Monthly Archives: November 2018

Reflecting On Brexit

The past few weeks have certainly been interesting not just from an investment perspective, but also politically as well.

As I pen this note, the Brexit deal would seem to be getting ever closer to a conclusion, however, Theresa May still has one almighty hurdle to jump in the form of getting the deal agreed by parliament back in the UK.

Ironically, this could well be the toughest part of the whole process for our embattled Prime Minister. Regardless of your opinions on Theresa May in general, I think we can all agree that her job at the moment is near impossible. I certainly don’t envy her!

As I have spoken about before, I believe that the next few years could be punctuated by things which are good news in the long term causing short term market volatility.

If this does come to pass, it will be the opposite of the rather strange environment we have found ourselves in over the past couple of years since the Brexit vote, where things that have been perceived as ‘bad news’ have been very positive for the markets.

The Brexit vote itself is one such example.

Of course, before the event, there were prophecies of doom and destruction in the event of a leave vote and indeed we did get some serious market sell offs … for all of 2 days.

After this, something unexpected happened. The de-valuation of sterling actually turned out to be positive for markets and indeed, this factor has probably been the biggest contributor to UK market performance over the past few years.

This is one example of bad news being good news for markets. The election of Trump could well be another.

As we move into 2019, I expect this trend to reverse.

If we do (ever) agree a Brexit deal, I would imagine that we might see sterling strengthen somewhat. This is good news in general for UK PLC, but could be bad for UK markets in the short term.

In a similar vein, increasing interest rates and the unwinding of quantitative easing (both good things in the long term – signalling that we are finally getting back to ‘normal’ economic health), could drag on markets in the short term.

These things, despite the short term pain they might cause, are totally necessary for the economy to build a solid foundation on which to grow into the future.

The past decade of growth has been partially fuelled by artificial stimulus and this process has to come to an end at some point.

The ending of the artificial stimulus programmes around the world could well be the best thing to happen to markets in a long time, creating a solid and stable base for the next period of growth which will inevitably be to follow.

While unsettling, the volatility we have seen over the past few weeks does not concern the Buckingham Gate Investment Committee greatly. This type of market ‘wobble’ is fairly usual as we start to approach the end of the market cycle.

That’s not to say that the cycle is over at this point, but we should be prepared for a slightly more volatile ride ahead.

The main predictor of a significant market correction or a ‘bear market‘ is a recession and although global economic indicators (job numbers, GDP growth etc) are not the best we have ever seen, they are not bad either.

There is certainly nothing in the figures to indicate a recession at the moment, although things can and do change quickly.

As usual, we must insert that caveat that the past is no guide to the future and things can be unpredictable in the wonderful world of investments.

I shall keep the blog updated with my views. All eyes now are on the 11th December and the deciding vote.

The Generational Divide

I have been speaking recently to clients about the so called ‘generational divide’ – the seemingly vast wealth of the baby boomer generation with their burgeoning property and investment portfolios when contrasted with the apparently hopeless state of the millennials finances.

I have long argued that these types of generalisations are very unhelpful and don’t really serve to achieve anything.

In fact, I think media narratives like this have the potential to become self fulfilling prophecies if we are not careful.

If millennials are bought into the fact that they are ‘doomed’ to rent for their entire lives and they they will never retire, then this is probably what will happen.

I have a bit of a bee in my bonnet about this issue and, in our own small way, we are committed to doing something about it.

Next year we will be launching the first Buckingham Gate ‘next generation’ workshop to hopefully teach our client’s children some of the lessons that have made them so wealthy.

This is the subject matter that really should be being taught in schools but definitely isn’t (and if anyone thinks a 30 minute ‘general studies’ session on personal finance qualifies as sufficient financial education to prepare young people for a lifetime of financial decisions they are sorely mistaken).

We will also be covering some of the slightly more advanced wealth building strategies that have served our clients so well.

I will keep the blog updated as we finalise the plans for the workshop next year and we will be announcing the date early in 2019.

We hope to see as many of your children there as possible.

Trust Tax Consultation – Nothing To See Here (Yet)

Please forgive the unusually technical nature of my blog today, but this is an issue that impacts on many of our clients and potential clients – trust taxation.

Many people would have seen the media reports about the consultation that HMRC has launched on the taxation of trusts (among other issues I might add).

The consultation is focusing on the taxation of trusts, their operation and administration and also checking that the treatment of trusts is fair and equitable when taken together with the other possible methods of estate planning.

In principle, none of this is a bad thing.

My Good Friends – The Media

Now as you might expect, the media have vastly over-done the potential impact of this consultation. Some headlines have declared that ‘IHT trusts will be stripped of their tax advantages’.

This makes for a good headline (and no doubt draws readers and traffic to websites to drive ad revenue), but is it actually true?

Well, as with any consultation, the strict answer is – we don’t know.

A consultation is just that, a consultation.

HMRC are seeking input and ideas on some of the questions posed by the consultation.

What we can glean from the questions though is the direction of travel and nothing in the consultation document itself (unlike some of the media commentators, I actually saw fit to read the whole document before making prophecies of doom) has given me major cause for concern at this time.

First of all, many consultations result in no change at all. Either the consultation does not deliver a viable alternative to the status quo, or the whole things just loses steam and falls off the radar. This has happened countless times before.

But, even if we do see action, I think much of it could be positive.

The consultation document first talks about simplifying the taxation of trusts (nothing about the rates here, just the operation). This would be incredibly welcome given the current complexities of accounting for income tax, capital gains tax and inheritance tax across the settlors, the trustees and the beneficiaries of a trust.

Three different taxes accounted for across three different groups of people can and does get messy sometimes and any simplification to this system will do nothing to harm the appeal of trusts.

The document also talks about the fact that the 20% entry charge on gifts into trusts could be perceived as unfair when compared to the unlimited potential gifts we can make to other people.

Although nothing is certain, the language here hints to me that HMRC could be playing with the idea of removing this charge which would again be most welcome.

The only potential downside is that there is hints of an increase to the 6% periodic charge. While this would be unwelcome, it would also be relatively un-important for the majority of our clients on the basis that we usually manage trusts to be below the nil rate band allowance, meaning that no tax is due in any case, regardless of the rate.

The consultation document recognises the benefits of trusts in financial planning and in society and so I don’t see any prospects of trusts being ‘outlawed’ (again, contrary to some headlines you may stumble across).

As with many things, ‘wait and see’ will be the best approach here.

Firstly, the consultation may come to nothing, in which case, no action will be required.

Second, the consultation could provide benefits to trust planning, in which case we will look at how we can take advantage.

And, if we do see any negative changes, we will analyse them and plan around them, just like we have planned around numerous negative tax changes before and no doubt will again in the future.

Despite the headlines, I don’t believe that the consultation (in its current form) is particularly dangerous.

Taking action based on sensationalist headlines on the other hand – well that could prove very dangerous indeed.

What Is The Money For?

I attended a seminar recently and a very interesting question was posed for suggested inclusion in client meetings and in questionnaires. It was simply “what is the money actually for?”

A simple enough question, but one which I suspect many people may not have a simple answer to.

Money is a strange thing and it makes us behave in very peculiar ways.

It is also a very emotional thing, despite the fact that human emotion (generally speaking) leads to poor financial decision making.

You see, we often meet people who have accumulated very significant wealth. I do wonder however if people really know what the money is for.

Very often we meet people who are still working in jobs they dislike because ‘they need to’.

When we look at the numbers however we often get a different story. On occasion we find people have actually worked for too long. This is fine if you love your job, but how would you feel if you worked for 3 years longer than you needed to in a job you hated?

When we ask what the money is for, many people will say financial security, despite the fact that they don’t really have any definition for what ‘financial security’ really means.

While I fully appreciate the benefit of the emotional comfort money can bring (in fact, I did my masters dissertation on this very subject), I fear that just saying ‘financial security’ is a very easy way to avoid doing some of the thinking to truly define what is required to achieve this fabled thing called ‘financial security’.

As with the vast majority of money related goals, it is usually possible to put a number on this. We just have to do the thinking work first. For some people, financial security means having enough money to live on for 6 months – pretty easy to define. Multiply monthly expenses by 6 and there you have it.

For others, financial security might be having enough money to live on for the rest of their lives. A much more complex calculation, but with the right maths, we can still get there. Granted, you would need to build in some assumptions and you would most likely wish to add a large contingency pot on top of the final number, but the point is you still arrive at a number.

When we run the numbers in this way, we often find that people have significantly more than they need for whatever goals that they wish to achieve (financial security included) and so at this point we come back to a slightly re-worded version of the question; ‘what is the excess money actually for?’

My conclusion, is that most people don’t know. They have worked very hard to accumulate a pool of assets, but perhaps not then thought about what to do with any excess funds over and above their own needs.

This is where the conversation often turns to lifetime gifting or philanthropy – two things which have been shown to deliver the very greatest levels of satisfaction, but which people often shy away from out of fear of running out of money.

With the right planning beforehand, this needn’t be a concern and this opens up possibly the greatest and most noble thing any of us can do with our money – help others!