– Market Update
– Buckingham Gate Portfolio Performance
– Budget Outcomes
– Tax Day Outcomes
– Market Update
– Buckingham Gate Portfolio Performance
– Budget Outcomes
– Tax Day Outcomes
The Chancellor has just finished presenting his budget speech to the house. The Buckingham Gate team is now busy analysing the budget document in detail and searching for any devil in the details. We will report back on any significant findings that become clear in the coming days, however, as expected, today’s budget was rather benign from a personal financial planning point of view.
Some of the key announcements and our commentary can be found below:
Both the personal allowance and higher rate threshold will be increased to £12,570 and £50,270 respectively from April 2021, but then both allowances will be frozen until 2026. While this is better than some had anticipated (it was widely reported that there would be no increase this year for example), the length of the freeze until 2026 is longer than expected.
This is effectively a ‘stealth tax’ and follows a long-standing tradition of governments simply not index linking allowances rather than reducing them in nominal terms. This is a theme that continues below.
Capital Gains Tax
The annual exempt amount will remain frozen at the current level of £12,300 until April 2026.
Pension Lifetime Allowance
The pensions lifetime allowance will remain frozen at the current level of £1,073,100 until April 2026.
The Nil Rate Band and Residence Nil Rate Band will remain frozen at the current level of £325,000 and £175,000 respectively until April 2026. The level of assets at which the taper to the Residence Nil Rate Band kicks in will also remain at £2 million.
The ISA and Junior ISA allowances will remain at current levels for the time being.
All in all, this is a very quiet budget from a personal financial planning perspective (although do bear in mind the very, very significant interventions for individuals and businesses to assist the recovery from Covid-19).
The main headline from a personal finance point of view is no change, for a long time. Most allowances have been frozen at current levels until 2026! As such, this is a fairly extended period of ‘stealth taxation’. If we assume inflation runs at around 2-3% per annum, this could see the real value of these allowances reduced by around 10-15% in the period up to the end of the freeze.
What is very interesting to us however, is the fact that these allowances have been frozen all the way up to 2026, especially in relation to Capital Gains and Inheritance Tax. Despite heavy media speculation of a big shake up in both areas, today’s policy announcements suggest that the Government can see the current regime in both areas still existing in 2026 at the least.
That is not to say that these things won’t change in the future (of course these kinds of long term policy decisions are often tweaked along the way) however, it does seem that any imminent changes are unlikely given that the Government is legislating based on the current system for the next 5 years!
All in all, keep calm and carry on is our message from today’s announcements.
If you have any questions, please get in touch.
Buckingham Gate Chartered Financial Planners
– Market Update
– Budget/Tax Changes Looking Likely
– Budget/Tax Changes Looking Unlikely
– Tax Consultations
– ‘In The News’
As budget day approaches, the volume of rumour, speculation and mistruth is stepping up in traditional fashion.
Of course, there are the old favourites (you know, the things that the media report ‘might’ happen in the budget every single year, but never seem to actually occur) such as the removal of the 25% tax-free cash on pensions and restrictions to pension tax relief (for what it’s worth, I don’t believe we are likely to see either at this coming budget).
Then we have the two new rumours that seem to be doing the rounds, namely the alignment of Capital Gains Tax rates with Income Tax rates and some kind of root and branch reform of Inheritance Tax.
For what it’s worth, once again, I believe that both are unlikely to materialise in a few weeks’ time. The reason for this is that almost all suggestions in this respect would require pretty much a complete rewrite of that particular part of the tax system and a whole raft of changes to HMRC IT systems – projects that could take years to complete at the best of times.
That’s not to say that we won’t see some changes to the tax system (the freezing of the personal allowance and basic rate tax band are looking likely at this stage) however, the point is that no one (myself included) really knows other than the Chancellor himself, and even he would not have completely made his mind up at this stage because the budget document is often only finalised in the days leading up to the budget announcement itself.
What I am trying to get at is that it’s important not to delay planning because of what ‘might’ be coming in the budget. There will always be some big financial event on the horizon to wait for (after this budget, I suspect there will be another in the autumn and then in the spring again).
If you are planning on taking some action that might be impacted by a forthcoming budget, can it be a good idea to accelerate that action – yes absolutely. After all, if you are planning on doing something anyway, why not get it done and then you know where you stand.
However, I would strongly discourage people from delaying action based on what might be included in this budget or the next one or the one after that. I have seen too many examples of families learning this lesson the hard way.
It is frustrating enough looking back and thinking that you should have done something historically that you have never thought of before. But, when you look back on today a year from now, how would you feel if you knew that you should have taken action, but didn’t for whatever reason.
The old rules of financial planning say that we plan based on current and known future tax changes and then we adjust the plan to take any future unknown changes into account. That rule is just as valid in the run up to a budget as at any other time of the year in my view!
Last week’s announcement from the Prime Minister that schools will remain closed and lockdown will effectively be extended until the 8th March will come as a surprise to no one.
Infection rates, while improving quite dramatically, are still high and the number of hospital admissions and sadly deaths are still shocking.
However, I do hope that we can begin to see some light at the end of the tunnel. The fact that the government plans to publish a plan in the week commencing 22nd February is good news as at least it does show that there is some level of thought going into how the country can tentatively begin to re-open.
What is safe to say is that the process will be gradual and I suspect quite painful, but at least we can hopefully get some idea of the timescales when this report is published in a few weeks’ time.
If we assume that this will be the ‘last lockdown’ (I know no one really knows, but the Government seems pretty intent on not releasing this lockdown until they have confidence we will not need to go into another one), now is the time to begin thinking about what elements you want to put back in ‘your box’ as life begins to return to normal.
Imagine your life is a box and in it were all of the things that featured in your life before lockdown – you remember – overseas travel, eating out with friends, theatre visits. As lockdown struck, many of those elements had to be taken out and laid on the dining room table and they were replaced with a new ‘lockdown life’. Perhaps this involved cooking at home more, watching more films, more exercise – you get the idea.
Everything I have mentioned above would generally be considered ‘good things’, enjoyable, pleasurable. Now of course, both our pre and post lockdown lives probably contained some not-so-good elements as well. Perhaps you were not as fit or healthy as you wanted to be or maybe you didn’t have time to pursue a passion or hobby.
As we come out of lockdown and life (fingers crossed) begins to return to some sort of normality, you get to decide what that normality should look like. You get to choose what elements go back in your box.
So imagine all of the components of your pre-lockdown life and also everything that has changed since March last year. All of these things are now laid out before you on the table. You can decide what you want to feature in your ‘new normal’. There are no rules or guidance to follow, only what you think is right.
The words ‘new normal’ have been overused to the point of exhaustion now, but, as the world has gone through crises in the past, things have always changed, usually for the better.
You see, crises make us see things differently. We learn things about ourselves and about each other that we didn’t know before. We become aware of possibilities that seemed like impossibilities only a few short months ago.
I wrote last time (Here We Go Again, Again (Again)) about making the most of the opportunity that lies in what could be the final weeks of lockdown. I would also suggest that, during that time, we all consider how we want life to look in the future. You have a blank canvas in front of you – what will you create?
First off, I would like to open by promising that I won’t use that title again. I will be the first to admit that it is getting a little bit old now, but then again so is lockdown, which is the topic of today’s post.
By the time that this is published, the fact that we are, once again, in a national lockdown will be relatively ‘old news’, but of course this does have implications from a financial planning perspective.
Of course, there are the obvious health (physical and mental), economic and social consequences of lockdown to factor in. Now, please don’t get me wrong, I am not necessarily anti-lockdown, but I do also feel that the non-covid related harm caused by lockdown is not receiving the airtime that it perhaps should. Of course, those consequences do include very urgent and important medical treatments being cancelled or postponed and the impact of that on the people in question should not be understated.
Then again, we must think of the healthcare workers on the front line who are dealing with their own set of serious Covid-consequences – burnout, mental trauma and stress being just some of them.
Of course, the whole Covid issue is not easy, and whichever side of politics you sit on, I am sure we can all agree that we would rather it was ‘them rather than us’ having to make these decisions.
All of the above might give you a reason to be a little gloomy as we head into 2021, but I do think that there might be some merit in seeing the next few weeks and months as an opportunity. Here’s why:
The past year has given many of us a unique chance to do things that ‘we have always meant to do’. For some, it is learning a new skill or taking up a new hobby (I have just started to, very tentatively, learn guitar – a lifelong ambition). For others, it might be getting around to re-drafting their will or putting in place that trust framework they have been thinking about for the past few years.
With the vaccine now rolling out rather impressively (despite what I hear on the news, I actually think the UK has done a pretty good job thus far when it comes to vaccines) and with the rollout likely to speed up very quickly, barring a new variant of Covid that can evade the vaccine, we might only have a few more weeks of this lockdown life left.
Now, I am sure none of us will be lighting a candle as we see the back of lockdown – good riddance I say – but what it does mean is that, hopefully, within the next few months lockdown will be over.
That means that things will, hopefully, begin to go back to the way they were before, which for the most part will be a good thing. But (and it is a big but) that will mean that we will get busier again. Our social lives, our holidays will all recommence which is undoubtedly a good thing, but (and again, it is a big but) that means we will have less time available to do ‘all of those things that I have been meaning to do for a while, but just never seem to get around to’.
So, might I suggest that you use these next few weeks of lockdown wisely. They may (fortunately) be the final time we get to have so much uninterrupted time on our hands.
So how is it that we have already arrived at the end of 2020?
I think this year has been the ‘fastest, slowest’ year I have ever experienced. In some senses 2020 really seems to have dragged on. It seems forever since I saw my family or friends properly and I am sure we are all looking forward to hopefully getting back to this kind of thing as we move into the Spring next year and beyond!
In other ways, 2020 has flown by.
I know we say it every year, but the last 12 months seem to have gone by in the blink of an eye. Perhaps it is the fact that much of this year has felt like a bit of a groundhog day? The big ticket events that punctuate our years and photo albums (birthday celebrations, weddings, overseas holidays) have largely been absent and so the months have seemed to blur into one a little bit.
I think it is fair to say that 2020 will not go down as one of most people’s favourite years, but, being the eternal optimist, I do like to look at the positive in all of this.
First of all, we have learned a lot, both individually and collectively. The ingenuity of the human race never ceases to amaze me and 2020 is testament to the power of our collective minds. Not only have we developed and rolled out the vaccine in record time, we have also celebrated several other scientific and technological achievements which have pushed us forward, despite the challenges of the pandemic.
Although crisis sometimes brings out the worst in us, it can also bring out the best of us. I am sure we have all seen acts of incredible kindness and selflessness in 2020 – let’s hope we can carry some of that sentiment forward with us.
Finally, on a more local level, I could not be more pleased with how we have adapted and thrived as a business and as a team during the past 12 months. Have there been challenges and failures and frustrations – of course there have, but I feel that we have far more to celebrate than commiserate as a team this year.
This will be my last blog post of 2020 as I am taking an extended Christmas break, having taken relatively little holiday all year to help guide the business through what has been the most tumultuous of years.
I would like to close by thanking each and every one of you, our clients, from the bottom of my heart. I am always grateful for every client that chooses to join us on this journey, but I cannot express how incredible it has been to have your support during this year above all others.
You are the reason that I get to do what I love each and every day and I am not sure that many people get to say that in this world.
Wishing you all a very merry festive season and a happy, healthy and prosperous 2021!
Matt Smith, Director, Buckingham Gate Chartered Financial Planners
I have mixed emotions as we approach December. On the one hand, as I mentioned during our client event last week, I feel that there is a lot to be optimistic about as we head into 2021. On the other hand though, it does feel like we have a fair few hurdles to jump over before we get there. Before we look at those though, let’s focus on the positive…
First of all, we have not one, not two, but now three viable vaccine candidates in the pipeline and although none of them has thus far received regulatory approval, it seems almost inevitable that at least one or two of them will in due course.
The arrival of the vaccine hopefully signals the beginning of the end of the pandemic which has caused so much pain and disruption on both a financial and emotional level.
Furthermore, we now have a clear result in the US election and hopefully we will see an outcome (not necessarily a deal, but an outcome – I have always maintained that certainty, even bad certainty, is better than uncertainty) of the Brexit process before the year is out.
All of the above has removed a lot of uncertainty from the world, hopefully creating a more stable foundation for us as individuals and for stock markets as we head towards the new year.
So far so good. But it is not all sunshine and rainbows.
First of all, although the vaccine seems to be on the way now, it is clearly going to take some time for the rollout. In a way this makes things harder to bear as rather than waiting for an unknown, we now know we have the vaccine, and it is ‘out there’ and so we are simply waiting for it to arrive. Knowing something exists, but not being able to benefit from it yet, I personally find quite frustrating – perhaps it is just the entrepreneur in me wanting to make things move faster!
Then, we had the announcement yesterday of the new tier system. On the basis that the vast majority of us seem to have ended up in tier 2 or 3, it feels to me very much like we are heading out of lockdown on the 2nd December and going straight into …… wait for it …..lockdown.
Finally, we have the issues surrounding Christmas. Christmas is an incredibly important time of the year for me for all sorts of reasons, not least because of the chance to see extended family and friends. It will come as no surprise to those who know me that I was disappointed to learn that we can only have 3 households in our bubble over the festive season. Although this was not at all unexpected, it is nonetheless disappointing.
Please don’t get me wrong, I understand the reasons behind the decisions and of course I wish to protect my vulnerable family members as much as the next person, but it is still a disappointment for me not to have the usual mass meet up over the holidays.
So, perhaps rather unusually, it seems to me as if the longer term is somewhat clearer and easier to predict, with more uncertainty existing in the shorter term.
-In the longer term we now know with a fair degree of certainty:
-That we will have a vaccine
-That we can begin to return to some normality at some point
-That we can hope to return to our offices and workplaces at some point
-That we have a more stable political environment moving into 2021
-That the economy can hopefully recover
I think if I could summarise the final quarter of 2020, it would be that we have moved from wondering ‘IF’ things will happen and it is now just a matter of ‘WHEN’.
However, in the short term we have to deal with:
-What tier is my area in now and where will we be in the coming weeks?
-How on earth am I going to negotiate the social minefield of picking just 2 other households to spend the festive season with?
-What will the Brexit deal look like?
-When will the vaccine deployment begin?
-Will we actually have ‘significant normality’ by Easter, having already been promised ‘significant normality’ by the government on at least 2 or 3 previous occasions that have now come and gone.
So … an interesting dichotomy and a feeling that I am not sure I have experienced before where the medium / longer-term looks very clear in my mind, whereas the next 3 months are very hazy indeed!
Unfortunately, I don’t have the answers to any of this uncertainty, but I do know that it will pass, and probably faster than we imagine. Just remember that the darkest hour is before the dawn and this too shall pass!
Matt Smith, Director
Well, it certainly has been a tumultuous few weeks.
Lockdown part II seems to have coincided with a fairly inconclusive US election result, which at the time of writing, looks as if it could remain that way for many days or even weeks at this stage. Throw in a relative lack of news over the progress (or not) being made with the Brexit trade deal and we have a recipe for an interesting winter.
None of these things were totally unexpected, in fact you could argue that all of them were fairly likely, however that still doesn’t make the uncertainty any easier to deal with.
As always, we like to look for the positives in all of this.
First of all, although we are now in a second lockdown, it is far less restrictive than the first. Parents across the land will be breathing a sigh of relief at the fact that the schools are remaining open. We can at least have a tiny bit of outdoor contact with others outside of our immediate family and we are not restricted to just a single dose of daily exercise (quite what the logic of that rule was the first time around I will never know!).
As far as the US election is concerned, I think we can take some comfort from a financial planning perspective from whichever outcome we receive. A Trump victory would arguably be the stock markets favoured outcome. He would likely maintain the status quo in terms of low corporate taxes and reasonably low levels of regulation. If Biden prevails on the other hand, although he might introduce some policies which would create a short-term market shock, he is perhaps the more moderate candidate and might be more willing to negotiate and cooperate with other countries around the world which would do geopolitics a world of good.
Finally, we have Brexit. Although the news on this front has been rather quiet of late (it’s amazing to think just how much Covid-19 has stolen the show in terms of media airtime), there are some glimmers of hope that we might reach a deal. My own view is that they will be able to pull something out of the bag at the eleventh hour, it just depends what that ‘something’ is.
It just goes to show that most clouds do have a silver lining.
Enjoy your lockdown the best you can – it will be over before we know it (I hope!)
So I caught it. The invisible and deadly virus that I have been terrified of for the past 6 months. Despite us not really seeing anyone for the first three months of lockdown, despite all the hand washing and alcohol gel, despite the face masks and social distancing, I still managed somehow to pick up the virus.
We don’t really know where it came from and in truth we never will. That is perhaps one of the most frustrating facts about this virus.
So, what lessons have I learned over the past 2 weeks?
1 – This virus can find you, no matter how careful you are. For me, this underlines the importance of everyone ‘doing their bit’ to keep others safe.
2 – My personal experience of the virus was not too bad at all. I was fortunate to be one of the mild cases. I first had a mild temperature a week ago on Sunday and ordered the obligatory test, which to my surprise came back positive.
Following the positive result, I was a little tired and achy for a couple of days and then I lost my voice for a day or two. After this, I felt generally ok (not perfect, but ok) for around a week and then I lost my sense of smell for a couple of days. It just vanished all of a sudden which is rather disconcerting I must admit. After that, I have been fine and I am pleased to report that I feel as if I have completely recovered, having got back to my exercise regime three days ago.
3 – Despite my case being very mild, the sheer ‘catchability’ of the virus does make me worry for some of my frailer family and friends (see point 1 above).
I suppose actually having the virus has put things into perspective for me and this experience has, once again, reinforced the fact that the media reports on the extremes of things.
When I went to book my test, I expected the whole experience to be a nightmare given media reports of 3 / 4 day wait times and 300-mile drives! My experience was anything but.
I ordered my test at 4:30pm on Sunday afternoon, had it in a drive-in test centre 15 minutes away from my house at 6pm that same evening and then the results followed only 24 hours later – pretty much a flawless service in my view.
Now, I am not saying that no one is having issues with testing, but it does go to show that the media rarely report on the positive. I haven’t seen a single media report where they interview someone about testing and they just say “yes – my experience was very speedy and efficient thank you very much” – it just doesn’t make good news.
They also rarely seem to interview the thousands of people who have had a mild version of the illness. “Well I was a little under the weather for a day or two and then I felt fine” doesn’t make particularly compelling watching I suppose.
But, this does underline the need for perspective when thinking about the virus as with all areas of life. The media will tend to report at the extreme ends of any spectrum, but this hides all of the people in the middle, which will tend to make up the majority.
Now, please don’t get me wrong. For some people, the virus is devastating. It has had a huge impact on many of the client families that we work with and we have lost a relative close to home as well.
But, having now ‘been through it’, I have a healthy respect for the virus, but it’s fair to say I have a more balanced and unbiased view. There is nothing worse than the fear of the unknown and that is the problem with our current fight. Unlike with other crises, we can’t see the enemy, we don’t know what impact it will have on us if we are one of the unlucky ones.
All I wish is that you keep well and keep safe through winter as we head back into a lockdown of sorts and I look forward to ‘seeing’ you at our 2020 Client Event which of course will be held virtually this year.
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