EU charity tax relief gift warning for estates
Leaving money to an EU-based charity will soon lose its tax-free status thanks to changes made to inheritance tax rules in March.
It is not uncommon for people to bequeath part of their wealth to charitable causes after they die. Up until this year such gifts have incurred no inheritance tax liabilities and are often seen as a positive way to give out wealth to those who might most need it.
Nevertheless, in the Government’s Budget in March, part of the fresh rules included a tweak to the relief on charitable gifts, which means that the tax relief would only be available to UK-based charities.
The change to the rules immediately impacted foreign charities. However, there is a transition period in place for EU-based charities until April 2024.
After that point any charity that is not based in the UK, including EU charities, will no longer be able to claim charitable tax relief on donations. Any estate bequeathing to a non-UK charity will lose the inheritance tax relief previously available.
How does charitable tax relief work?
Currently you can bequeath an unlimited amount of money to charity in your will and incur no inheritance tax (IHT) liabilities.
If you gift 10% or more of your estate to charity it reduces your IHT rate from a 40% charge on wealth over the nil rate band to 36%. It is one of many measures that are effective in reducing the overall potential IHT bill when you die.
With more estates moving into IHT liability, particularly with the bands frozen for more than a decade, this is no inconsiderable way to mitigate some of the potential liability.
What does the tax relief change mean?
Mitigating IHT through charitable donations is still a viable way of reducing your eventual IHT liability. However, the caveat is now that this will only apply to UK-based charitable donations from April 2024.
It is an incredibly tough decision to make, but if a non-UK charity is currently named as a beneficiary of your estate in your will, then this could have significant implications for the eventual tax bill to be paid by your estate.
If the charity you have in mind has UK-based entities, then ensuring you specify it will go to that branch will still be an effective strategy. However, outside of the UK, the same no longer applies.
This could also have an effect on British expats based in the EU with charitable giving in mind, as they could be caught out gifting to charities where they live abroad too.
If you have a nominated charity in your will that isn’t UK-based and would like to discuss your options, or for any other questions around inheritance tax planning and how charitable giving relief works, don’t hesitate to get in touch.
Labour cancels wealth tax plans – how it could affect your portfolio
The Labour Party has ruled out major tax changes were it to win the next general election.
The news will be well-received by those looking to preserve their wealth over the long term, but doesn’t necessarily rule out other methods of making money for the Treasury.
Labour Shadow Chancellor Rachel Reeves has ruled out any new wealth taxes were the party to win power in 2024, when the next general election is due.
Party leader Keir Starmer has also ruled out hikes to income tax if he should be the next Prime Minister.
However, government budgets are extremely tight. With little room for borrowing – as Liz Truss’s controversial mini-Budget in 2022 demonstrated – raising taxes or cutting spending are the only realistic alternatives.
Taxation still looks like the most probable route for any government trying to balance the books. Short of creating miraculous economic growth, this would seem to be the only way forward.
What tax changes could we be in for?
The current government has already done a lot of tax tweaking to bring more cash in, without hiking headline rates.
Chief among these is pinning tax bands and allowances. The effect of this is with inflation and wage rises, more people are tipped into higher income tax bands.
For inheritance tax (IHT), it means every year more estates become liable to pay death duties.
Other areas where rates have been tweaked are changes to dividend taxes and capital gains tax.
Since the government has already fiddled with these, they might not be attractive options. Nonetheless, there are other potential sources.
Changing the rules around pensions tax relief is a long-mooted idea – either by equalising the relief to one rate, likely 30%, or doing away with the higher rate relief altogether.
Another, more unusual idea, floated in the Financial Times by Sushil Wadwhani – a former Bank of England Monetary Policy Committee (MPC) member – was taxing inflation by imposing a 100% tax on pay rises above 3%.
While this idea is somewhat fantastical, it illustrates that there are plenty of “innovative” ideas out there to find new ways of taxing wealth.
What can you do?
The Labour Party has been praised for ruling out new wealth taxes in a sign that it is willing to accept that some people have been able to accrue significant portfolios through hard work and over a long period of time.
The constant chopping and changing of tax rules and structures is also destabilising and creates ever more issues for families who are just trying to do the right thing.
It should also be caveated that these comments are by no means a guarantee, particularly as political and economic imperatives change frequently. The Labour Party is set to publish its manifesto ahead of the next general election, which must take place by December 2024. It is likely that we will find out more about potential plans then.
The best way to ensure that tax liabilities are managed carefully and effectively is to work with an adviser to ensure wealth growth is given the best opportunity to succeed and structured appropriately for your circumstances at all times, whatever the climate.
Bank of Mum and Dad: how to help your kids without compromising your plans
Nearly half (47%) of all property purchases in the UK will take place with the help from the so-called Bank of Mum and Dad (BOMAD) this year, according to new research.
The help from BOMAD will amount to around £8 billion according to the research from financial services provider Legal & General, towards the purchase of around 318,400 properties – a record level.
This is set to rise even more to £10 billion by 2025, says the firm. More than half of parents or grandparents (58%) help their family purchase a property do so for first-time buyers.
Bernie Hickman, CEO, Legal & General Retail says: “Family wealth is increasingly becoming a prerequisite for homeownership, effectively locking some groups out of the housing market for years while they save for deposits, or even altogether.
“While family gifting has always played a prominent role in the UK housing market, our study shows that the value of those contributions has risen by more than a quarter on pre- pandemic levels.”
Generational wealth planning
It is in many ways a positive that a family has worked hard enough to be able to help their loved ones buy their own home.
Getting on the property ladder is increasingly difficult with rising mortgage rates and historically high prices compared to wage levels. However, this can have implications for the parents or grandparents’ own financial plans.
Hickman explains: “An increasing reliance on family members isn’t only an issue for those seeking to buy – it is important to acknowledge the financial strain it can place on the giver, particularly if they are undertaking this commitment without financial advice. By dipping into savings and pensions, family members may be compromising on their own retirement incomes.”
So, what can you do to ensure help for your family, while not compromising your own plans? Having a generational wealth plan in place is key.
As a starting point, if you want to help with a home purchase, then planning for that as early as possible is essential. That money should be earmarked and in the right kind of account in order to minimise tax liabilities, particularly around pensions.
There are ways to contribute early on to your children or grandchildren’s financial future, such as setting up a junior ISA (JISA). However, the potential pitfall with a JISA is once the child turns 18, they gain full control of that pot. Although they might be financially responsible, not all 18-year-olds are, or they may have other priorities such as paying for university.
So, if you want to earmark that cash specifically for a house deposit, it might be wise to retain control of it yourself until the time comes.
It is also really important to consider inheritance tax (IHT) gifting rules. You can give as much as you like to a child, but under the seven-year rule, you’ll have to live for seven years past the gifting date for your estate to fully expunge any potential IHT liability for the gift.
Finally, as Hickman suggests, giving away a significant lump sum can have an impact on your own future financial stability and access to funds. In order to ensure the gift doesn’t have a detrimental effect, it is a good idea to go through the process of cashflow modelling.
Cashflow modelling can help you to decide where the best place is to draw the gift from, be it an ISA, pension, or even through selling other assets such as your property (if you’re planning on downsizing). Each option will have its benefits and drawbacks and should be discussed carefully with an adviser.
The World In A Week - Calm before the storm
Written by Chris Ayton.
Global equity markets trod water last week, with the MSCI All Country World Index ending the week down -0.2% in Sterling terms. MSCI Europe ex-UK fell -1.1%, with the FTSE All Share Index and the S&P 500 Index both dropping -0.4% but MSCI Emerging Markets was up +1.1% boosted by positive returns in China and Brazil. After years of neglect and disinterest, corporate governance improvements are leading international investors to revisit their allocations to Japanese equities and this helped MSCI Japan rise +1.5% for the week. However, the Japanese Yen remained weak ahead of the Bank of Japan meeting this week where, unlike all other major economies, it is expected to maintain its ultra-loose monetary policy. The Federal Reserve and the European Central Bank (ECB) also meet this week.
Last week the Organisation for Economic Co-Operation and Development (OECD) released its latest GDP growth forecasts for 2023 and 2024, predicting the global economy would expand by 2.7% in 2023 and 2.9% in 2024. Underlying that, it went on to predict the US will avoid recession, India will grow strongly (6% this year, 7% next year), and China will achieve its target of 5% GDP growth this year and next. However, it estimated the UK will only achieve 0.3% growth this year and 1% next year, although this is better than previous estimates. While this backdrop is certainly interesting, it is important to remember that economic growth does not equate to stock market returns.
In Europe, the EU’s statistics agency revised down the EU’s GDP growth to -0.1% for both the final quarter of 2022 and first quarter of 2023, meaning the Eurozone is technically already in a recession. This surprising news came on the back of Germany also announcing that it had fallen into recession. This data has brought into question the European Commission’s 1.1% growth forecast for 2023 and it will be interesting to see if the ECB starts to face any pressure to ease up on further interest rate rises at their upcoming meeting.
Data released by Halifax last week showed UK house prices registering their first annual decline since 2012, with average house prices in May sitting 1% below where they were this time last year. The Nationwide Building Society had earlier indicated an even greater annual decline. With Uswitch reporting the average 5-year fixed rate mortgage rate in the UK has now hit 5.59% and further interest rate rises expected going forward, this is clearly starting to impact price expectations for buyers and sellers.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 12th June 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - The narrowing leadership in US stocks
Written by Ilaria Massei.
Last Friday, we saw US stocks hit a nine-month high thanks to encouraging talks on debt ceiling and tech sector gains. The NASDAQ 100 rose 4.5% last week in GBP terms, boosted by the rally experienced by AI related stocks. There have only been a handful of stocks in the mega-cap market range that have led this rally in tech stocks. These include the likes of Alphabet, Amazon, Meta, Microsoft and NVIDIA. Last Thursday, shares of the chipmaker NVIDIA jumped 24%, making the company the sixth most highly valued public company in the world. Shares rose after the company beat consensus first-quarter earnings expectations by a wide margin and raised its profit outlook.
This extraordinary performance resurfaced the topic of narrow leadership in the US stock market, whereby fewer and fewer US tech stocks contribute to the broad index level return. Another crucial topic last week was the debt ceiling talks where policymakers delivered some encouraging news, signalling that they were working on a deal to raise the debt ceiling before the June deadline to avoid an unprecedented default. Meanwhile, the core (less food and energy) personal consumption expenditures (PCE) price index, rose by 0.4% in April, a tick above expectations.
Elsewhere, data released last Thursday signalled that the German economy fell into a recession in the first quarter, due to persistent high price increases and a surge in borrowing costs. GDP shrank 0.3% in the three months through March, a downward revision from an early estimate of zero growth. However, European Central Bank (ECB) policymakers’ view is that interest rates would need to rise further and stay high to curb inflation in the medium term, potentially deteriorating the economy further.
The MSCI Japan declined to -1.1% last week in GBP terms but encouraging data released last week saw Japanese manufacturing activity expanding for the first time in seven months in May. The services sector also reported robust growth, as the reopening of the country to tourism led to a record rise in business activity.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 30th May 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Buffett bets big in Japan
Written by Cormac Nevin.
Markets rallied last week as data releases such as strong housing statistics in the US allayed fears of an economic hard landing driven by the interest rate increases we have witnessed over the last year. The MSCI All Country World Index of global equities (MSCI ACWI) rallied +1.5% in GBP terms.
A market which the team has noticed getting an increasing degree of exposure from global investors recently has been the Japanese Equity market. In local terms, Japanese Equities are up +8.5% over the course of the second quarter to date, which has strongly outperformed MSCI ACWI over the same period (+1.9%). The GBP return has been reduced by a weakening in the Yen vs Sterling, therefore returning +3.6%, but it remains strongly ahead of other markets. We have been overweight to the Japanese Equity market since 2020 and find it interesting that many of the characteristics of the market which we find appealing are now being given more attention from other investors and the media. These include attractive valuations compared to, for example, the US Equity market, corporate governance reforms being driven by the Tokyo Stock Exchange and other forces including low inflation, accelerating GDP and wage data. While the Yen has proved a headwind for GBP-based investors for the year to date, we think it provides excellent diversification benefits and room for the Japanese currency to rally should the global economy deteriorate as many predict which would lead to a potential narrowing in US/Japanese interest rate differential.
Another interesting element has been the increased investment in the Japanese market from Warren Buffett. While we think investors should never slavishly follow any one investment luminary, we do think it is interesting that the Sage of Omaha now owns more stocks in Japan than in any other country besides the US via his Berkshire Hathaway holding company. Given Mr Buffett’s exceedingly long track record in finding high quality companies trading at discounted valuations, we believe that the Japanese Equity market could potentially be an excellent return driver into the future while other developed markets are more challenged from high valuations or macroeconomic turbulence.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 22nd May 2023
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Record breakers
Written by Chris Ayton.
As expected, the Bank of England (BoE) hiked interest rates by 0.25% to 4.5% last week, in the process warning that inflation will not fall as fast as expected over the next 12 months. This was a record twelfth rate rise in a row. The BoE also noted that it appreciated that only around a third of the impact from the previous rises had been felt by the UK economy, with 1.4 million people due to come off fixed rate mortgages this year, nearly 60% of which were fixed at interest rates below 2%. While this may bring hope to some that this was signalling a pause in further increases, the BoE warned that it continued to monitor indicators of persistent inflationary pressures and commented “If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.”
More positively, the Bank significantly upgraded its forecast for UK GDP Growth, expecting 0.25% growth this year followed by 0.75% in 2024 and 2025. This was the largest upwards revision to growth expectations on record and contrasts sharply with predictions late last year that the UK was heading for the longest recession in 50 years. This was followed by confirmation from the Office of National Statistics on Friday that the UK economy had grown 0.1% in the first quarter, the same as observed in the previous quarter.
News in the US was dominated by internal fighting over the extension of the debt ceiling. Having reached the maximum it is legally allowed to borrow, the U.S. government require an extension to that limit in very short order to be able to pay its upcoming debt obligations, to avoid a destabilising default, and prevent the financial chaos that would undoubtedly ensue. Previously, these challenges have been resolved at the twenty third hour but, in the meantime, this is likely to impact market sentiment.
Less well reported was the positive news that the top U.S. national security adviser, Jake Sullivan, met with China’s top diplomat, Wang Yi, in Vienna in an attempt to calm relations between the two superpowers. Talks were said to be ’substantive and constructive’. The souring of relations, exacerbated by the Chinese spy balloon drama in February, has undoubtedly been a drag on China’s equity market performance in 2023.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 15th May 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - A hike in May and go away
Written by Shane Balkham.
The world of investing has a plethora of adages by which to invest. All of which are based on shaky assumptions, but can also resonate with investors as they seem to have a semblance of truth to them. At this time of year, the adage: “Sell in May and go away” is rolled out, but few will realise that this originated in the 17th century and was about the wealthy migrating out from London in the summer months to their country estates. While out of London and without the use of a smartphone, they were unable to monitor their shares, so selling made perfect sense. Using adages in our experience is not a robust long-term investment strategy.
This year the adage could be used for the intentions of the central banks and the interest rate hiking cycle. Last week saw the Federal Reserve hike rates by 0.25% and signal the end of a continuous series of interest rate rises. The long awaited ‘pause’ has seemingly begun and attention will focus on data to see if inflation continues to fall.
The European Central Bank (ECB) also raised rates by 0.25% last week, but unlike the US, there was no signal suggesting a pause. Having started the process of hiking interest rates much later than the US and the UK, there is an argument that the ECB have much more ground to make up.
However, there is an expectation for the Bank of England to follow the Federal Reserve’s lead this week. A final hike of 0.25% is expected together with a clear signal of a pause in the hiking cycle, despite inflation having so far proved quite sticky. The meeting on Thursday also coincides with the quarterly publication of its Monetary Policy Report, which will provide further detail on the Bank’s forecasts and expectations.
This could be seen as welcome news to the markets, who have been anticipating a pause in the hiking cycle since the beginning of the year. Naturally, the medium-term view will now be dominated by expectations of when the first rate cut will arrive. However, underneath the big picture of central bank decisions, there continues to be ongoing stress in the US banking sector, and fears of economic recessions. Given the uncertainty of the short-term outlook, the need for appropriate portfolio diversification remains crucial.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 9th May 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Banking on a bailout
Written by Millan Chauhan.
Last week, we saw the third US bank seized by regulators since March with First Republic Bank being the latest casualty of higher interest rates and tighter monetary conditions. This marks the largest US banking casualty since 2008 and was driven by losses in their loan book combined with a run on their deposits. US interest rates currently sit between a target range of 4.75% and 5% and banks that have not been offering competitive enough deposit rates, in order to facilitate cheap loans, have been suffering outflows as savers transfer to money market funds paying higher rates. JP Morgan have since acquired First Republic’s deposits and a large proportion of its assets in a deal which was coordinated by the Federal Deposit Insurance Corporation. Jamie Dimon, JP Morgan CEO announced that they will not retain the First Republic brand but instead a large majority of the deposit base will move directly into their retail banking arm called Chase.
The fate of First Republic was outlined last week as they announced that $100 billion of deposits had been withdrawn in the first quarter of 2023, despite their deposit demographic being somewhat more diversified than the likes of Silicon Valley Bank and Signature Bank where deposits were largely derived from a more technology-focused client base. Under normal circumstances, JP Morgan wouldn’t be able to acquire a bank the size of First Republic for competition reasons, however these limits were waived in a bid to reduce further market stress and minimise losses. Some policymakers have criticised this acquisition made by JP Morgan since it has made the largest US bank even bigger and reduced competition further.
Elsewhere, companies continue to report their first quarter earnings and we saw the big US technology companies report last week whereby Artificial Intelligence (AI) was the big topic of conversation. Most of the technology names have implemented cost-cutting policies with thousands of layoffs being made, however they are investing billions as they aim to become market leaders in AI which they believe to enhance their long-term profitability. Meta, Amazon, Google and Microsoft stated the word “AI” a combined 168 times on their earnings call last week.
UK Government borrowing figures in the 2022-23 financial year, published on Tuesday by the Office for National Statistics, came in at £13.2bn less than forecast by the Office of Budget Responsibility, although, overall public borrowing rose compared to 2021-2022. This was mainly due to lower-than-expected public spending, despite the cost-of-living subsidies that have been provided over the year by the government. The lower-than-expected borrowing has given the Chancellor some breathing room and could give way to tax cuts later in the year in his Autumn Statement.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 2nd May 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Summer Prints
Written by Millan Chauhan.
Last week, we saw the release of US inflation data where the US Consumer Price Index reached 3.2% on a year-over-year basis as of July 2023 which was below expectations of 3.3%. Inflation has fallen significantly from its highs of 9.1% in June 2022. Food was one of the largest contributors to July’s monthly inflation print of 0.2%. Food at Home costs rose 3.6% and Food Away from Home costs rose 7.1% on a year-over-year basis. Attention now turns towards the UK and Continental Europe where we await July’s inflation data readings on Wednesday and Friday respectively. In the UK, analysts expect to see inflation fall to 6.8% and in the Euro Area to 5.3%, both on a year-over-year basis for July 2023.
Over the last 15 months, we have seen central banks implement several interest rate hikes, which has caused commercial banks to raise the interest rate received on deposits by savers. Some banks have been slower to increase the interest rate received than others. Last week, the Italian Government stepped in to penalise banks for failing to pass enough of the interest hikes from the European Central Bank (ECB) to depositors, it initially stated that it would tax 40% of net interest margins in 2022 or 2023 which initially saw numerous Italian banks sell off sharply. The announcement was a shock to investors and was widely criticised. Subsequently the Italian Prime Minister, Giorgia Meloni backtracked the decision and clarified that any levy applied would be capped to 0.1% of assets.
The UK’s Gross Domestic Product (GDP) grew 0.5% in June 2023 which was above expectations of 0.2%. The extra bank holiday has been cited as a key driver; however, we have also seen production output grow 1.8% in June 2023 which outpaced the Services & Construction sectors. June’s strong economic growth data saw the UK’s Q2 GDP grow by 0.2%.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 14th August 2023.
© 2023 YOU Asset Management. All rights reserved.