cap equal to the Prime Minister’s salary perhaps… The annual survey by Taxpayers Alliance deserves mention:- Ten takeaways from Town Hall Rich List 2025
To be frank, on pensions all final salary schemes for public sector workers (and others linked to that such as charities) should close and be made investment-related into which both employer and employee pay defined sums and retirement benefits available to pay pensions into employees’ dotage. This would save taxpayers colossal sums and actually in the end, provide superior individualised pensions to all the employees too. However, turkeys introducing Christmas for themselves is most unlikely but really, is it equitable that Councils, for example, use 25% of our Council Tax to preserve their gold-plated pensions?
To distract myself from the markets, let’s consider a few other matters. For example, should fund managers be ‘allowed’ to take political decisions to remove Tesla shares from portfolios for prejudiced political reasons? Should the EU redefine its categorisation of ‘ethical’ investment to include defence firms, as the FCA suggests is okay here (Wisdom Tree has just raised the biggest soft launch of a passive ETF for Defensives too)?
Tesla shares have been too dear anyway but the latest development there, linking Twitter (or ‘X’) with the Musk AI business could prove explosive longer-term but as I have said before about lots of those tech stocks – indeed but the starting prices of their shares are still way too high. We are watching market developments very carefully but there remains some very attractive value out there still and with high income yields and where the stocks are even cheaper than they were. Take a longer view, perhaps.
Good news/bad news
Amongst the Trump-led gloom from tariff reaction, Tin prices surged as one of the main market’s supplies are disrupted by the earthquake in Myanmar. We’ve had ‘Tin’ as an outside investment for some while (because it was too cheap) but also as an uncorrelated asset and one clearly which jumped in reaction to sad and bad news. This philosophy is another way of mitigating risk – we may only have had 0.8% of our total client assets in it before we trimmed some then sold the rest but a jump of 37% in our ETF since last November helps. That’s up almost four-fold since March 2020. I don’t imagine many investors out there have any… our gold and silver mining interests have also been buoyant.
Amongst all the worry, it’s good still to have the odd bright stock – like Curry’s which announced better profits and cash generation so the shares rose 13% on the day against a falling market – it all helps.
Fund management groups have been weak yet again – not being ‘strong’ in the first place. We’ve had several for a long while so they have held us back (albeit paying good income) but we are thinking of buying more at these levels. The negativity has almost been indiscriminate and at some point, things will change, especially as passive zealots will already be beginning to find that having ‘everything’ simply because it is there is not necessarily a good idea when one market (the US) counts for over 70% of all stocks.
The last few months have been easy for active managers to beat the global index as the tech-dominated US has fallen amongst the hardest of all markets. Yes, this ‘game’ can have regrets too – we have a non-model financial stock which rose well and we were watching for sale but now it has slipped all the way back again and it needs to go back on buy lists. Life is like that sometimes.
Tax advice and guidance
We have just been updating with some long-standing contacts who have sold their successful local business. We have not really had much link with them but now the Business has been sold, they have some significant capital which needs to be invested to provide their retirement income. We shall be delighted to guide them. However, what is sad is that their Business’ accountant seemed to have ‘just done the books’ over the years, as well as in regard to the sale, something we encounter far more times than we should.
I asked as to whether tax planning optimisation took-place before the Business was sold. Clearly there wasn’t any or very much at all and now it is too late to do those things. One core thing which was really attractive to them was significant employer contributions for them, to their existing pension scheme, saving Corporation Tax, National Insurance and Capital Gains Tax as the sale proceeds from the shares they sold would have been adapted for the cash withdrawal to fund them.
Did they plan ahead to involve their spouses to use their CGT allowances and pensions? No. Did they consider optimising their personal investment allowances in the year of sale? No. Did they have any guidance on CGT alleviation beyond the 10% reduced rate (and again, involving spouses)? No. It is very frustrating, as much could have been done in the pre-sale stages and worth hundreds of thousands of pounds to them and their families. Does your accountant ‘just do the books’? We are financial advisers and are proactive!
Two positives from negative tax changes
This may sound strange but there are two positive tax positions perhaps worthy of consideration. The first relates to Capital Gains Tax. The basic allowance has now been cut to a pitiful £3,000 (£1,500 for Trusts etc). Yes, investors ought to try to use that and ensure they pay a little tax to ensure they have used the whole thing (but of course that entails a Tax Return too but maybe everyone in that camp and with some money has to bite the bullet and become accustomed to that duty every year).
However, if you haven’t used the allowance but perhaps even have a loss on disposals, then not using the allowance doesn’t ‘cost’ much in tax saved anymore and instead, the loss can be carried-forward to use against future gains and possibly more valuably later (eg against the disposal of a second property at 28% and not 24% for other gains).
Some investors make gains and then look to offset any losses against them, which they are almost always inevitably going to have in a diversified portfolio of assets but is it wise generating these losses? You might save say 24/28% tax on something but if selling a stock at the lower, selling price, paying brokerage then having to wait a month to buy it back again (unless you bed and spouse!), paying the buying price, Stamp Duty and more brokerage; has it cost you more in the dealing than the tax you would have paid staying put – and no market risks meantime? If it is a near write-off, maybe that’s okay but not to make a few hundreds of pounds’ loss on a bigger asset.
The second one involves those with limited companies for their businesses. These became popular even for the plumber, electrician, etc a few years ago as they could exploit the dividend tax rules to pay less tax than being self-employed. However, many such businesses found then they were wedded to far higher accountancy charges including Companies House registration, have more difficult business banking and borrowing arrangements and can’t extract their money easily either.
It may still be possible to extract dividends rather than salaries which suffer National Insurance on employer and employee (up to age 65) but nasty taxes on dividends now apply especially to higher rate taxpayers. One troublesome point is that dividends are not classified as earned income so cannot be used to assess pension contributions (which the Company could pay direct to the pension plan of the ‘employee’ or director, securing Corporation Tax relief on the whole payment and if the employee is over 55, in theory they could access the benefits, including the tax-free cash instantly (probably very unwise but the principle exists for emergencies)).
However, remember that to the company, dividends are NOT tax deductible. However, salary, pension and National Insurance paid by the company ARE tax deductible so the Company saves Corporation Tax on the cost, even if the employee pays tax and National Insurance on it too. The lower rate is 19% and the higher is 25% so again, it can be seen how judicious planning is wise, especially if profits may be at the higher end in any year.
Guidance suggests too that for ‘other reasons’ it is wise for director owners to have a ‘reasonable salary’ rather than all dividends. Remember too, spouses can be directors and children performing duties should also be considered on the books!
Testimonials
It is always lovely to receive recommendations from existing clients and we are always very grateful for them. However, it is nice to hear the following from the person recommending them:-
‘… many of her friends were delighted to be looked after by PJM and received service which was far superior to where they were previously’.
Thank you very much for sharing that AS!
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
