Budget 2021

On 3rd March 2021, Chancellor Rishi Sunak delivered the Spring Budget. In this budget he announced the platform to discuss the ways in which the government had been supporting individuals and businesses throughout the Coronavirus pandemic so far, and to outline the ongoing challenges of securing both economic growth and eventually repaying the tax bill, in order to help stabilise the country.

The Chancellor recognises that that job losses and borrowing on this scale are only comparable with wartime rates and are not sustainable indefinitely.

Some changes that were rumoured to be announced, were not, particularly with regard to a change to the capital gains tax system, beyond the freezing of the annual exempt amount for several years, which is reflected across all tax bands.

HEADLINES

COVID-19 SUPPORT SCHEMES

The Coronavirus Job Support Scheme will be extended to September 2021 across the UK.

Employer contributions will increase to 10% from July and 20% in August and September.

SELF-EMPLOYMENT INCOME SUPPORT SCHEME (SEISS)

The Self-Employment Income Support Scheme (SEISS) has been extended to September 2021 across the UK. Those who filed a tax return in 2019/20 (up until midnight on 2nd March 2021) are now able to claim
for the first time.

Grants from the Self-Employment Income Support Scheme (SEISS) made on or after 6th April 2021 are to be taxed in the year of receipt. This measure will have effect for the tax year 2020 to 2021 and subsequent tax
years.

A new charge will be enforced if a person is not entitled to a Self-Employment Income Support Scheme (SEISS) payment. This measure will allow HMRC to recover payments where an individual subsequently ceases to be entitled to all or part of the grant. The individual is subject to a 100% tax charge if they receive a payment but are not entitled to it.

An exemption from income tax for the Covid-19 support scheme will be introduced for working households receiving tax credits payments.

CAPITAL GAINS TAX

The annual exempt amount will remain fixed at £12,300 until April 2026. There are no changes made to the CGT rates.

INHERITANCE TAX

The nil rate band will remain at £325,000 and the residence nil rate band will remain at £175,000 until April 2026. The residence nil rate band taper threshold is also frozen at £2 million until April 2026.

INCOME TAX

Personal Allowance is increasing to £12,570 for 2021/22 and the basic rate band is increasing to £37,700. This means a higher rate threshold of £50,270 – with the caveat that these figures will remain frozen until April
2026.

There are no changes to dividend allowance, personal savings allowance or starting rate band for savings.

Note: Changes to Personal Allowance will apply to the whole of the UK. Changes to the basic rate limit, and higher rate threshold, will only apply to non-savings, non-dividend income in England, Wales and Northern Ireland, and to savings and dividend income in the whole of the UK. Income tax rates and thresholds on non-savings, non-dividend income for Scottish taxpayers are set by the Scottish Parliament.

NATIONAL INSURANCE

The National Insurance Contribution Upper Earnings Limit and Upper Profits Limit will parallel the higher rate threshold of £50,270 for the UK from 2021/22 through to 2025/26.

PENSIONS
The Lifetime allowance for pensions remains at £1,073,100 until April 2026. With no changes announced to annual allowance, money purchase annual allowance or tapered annual allowance.

The government will ensure that collective money purchase pension schemes (or collective defined contribution schemes), to be introduced by the Pension Schemes Act 2021, can be used as registered pension
schemes for tax purposes.

The government are to remove preventative barriers in pension regulation that may be discouraging Defined Contribution pension schemes from investing in high-growth companies. The government will look to tap into the pool of capital available from institutional investors, particularly DC pension schemes, to assist in the redevelopment of
the country’s infrastructure and economic initiatives and will seek consultation on whether certain costs within the charge cap affect the ability of pension schemes to invest in a wider range of assets.

Investing funds held within UK pensions could provide a massive boost to the government’s economic redevelopment plans, as well and could enable savers to benefit from the long term returns on these investments. The FCA is to publish a consultation.

INVESTMENTS

ISA
The ISA subscription limit remains at £20,000 in 2021/22. The Junior ISA and Child Trust Fund subscription limits will remain at £9,000.

SOCIAL INVESTMENT TAX RELIEF (SITR)

The government is extending the operation of Social Investment Tax Relief (SITR) to April 2023. This will continue availability of Income tax relief and Capital Gains Tax hold-over relief for investors in qualifying
enterprises.

BUSINESSES
Corporation tax rates will be frozen at 19% for the tax years 2021/22 and 2022/23. It will increase to 25% in 2023/24. However, for companies with profits of up to £50,000, the rate will remain at 19%.

Tapering for companies will begin with profits over £50,000 but less than £250,000. This means only companies with profits above £250,000 incur the full 25% rate.

Companies with profits between £50,000 and £250,000 will be taxed at the main rate of 25% and will be eligible to claim marginal relief.

The government will temporarily extend the period in which businesses may carry-back trading losses from the initial one year to three years. The extension will apply to a maximum £2,000,000 of unused trading losses made in each of the tax years 2020/21 and 2021/22 by unincorporated businesses.

To prevent abuse, the amount of SME payable R&D tax credit that a company can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and National Insurance contributions liability. For accounting periods beginning on or after 1st April 2021.

Between 1st April 2021 and 31st March 2023, companies investing in qualifying new plant and machinery will benefit from new first-year capital allowances. This means investments in main-rate assets will see relief at 130% super-deduction, whilst investments in assets qualifying for special rate relief will benefit from a 50% first-year allowance.

The temporary £1,000,000 limit for the Annual Investment Allowance will be extended by one year. This change will have effect from 1st January 2021 to 31st December 2021.

STAMP DUTY LAND TAX (SDLT)

The SDLT temporary cut in England and Northern Ireland is extended until September. The £500,000 nil rate band will be extended until 30th June 2021 then it will be set at £250,000 until 30th September 2021. On 1st October 2021, this will return to its standard level of £125,000.

Contact us if you want more details on how the budget will effect you.

5 steps to successful investment planning

How to make the most of my money?

Investment planning starts with understanding what your aims are. It is then vital to establish what your attitude towards investment risk is and this is important for sensible investing.  We can help work out a level of risk that is right for you and your money and importantly advise you on a suitable investment approach.

Which arrangement is right for you?

There are many types of savings and investment, each having different structures, tax treatments and implications to you as the investor.  Stocks & Shares ISAs, Cash ISAs, Deposit accounts, Gilts, Insurance Bonds, Endowments, Annuities, Unit Trusts, Investment Trusts, to name a few. We can discuss with you what your aims are and recommend suitable ways to help you achieve them.

What are the right funds to invest in?

With thousands of funds to choose from, it can be an impossible task knowing which is the best solution for you. We can keep your portfolio up to date using our knowledge and experience and advise you on any relevant changes and invest in funds which we think will give you the chance of maximising your returns.

What is our approach to investing?

The key driver for selecting an investment solution is based on preferences which we believe create value for our clients:

  • Independence – we have access to the world’s best investment managers and fund houses.
  • Importance of cost – we aim to provide compelling investment solutions at low cost.
  • Diversification – is the “only free lunch to investing” and is key to a more enjoyable investment journey
  • Asset Allocation – we don’t put all our client’s money in one basket

Arrange an Investment Planning Review

Here at TKV Financial Management we can review your existing funds and lower the charges where possible. This could save you money each and every year.

Spending Review Statement 2020

Spending Review

This week’s Spending Review statement made by the Chancellor confirmed some key points on infrastructure and budgetary matters and leaves us with a strong feeling that the Budget next March is likely to be one of the most significant for many years.

Whilst the Chancellor focused on affirming the importance of supporting the health and livelihoods of the country at the present time, he also emphasised that the government needs to put in place a sustainable fiscal policy for restoring stability to public finances. This will inevitably involve a review of taxation and, as we know, there have been recent recommendations made to the government by the Office of Tax Simplification in relation to capital gains tax.

A summary of the measures announced in the Spending Review statement is show below.

  • An infrastructure bank headquartered in the North of England will be established as part of a National Infrastructure Strategy, to work with the private sector to finance major new investment projects across the UK. The bank is expected to be up and running by the Spring.
  • Local areas will be able to bid for funding from a new Levelling Up Fund with up to £4 billion of resources available. The Fund will invest in local infrastructure that has a visible impact on people and their communities and will support economic recovery.
  • Extra £38 billion of public services support in 2020/21, taking the total spending on the Covid-19 crisis this fiscal year to over £280 billion. In the next financial year there will be another £55billion Covid-19 expenditure.
  • Public sector pay freeze next year, apart from NHS workers and those earning below £24,000 a year.
  • National Living Wage (NLW) will increase in April by 19p (2.2%) to £8.91 an hour and the eligibility age will reduce to 23 (from 25). National Minimum Wage rates will also rise.
  • Overseas aid – spending will reduce from 0.7% of GDP to 0.5% – a cut of approximately £4 billion in 2021/22, to be restored when the financial situation allows.
  • From 2030, the Consumer Prices Index (CPI) including owner occupiers’ housing costs (CPIH) will effectively replace RPI. This will impact on index-linked gilts and pension increases, as CPIH is generally lower than RPI (for example 0.9% against 1.3% at October 2020).

Winter Economy Plan

Chancellor outlines Winter Economy Plan

Chancellor Rishi Sunak has announced that, as the Job Retention Scheme (JRS) terminates at the end of October, it will, for the following six months, be replaced by a new job support scheme which subsidises the wages of employees working at least a third of their normal hours.

Full details are to follow from the government but, in summary, the package of measures, which applies to all regions and nations of the UK, includes:

Support for workers

A new Job Support Scheme will be introduced from 1 November to protect viable jobs in businesses who are facing lower demand over the winter months due to coronavirus.

Under the scheme, which will run for six months and help keep employees attached to the workforce, the government will contribute towards the wages of employees who are working fewer than normal hours due to decreased demand.

Employers will continue to pay the wages of staff for the hours they work - but for the hours not worked, the government and the employer will each pay one third of their equivalent salary. This means employees who can only go back to work on shorter time will still be paid two thirds of the hours for those hours they can’t work.

In order to support only viable jobs, employees must be working at least a third of their usual hours, for which their employer must pay them in full. For their usual hours that they don't work, the cost will be split three ways - the government pays a third, the employer pays a third and the employee loses a third. The government contribution is capped at £697.92 per month and will be calculated based on the employee’s usual salary. Further guidance is to follow regarding whether if the government contribution is capped, the employer contribution is also capped.

Employees using the scheme will receive at least 77% of their pay, where the government contribution has not been capped. The employer will be reimbursed in arrears for the government contribution. The employee must not be on a redundancy notice. The scheme will run for six months from 1 November 2020 and is open to all employers with a UK bank account and a UK PAYE scheme. All Small and Medium-Sized Enterprises (SMEs) will be eligible; large businesses will be required to demonstrate that their business has been adversely affected by COVID-19, and the government expects that large employers will not be making capital distributions (such as dividends), while using the scheme.

Employers’ national insurance and pension contributions for staff who are being paid through the scheme won't be covered by the government but further details are to follow on exactly how this will work.

The Job Support Scheme will be open to businesses across the UK even if they have not previously used the furlough scheme, with further guidance being published in due course. It is designed to sit alongside the Jobs Retention Bonus and businesses can benefit from both schemes in order to help protect jobs.

In addition, the Government is extending the Self Employment Income Support Scheme Grant (SEISS). An initial taxable grant will be provided to those who are currently eligible for SEISS and are continuing to actively trade but face reduced demand due to coronavirus. The initial lump sum will cover three months’ worth of profits for the period from November to the end of January next year. This is worth 20% of average monthly profits, up to a total of £1,875.

An additional second grant, which may be adjusted to respond to changing circumstances, will be available for self-employed individuals to cover the period from February 2021 to the end of April.

Tax cuts and deferrals

As part of the package, the government also announced it will extend the temporary 15% VAT cut for the tourism and hospitality sectors to the end of March next year. This will give businesses in the sector - which has been severely impacted by the pandemic - the confidence to maintain staff as they adapt to a new trading environment.

In addition, up to half a million business who deferred their VAT bills will be given more breathing space through the New Payment Scheme, which gives them the option to pay back in smaller instalments. Rather than paying a lump sum in full at the end March next year, they will be able to make 11 smaller interest-free payments during the 2021-22 financial year.

On top of this, around11 million self-assessment taxpayers will be able to benefit from a separate additional 12-month extension from HMRC on the “Time to Pay” self-service facility, meaning payments deferred from July 2020, and those due in January 2021, will now not need to be paid until January 2022.

Giving businesses flexibility to pay back loans

The burden will be lifted on more than a million businesses who took out a Bounce Back Loan through a new Pay as You Grow flexible repayment system. This will provide flexibility for firms repaying a Bounce Back Loan.

This includes extending the length of the loan from six years to ten, which will cut monthly repayments by nearly half. Interest-only periods of up to six months and payment holidays will also be available to businesses. These measures will further protect jobs by helping businesses recover from the pandemic.

The government also intends to give Coronavirus Business Interruption Loan Scheme lenders the ability to extend the length of loans from a maximum of six years to ten years if it will help businesses to repay the loan.

In addition, the Chancellor also announced he would be extending applications for the government’s coronavirus loan schemes that are helping over a million businesses until the end of November. As a result, more businesses will now be able to benefit from the Coronavirus Business Interruption Loan Scheme, the Coronavirus Large Business Interruption Loan Scheme, the Bounce Back Loan Scheme and the Future Fund. This change aligns all the end dates of these schemes, ensuring that there is further support in place for those firms who need it.

Further detail on the Winter Economy Plan can be found here.

Chancellor’s Summer Statement

Chancellor’s Summer Statement

The main points of the Chancellor’s Summer Statement are summarised in this article.

The Chancellor’s focus was on the government’s ‘Plan for Jobs’, with the objectives of supporting, creating and protecting jobs. The main initiatives announced were:

  • The ‘kick-start scheme’ to encourage employers (not Northern Ireland) to create new six month work placements for 16-24 year olds on Universal Credit and deemed to be at risk of long-term unemployment. The government will provide funding for each job at the level of 100% of the relevant National Minimum Wage for 25 hours a week plus the associated employer National Insurance contributions and employer minimum automatic enrolment contributions.
  • A Job Retention Bonus consisting of a one-off payment of £1,000 for employers that have used the Coronavirus Job Retention Scheme (CJRS) for each furloughed employee who remains continuously employed until 31 January 2021. To be eligible, employees will need to earn at least £520 per month (above the Lower Earnings Limit) on average for November, December and January. Employers will be able to claim the bonus from February 2021. More information will be available by 31 July and full guidance will be published in the Autumn.
  • Employers will receive a payment of £1,000 for each 16-24 year old trainee to whom they provide work experience. The government intends to improve provision and expand eligibility for traineeships to those with Level 3 qualifications and below, ensuring more young people will have access to training.
  • Investment in infrastructure projects.
  • Incentives to create ‘green’ jobs.
  • Green Homes Grant is to be introduced to provide at least £2 for every £1 spent up to £5,000 per household to homeowners and landlords making their properties more energy efficient. For those on the lowest incomes, the scheme will fully fund energy efficiency measures of up to £10,000 per household.
  • An immediate temporary Stamp Duty Land Tax (SDLT) holiday in England and Northern Ireland until 31 March 2021 by raising the threshold above which the main rate of SDLT is payable from £125,000 to £500,000. For second homes, the 3% additional rate will continue to apply. The new rate table is shown below (and the previous position can be seen here):
Slice of Residential Property Value SDLT Rate %
Up to £500,000   0
£500,001 - £925,000   5
£925,001 - £1,500,000 10
Over £1,500,000 12

The devolved administrations in Scotland and Wales set their own rates of tax on Land and Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT) respectively. At the time of writing, neither country had announced their plans.

  • A temporary cut in VAT for the hospitality sector from 15 July to January 2021. A 5% rate of VAT will apply to supplies of food and non-alcoholic drinks from UK restaurants, pubs, etc and accommodation and admission to attractions across the UK. Further guidance will be published by HMRC shortly.
  • Half-price discounts on meals at participating restaurants on Mondays to Wednesdays in August, of up to £10 per head.

The Chancellor confirmed that there will be a Budget and Spending Review in the Autumn.

Investment Diversification is Key

Investment Diversification is Key

When you examine investment performance over the long term, there is no obvious pattern.   Take Emerging Market funds some years returns are top, some years they are bottom.

The white box represents a simple diversified portfolio where money is allocated equally across all 12 sectors.  The white box is much less volatile than other individual asset classes: this reduced volatility is often referred to as the "only free lunch in investing".  My clients usually respond back with “don’t put all your eggs in one basket”.

An expert financial adviser, working with a risk profiling tool, can create the optimum mix of assets to meet the long-term needs and risk capacity of each client.  Seeking to maximise the return for the level of risk for the client's portfolio.

If you would like an assessment of your own portfolio for diversification and risk.  Get in touch, our initial consultation is always at our expense.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

WE MAKE THE COMPLEX SIMPLE

COVID-19 Government Support For Business

Government Support for Businesses During the COVID-19 Pandemic

On 17th March the Chancellor, Rishi Sunak, announced a dramatic set of temporary measures designed to support people and businesses through the COVID-19 pandemic. As greater restrictions on personal movement are brought in, they aim to help those most effected by it through the forthcoming months. How successful they are only time will tell but there is no doubting the seriousness of the problem given the long-term fiscal implications of this response.

This is a brief summary of the measures for employers and small to medium sized business owners as we understand them today. Understandably, very little has emerged on implementation yet. Please feel free share this with anyone else you feel it would benefit.

Statutory Sick Pay

For businesses with fewer than 250 employees the cost of providing 14 days of Statutory Sick Pay per employee would be funded by the Government in full. This will also apply to those who are in self isolation. The three day waiting period for statutory sick pay will also be removed, but legislation will be needed to implement this so we await more information on this.

Job Retention Scheme

For all employees who remain on the payroll but would otherwise be laid off, the Government will pay 80% of their basic salary up to a cap of £2,500 per month. Employers will have the ability to top-up the salary to 100% of salary if they choose.

All businesses are eligible for this scheme but in order to access it they need to:

  • Designate affected employees as ‘furloughed workers’ (which just means they are being retained but would normally be laid off) and notify those employees of this change. Changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation, so you should obtain employee law advice where necessary.
  • Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. HMRC will provide more information soon on exactly what they need.

Businesses can apply from Monday 23rd March. It will be in place for three months and then reviewed every month. The money will be available from the end of April but will take affect from 1st March. HMRC are now working to set up a system for reimbursement as existing systems are not set up to facilitate payments to employers and will publish further guidance here once available.

Coronavirus Business Interruption Loan Scheme (CBILS)

The Government intends to support businesses who have short-term cash flow needs and need  money before the end of April when the Job Retention Scheme kicks in through business loans which will be interest free for 12-months, rather than the six months previously announced. The scheme provides the lender with a Government-backed guarantee against the outstanding facility balance.

It will be administered through the British Business Bank and is due to launch in the week commencing 23 March. It will be available through high street banks and 40 other accredited finance providers

The limit of funding has increased from the £1.2 million announced on the 11 March to £5 million for companies with a turnover of less than £45 million.

Finance terms are from three-months up to ten years for term loans and asset finance and up to three-years for revolving facilities and invoice finance.

To be eligible the Scheme, the business must:

  • Be UK-based, with turnover of no more than £45 million per annum.
  • Operate within an eligible industrial sector (a small number of industrial sectors are not eligible for support or subject to limitations – see link).
  • Be able to confirm that they have not received de minimis State aid beyond €200,000 equivalent over the current and previous two fiscal years.
  • Be unable to meet a lender’s normal lending requirements for a fully commercial loan or other facility but would be considered viable in the longer-term.

You can find out more here.

COVID Corporate Financing Facility (CCFF) and Bank Lending

Whilst not directly applicable to small to medium sized business, this fund aims to provide essential liquidity amongst banks and in turn allow them to lend to the small and medium sized businesses who depend on them. This adds to the previous week’s launch by the Bank of England of a new Term Funding Scheme (TFSME) with additional incentives for lending to SMEs. This will, over the next 12 months, offer four-year funding to banks of at least 5% of participants’ stock of real economy lending at interest rates at, or very close to, Bank Rate.  Additional funding will be available for banks that increase lending, especially to small and medium-sized businesses.

The CCFF is being made available through the Bank of England for the next 12 months who will purchase 1 year corporate bonds subject to an assessment of their credit rating prior to the pandemic.

The Government has pledged that it will make £330 billion (equivalent to 15% of GDP) of guaranteed funding available to any business that needs it. The Chancellor has also stated that, if demand is greater than the £330 billion of funding, he will provide additional funds.

With this in place, all of the UK’s main clearing banks are now creating funds which they will make available to small businesses under their own schemes. For example, Lloyds now has a £2bn fund and NatWest has earmarked £5bn. If you anticipate financial difficulties, you should begin discussions with your bank as early as possible.

Many businesses with banking covenants will be in danger of breaching them as the pandemic drags on. The breaches could be on performance covenants or an inability to provide financial information due to loss of staff. Banks will be expecting this so early communication is advisable and, where possible, covenant waivers should be sought. For businesses with serious cash constraints, it is also recommended that the subject of payment holidays is discussed.

Cash Grants and Business Rates

Businesses which pay minimal or no business rates and are eligible for small business rate relief (SBBR) or rural rate relief will be eligible for a one-off grant of up to £10,000 from April 2020 onwards. These grants will be provided by Local Authorities and it is understood that small businesses will be contacted by their Local Authority shortly (rather than having to proactively approach their Local Authority) with information on exactly how to access these grants.

A further grant of £10,000 to £25,000 is being made available to businesses operating from smaller premises in the retail, hospitality and leisure sectors, which have a rateable value of £15,000 to £51,000 and business rates for businesses in these sectors will be suspended for the 2020/2021 tax year.  This is designed to assist the payment of rent in particular.

If any business which qualifies for this relief does not receive a letter from their local council, they should contact them directly to claim it. You can check your business’ rateable value here.

Self-Employed and Universal Credit

The self-employed will not have to make a tax payment on account in July and the payment will be deferred until January 2021. The minimum income floor for Universal Credit has been removed and it has been increased by £1,000 per year, ensuring the self-employed will get this Universal Credit at the statutory sick pay level. He also announced a further £1bn to cover 30% of house rental costs for the self-employed.

Mortgage Holidays

Whilst much of the attention will be on personal home mortgages, three-month payment holidays are available for business mortgages also. Talk to your lender.

Deferred VAT payments

Business VAT payments for the next quarter (until 30 June 2020) will be deferred until the end of the year.

Deferral of IR35

HMRC have confirmed that the proposed changes to IR35, which were due to take place with effect from 6 April 2020, have now been pushed back to 2021.

Extension to Filings with Companies House

Companies House and the Financial Reporting Council have confirmed that all companies with imminent filing deadlines – predominantly 30 June 2019 year-ends which are due for filing by 31 March 2020 – will be granted a two-month extension.

If your annual accounts are not yet finalised and may not get completed by the filing deadline, you must still contact Companies House, but they are automatically accepting Coronavirus as a reason and providing a two-month extension. In extreme circumstances they can grant a further one-month extension.

You will need to provide them with your company number, an e-mail address  and state that you are extending due to Coronavirus via this link, but make sure you apply for the extension before the deadline or it will be rejected.

If you have passed the filing deadline and are receiving notices concerning the overdue accounts, you must contact Companies House to explain the circumstances behind the delay. If Coronavirus is a factor, let them know this by emailing enquiries@companieshouse.gov.uk.

Time to Pay HMRC

HMRC has set up a dedicated helpline at 0800 0159 559 to help businesses and self-employed individuals in financial distress and with outstanding tax liabilities so they can receive support with their tax affairs.

It may be possible to agree a ‘Time to Pay’ arrangement with deferrals being agreed on a case by case basis.  This arrangement will see the usual 3.5% annual interest on deferred tax being waived.

Late Filing of VAT and PAYE Returns

If your business is unable to file a VAT or PAYE return due to staff absence, you should contact HMRC before the due date to explain the situation and mitigate any surcharges that may be levied.


Arrange a free no obligation consultation with an experienced and local Independent Financial Adviser today.

Coronavirus & Investment Update for Clients

An Investment Update for Clients

It’s difficult writing about financial and economic matters when health is quite rightly at the top of everyone’s agenda. We aren’t qualified to tell you how long this epidemic will last, but we can give you some information about investing which might give you some peace of mind now and ideas for the future.

How long will this market downturn last?

The circumstances behind this market downturn are unique. We’ve seen people go back to the 1918 Spanish Flu pandemic for comparisons. So any attempt to predict when we will reach the bottom of the market and how long it will last is really guesswork at this stage. However, history can give us some comfort, if we take previous crashes as a series of unique events.

inv1

The table above shows almost 100 years of market conditions. A bear market, where market prices fall more than 20%, is not uncommon. This can be expected as part of the normal functioning of equity markets, and your own financial plan is built to expect them. We don’t know how long this one will last but we do know that in each unique circumstance since 1926, human ingenuity has responded to changing market conditions within an average timescale of 1 year 8 months.

As you can see from the alternative way of viewing the same data in the illustration below, bull markets have always rewarded patience by more than compensating for downturns over the long term.

inv2

Diversification

This might be small comfort for those of you watching a FTSE index drop dramatically on the news right now but remember, your own portfolio is not a replica of the FTSE100, although it will have some of those businesses in it. The FTSE100 should paint a far worse picture than the reality for your own portfolio.

Your money is invested in a globally diverse portfolio of investments, and not just in equity markets. So whilst the UK is coming to the forefront of the pandemic, your own money is invested elsewhere. Diversification not only helps buffer you a little against downturns, it will also increase your chances of capturing a recovery early as things improve at different times in other countries around the world.

We can’t predict the future but we can rely on mathematics

It sounds glib but so many people buy at the top of the market and sell at the bottom. Panic selling investments is as common as panic buying in supermarkets, however irrational both may be.

We don’t know when the equity markets will hit rock bottom and start their recovery. If we did, we would invest all of our spare cash precisely then. Some investors will be comfortable investing spare cash to top up pensions and ISA allowances right now. Some may be more cautious and want to drip money in each month. The benefit of dripping money every month is that whilst you will never benefit from investing at the best possible time, you are also ensuring that you are not investing at the worst time. You effectively buy at the average price. This is known as ‘pound cost averaging’. It’s a good defensive strategy although over the longer term, as the general market trajectory is upwards, its not always the optimal one.

There is no right or wrong way to invest money as it depends on individual circumstances. You might have a small amount of money left to invest into your pension or ISA before the tax year end which necessitates a lump sum. You might want to establish some long-term behaviours and pound cost averaging is a good way to start saving on a monthly basis. This is where our advice will differ from client to client.

Equally for anyone drawing an income from their portfolio, pound cost averaging works in reverse. Withdrawing income from an equity portfolio during a significant market downturn such as this one, has a damaging impact on the recovery rate of your investment portfolio. Again this is simply a case of using maths and not predicting market changes. In a market downturn, creating income by selling investments in equal and regular intervals means selling funds when prices are low and fewer when they are high, exactly the opposite of what you want.

Sticking with it

This is a core aspect of our approach to managing not just your money but your behaviour towards it. Many people who do not have an adviser will act impulsively at this time and lose the long-term benefits of their hard-earned investments. Even with all the right investment decisions made previously, one impulsive or impatient decision can undo it all.

It might seem counter intuitive to do little or nothing with your investment portfolio at this time, but we will advise you of everything that you need to do at the right time.

Our service to you will continue almost as usual over the forthcoming months, and we will be in contact with you as planned, albeit certain work may take a little longer and we will begin to use online meetings or telephone to conduct review discussions rather than face-to-face, for obvious reasons.

For reasons outlined above, you need not be concerned that we aren’t recommending wholesale changes to your portfolio. You should also feel free to contact us at any time if you are concerned or have questions about your investments or broader financial affairs, we are available and ready to help.

Can your money work harder in 2020?

Can your money work harder in 2020

Now could be the perfect time to consider whether your savings, investments and pensions are working as hard for you as they could with three resolutions for the New Year.

  1. Pay Less tax

Less tax means higher returns for you.  You could pay less tax with a carefully constructed financial plan and by making the most of your tax allowances.

  1. Seek better returns with investment choices tailored to you

Much has happened in 2019 and your investments may look different from a year ago. You could now be taking too much risk, or holding poor-performing investments.  Independent Investment Advice can help you make sure your investments are positioned to seek the best returns for your financial goals.

  1. Make it easier for yourself

With a bit of help you can make your investments easier to look after and reduce your paperwork.  This New Year could be an excellent time to bring all your pensions, ISA’s and investments together. Saving you time, effort and paperwork.  We recommend you seek independent financial advice before moving any type of pension plan or investment product.

The New Year is always a good time to seek advice to improve potential returns and to pay less tax.  We can help you do this.

Contact us today on 01384 671947 for advice.

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The value of investments can fall as well as rise, and you may not get back as much as you put in. Please note tax rules may change.and benefits depend on individual circumstances.