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The following measures, which may affect the advice you are providing to your clients, have been removed from the Finance Bill:
Changes which intended to apply in 2017/18
Reduced Money Purchase Annual Allowance (MPAA)
The Money Purchase Annual Allowance (MPAA) will not now be cut from £10,000 to £4,000 at this time. This reduction would have affected those who have accessed their DC pension under the new pension flexibilities and wish to continue paying into their pension. Edit: The MPAA was indeed reduced to £4,000 for 2017-18 after all!
Deemed Domicile Rule Changes
Rules were to be introduced from April 2017 to reduce the number of years non-doms can be resident in the UK before becoming deemed domicile. Currently someone would become deemed domicile in the UK for inheritance tax after they have been resident 17 out of 20 tax years but it had been set to fall to 15 years. It was also intended extend the scope of the deemed domicile rules to also apply to income tax and CGT.
Recalculation of Disproportionate Bond Gains
Measures which would have put an end to chargeable gains on a part surrender of an investment bond have been shelved. From April 2017 HMRC had planned to allow gains which were wholly disproportionate to the investment performance to be recalculated on a just and reasonable basis. This would typically arise where a large part surrender in excess of the 5% allowance is made in the early years of the policy.
Changes which intended to apply in 2018/19
Dividend Allowance Cut
From April 2018, the annual dividend allowance is set to be cut from £5,000 to £2,000. This is no longer part of the current Finance Bill. This would hit small and medium sized business owners who take their profits as a dividend.
What happens next?
While all these changes no longer form part of the condensed Finance Bill it is intended that they will be reconsidered once a new Parliament commences and could form part of the new Government’s first Finance Bill, meaning they may be delayed rather than dropped altogether.
Source – Standard Life
There has been a lot of noise in the press concerning the markets following a sudden dip in world markets on Monday, August 24th, and again today, Tuesday, September 1st. I thought I might weigh in with a few thoughts of my own since this is a matter of concern to people, and many investors are wondering what to do for the best.
One thing to remember is that it is impossible to “time” one’s investments into and out of the markets with any consistency. You will never buy at the bottom nor sell at the top. What an investor needs is a good plan and to stick to it.
Investors who are exposed to the markets should really be looking at 5 to 10 years, as the longer you are invested the more likely you are to make expected returns – i.e. time mitigates risk.
A person’s investment portfolio needs to be diversified across a number of different asset types, and across different geographical regions, in a sensible combination designed to reflect that investors ability to withstand loss, and their taste for risk. For those who follow this line of diversified investing, there is probably little to do at the present time except sit tight, or perhaps re-balance their holdings if necessary.
You might ask yourself whether your portfolio still reflects your long-term objectives and taste for risk, but try not to be negatively influenced by short-term fears in such an assessment. When in doubt, discuss with your investment adviser. If you don’t have an investment adviser, I suggest you get one since the long term improved returns can be expected to outweigh the fee charged.
When there are sudden market drops, investors are likely to focus on other perceived negatives – this is just human nature. But this just reinforces the negative view, leading to an escalation in negative sentiment all round. This can cause irrational selling. And remember, the automated trading programs plugged into the markets nowadays control literally £ billions (if not £ trillions) of assets, and if they trigger we can see huge sudden shifts in stock prices – in the USA massive blue chips like Microsoft lost up to 10% in a very short period before mostly recovering. When a sell-off is driven by adverse sentiment rather than by adverse fundamentals, it tends to be relatively short term, and savvy fund managers are likely to take advantage of buying opportunities.
Of course, whether a dip in the market is indicative of further falls to come is extremely difficult to predict. But one thing most investment experts will agree upon is that you should never sell at a significant low point in the cycle. In other words, try not to give in to fear, but be prepared to ride out the storm, i.e. stay invested. The chart below shows how staying invested is likely to be better in the long term than trying to jump in and out of the market. Market rises can be just as sudden as market falls and the chart shows clearly the cost to an investor of being un-invested on certain “best” days over a ten-year period.
The chart above (courtesy JP Morgan) demonstrates the cost to an investor of being out of the market at the wrong time. It is impossible to time the market with any consistency, so why try?
Putting some of the recent market drops into perspective, by far the biggest has been the Chinese stock market. You will note from the chart below that the Shanghai Composite index at the time of writing this article was at 3166 following its high in mid June of 5166, a drop of nearly 40%.
But please also note that over the last 12 months, it is still over 38% higher than where it stood a year ago on September 3, 2014!
What is more, it has been falling quite rapidly since mid-June. In other words, weakness in China has been anticipated for quite some time leading up to the global dip on August 24th 2015. Clearly some of the recent volatility in the global economy was caused by uncertainty over China, including the relatively sudden Chinese devaluation of its currency in mid August. But this was not a significant devaluation, only a little over 3% against the US dollar. Again, this need not have a fundamental effect on the global economy. China has been a trigger to a more general correction.
I have been telling my clients to expect volatility during 2015-2016, whilst also anticipating overall positive returns, (though not of the scale of the preceding twelve months). I still hold this view. A serious long-term fall in world financial markets needs to be accompanied by a serious worldwide recession, and we simply do not have that situation at present.
Clearly, when the FTSE, the Dow Jones, the European markets and Asian markets all take a hit it is cause for concern. But I think what we have seen is a market correction, or re-pricing. It was a pretty big one, and has caused some pain, but I don’t think it precedes a major crash. Indeed many pundits felt it was due. Going forward, we may see a fairly rapid recovery in those markets where the fundamentals remain unchanged.
So, I still believe the sensibly diversified investor should see overall growth during the next 12 months. Lacklustre growth overall perhaps, but growth nevertheless. If you would like to discuss your investments portfolio feel free to call on 0345 013 6525. In the meantime, in the immortal words of Corporal Jones: