Perhaps the most arresting piece in the Weekend FT is a piece by Vanessa Houder on the sometimes clouded future of trusts as an investment tool. Recent government statements have suggested an increased determination to crack down on instruments which are often viewed with suspicion. Are they the tax-efficient innocents they seem, or are they despicable agents of tax evasion? (Or “avoidance”, a previously honourable word which has seen its reputation dragged into the mire by linguistic fudging from successive chancellors. No, that’s not the author talking there, it’s us at IFA Magazine on our hobby horses.)
The obvious answer is that they can be either, of course. The author doesn’t hold back from the observation that there are bad apples in the box, and the view comes through that Gordon Brown’s 2006 attack on the use of certain trusts for IHT avoidance was not entirely without good cause. But the current situation is still a minefield of staggering complexity which is persuading some advisers to go easy on the recommendations. Especially, the author says, for larger sums.
This confusion is a particular pity, because the government’s own Money Advice Service is still declaring that (quote) “a trust can be a great way to reduce the amount of tax payable on an inheritance.” The devil, then, is in the details.
The FT’s article is both a history of trust structures and a fair stab at exploring some of the nooks and crannies. Although the “nil rate band discretionary trusts” which used to be common have faded since Alastair Darling allowed the IHT nil rate band (NRB) to be transferred to a surviving spouse, there are still some uses. But there are tax traps as well. If a client thinks that gifts made seven years before death are automatically IHT exempt, they may find that things are more complicated if funds have been transferred into a trust in the seven years before that.
And so on, and so on. The article explores alternatives to trusts as well. Recommended reading, if only for a timely catch-up before the government’s promised overhaul comes along.
Money Mail’s Jeff Prestridge opens the weekend bidding with a bit of a rant about what he sees as a lack of conscience on the part of institutional investors. The hedge fund managers who shorted Carillion into submission last month were among the same City cohort who had pressurised the company into paying out dividends to shareholders in the first place, when it should have been propping up its huge pension gap instead. And now that the company has failed, their gains have been the losses of the tens of thousands of employees and subcontractors who have lost both their jobs and perhaps part of their pensions.
It all sounds a bit Corbynesque. But Prestridge says his attention has been focused by a new London play called Dry Powder, which portrays the devious ways in which these things are played out. Fortunately, he says, not all such operators are so shark-like in their habits – an accompanying linked article from Laura Shannon gives more details of the good guys and the different way that they think. But on the whole, the message that readers will come away with is that some of the public cynicism about wheeler-dealerists is not entirely without foundation.
Uncomfortable reading, as Prestridge agrees. But then, that’s the point of good journalism.
It’s the state of the markets which is the headline story in the Sunday Times Business section. After Friday’s 2% fall in the value US Shares, the paper asks whether this is the start of a bigger sell off as fears grow about higher interest rates. The “stampede into stocks” seen in January may signal the end of the nine year bull run, it reports. One factor is that the past four weeks has seen record amounts of cash being invested into stocks – at $102 it surpasses the previous record from January 2013 of $76 – and much of it by retail investors. This headlong rush into stocks is often a hallmark of the death throes of a bull market. Will this week see further sell offs and spill over to other markets? Only time will tell.
Still at work:adviser who lost us £400,000. Sadly, that’s the headline of the lead feature in the Sunday Times Money section. It reports on the case of a couple whose retirement fund had suffered falls in value, mostly through investment selection in a high risk fund (New Earth Solutions Recyclying Fund – an unregulated Isle of Man fund) in 2010 even though as the paper reports, they were “cautious investors” who intended to retire four years later. In 2013, the fund stopped withdrawals after it hit financial difficulties. After experiencing initial losses through being invested in commercial property funds, their adviser Paul Herd, a chartered financial planner, advised a switch to the New Earth fund for about £290,000 of their fund. The FOS ruled that the firm (Plymouth-based MFS Partnership ) should pay £500,000 compensation but its PI insurance didn’t cover the type of product recommended so the firm went into liquidation. The couple did receive the maximum payout of £50,000 each from the FSCS. The story mostly relates to the couple’s “shock” to find that Mr Herd is still working in financial services. Unfortunately, it is rare stories like this which undermine all the great work done by financial planners across the UK as it leads consumers to fear that professional advice is not always of the highest calibre.
As usual, there are wise words from Ian Cowie in his Personal Account column. He reports on last week’s warning from Goldman Sachs that markets were due a “rather painful…sharp correction”. With the S&P 500 down 2.1% on Friday, many are questioning whether this is the start of such a correction. Cowie remains steadfast, that the way to maximise investment returns is not to try and second-guess the market moves but to remain invested through thick and thin. He admits that whilst it is relatively easy to make the decision to switch to cash, it’s the decisions to reinvest which can prove more difficult. He cites analysis from Fidelity International, which backs up his suggestion to remain invested is indeed the best course of action.
“The female investor is more savvy than the male”. That’s the headline as the Sunday Times highlights a report from Hargreaves Lansdown which revealed that female customers did better by an average of 0.48% a year than their male counterparts when it came to portfolio returns. Some of the possible reasons cited for this are women’s greater propensity to invest in funds rather than shares, that they are less likely to invest in more risky smaller companies and that they tend to buy and hold rather than trade regularly. Well done ladies! Keep up the good work we say.
This week, Thomas Becket of Psigma Investment Management gives his recommendations in the “how to invest £10,000” column, aimed at investors just starting to build a portfolio. He suggests the following five funds: Macquarie Asian All Stars, Polar Capital Healthcare Blue Chip, TwentyFour Asset Management Dynamic Bond, Blackrock Gold and General and Jupiter Absolute Return.
The Financial Mail on Sunday has the Invesco Perpetual Income fund in its fund focus column this week – a fund which will be well known to most advisers. As Jeff Prestridge reports, stepping into the shoes of an investment ‘legend’ was never going to be easy – even after 17 years of working and learning from him. But by his own admission, Mark Barnett, head of UK equities at Invesco Perpetual,/ has had more than his fair share of difficulties since taking over from former manager Neil Woodford in March 2014, Barnett admits he had a ‘good’ 2014 and 2015. As for 2016 and 2017, he politely describes them as ‘challenging’.
Barnett currently oversees the management of assets totalling £19billion with the most high profile roles being the management of the Invesco Perpetual Income and High Income funds. Since he took over, both have underperformed the FTSE All-Share Index and the average of their peer group the MoS reports.
The largest contribution to Barnett’s poor relative showing is troubled sub-prime lender Provident Financial. Other ‘negatives’ have been holdings BT and Allied Mines where share prices have fallen sharply in response to profit warnings and major restructuring respectively.
Barnett did not hold income-friendly construction giant Carillion but he does hold shares in outsourcer Capita whose shares fell last week after a profits warning.
Despite two difficult years, Barnett remains confident. He believes the UK economy is in good shape, helped in part by sterling’s weakness.
With inflation falling away, he believes consumer spending will soon start improving, helping domestically focused businesses. This explains why he is keen on selected retailers – the likes of Next – UK focused insurers Aviva and Legal & General as well as budget airline EasyJet. We hope that he is right!
HMRC now ‘taxes first and asks questions later’ forcing taxpayers to apply for refunds. This is the lead story in the Sunday Telegraph Money section. They report that in just under three years the amount that the taxman has had to hand back to those who wrongly paid the stamp duty surcharge or “emergency tax” on a pension withdrawal has reached half a billion pounds, figures released last week show.
In the article, HMRC denied that the trend was growing, saying the vast majority of tax was paid through its “pay-as-you-earn” system in the same way it had been for 70 years.
But there’s no doubt that the volume of refunds in certain areas is growing.
The 3 percentage point stamp duty surcharge on additional property purchases meant to curb the buy-to-let market but the measure had the unintended consequence of hitting many regular home movers. The surcharge must be paid by anyone who already owns a property, but this draws in those who wish to buy before selling their previous home or those whose sale collapses.
These people must pay the surcharge upfront and claim a refund, and HMRC has handed £231m back to taxpayers who overpaid.
Another quirk of the system means that those who make use of the “pension freedoms” also face paying tax they will never owe.
Pension savers who make large withdrawals in a single month are massively overtaxed, as HMRC’s system assumes it’s a monthly income and applies tax accordingly.
These people too can apply for a refund, but it requires the filing of a “mini tax return” and there are fears that some may not even know they are owed money back. The message to advisers is clear – if you have clients who might be affected by this, just make sure that they claim the repayment of tax to which they are entitled. Simples!