Wealth Management Update June 2024

As we get closer to the UK election (much closer after Rishi’s 4^th of July announcement!) and the US election, we find ourselves asking, where is the leadership?

We doubt anyone could say what Rushi stands for, or what Biden stands for. And when we look at the competition do we have any faith in Trump or Starmer?

Yet, across the channel, there might actually be someone with good ideas and a sense of real leadership. Emmanuel Macron, the French President seems to be saying sensible things with vision, which is lacking across the rest of the Western world.

Macron has set out his apocalyptic view of what would happen if Putin were not stopped. Should he take the Ukraine then who will come next Moldova, Lithuania, Poland? He believes Europe should be putting more than just money into the Ukraine but actual soldiers.

He also wants a profound change in the way Europe works with a doubling of research spending. Deregulation of industry, and a loosening of the capital markets. None of this sounds very French which is why it’s so different and ‘actual leadership’.

Only time will tell if anyone takes up his battle cry, but one thing is for sure, the West needs leaders now, and we need them soon.

Inflation Falls to 2.3%

In May the headline inflation rate fell to 2.3%. This is good news for everyone and starts to bring us in line with the rest of the world. As we mentioned previously, our inflation has been significantly higher than the rest of the world due to supply line issues caused by Brexit. We are now at the point where these pressures are starting to fall out of the system and so inflation is falling correspondingly.

Of course, it is always important to remember that your personal inflation rate is not the same as the advertised rate, because you, like me, do not buy all of the items in the ‘basket’ of items that the government use to calculate the rate. Therefore, from my experience, most client’s personal inflation rate is actually lower than the headline rate, simply because of how our clients spend their money……We doubt that few people reading this would have purchased an Apple Mac or an IKEA bookcase this month, both of which are in the government’s basket.

This fall of inflation has been expected by the ‘markets’ which is one of the reasons that the FTSE has seen such a rise in the last six months.

Inflation May Fall but the HMRC Interest Rate Doesn’t

Isn’t it annoying how the HMRC does not reduce rates when the rest of the country does?

The present rate of interest on unpaid IHT liabilities is still 7.75%. This means that when someone dies, and their estate is liable for IHT interest is charged until the liability is due. In our experience, this liability is often not paid for 6, 9 or even 12 months because the estate is still being dealt with by the executors. If the tax is paid after 12 months, it effectively means that the IHT rate is NOT 40% but 47.75%! That’s nearly half of your taxable estate going to the HMRC.

The best solution to this is good organisation. If your executors know where everything is, what you have and can access your estate the whole probate process is much easier and quicker. And so, ask yourself; ‘if I died today who will deal with things and have I put things in order so that they can do things easily and quickly?

The Recession is Over

Recession? What recession? The most under-reported recession of history is officially over. According to the Office for National Statistics (ONS), the first quarter brought the UK economy 0.6% growth making this one of the shortest and shallowest recessions we have experienced. The recovery so far has been extremely strong, with the economy reportedly growing at its fastest rate since 2021…long may it continue.

Whilst we celebrate the end of the recession, we can’t help but ponder how this is likely to impact the Bank of England (BoE) forecasts, and more importantly the Monetary Policy Committee (MPC) interest rate decisions.  The BoE announced in early May that the MPC had decided to hold interest rates at 5.25% once again and delays to rate cuts are now widely predicted. However, even if rate cuts are delayed, popular opinion remains that we will be the ones to cut first and cut deeper than the Federal Reserve.

Trust Tax Rules Change

Hidden deep in the details of the budget was a change in the tax rules for trusts.

Prior to April 2024, trusts had a £1,000 standard rate band for income tax, which was basically a trust’s ‘personal allowance’. However, this has now been removed and replaced with an annual income allowance of £500. This means if a trust receives income of £500 per year or less, it will not be subject to income tax, but if it receives more than £500 income per year all of the income will be subject to income tax at the trust rates (39.35% for dividends and 45% for other income).

This is a very sneaky way for the chancellor to increase taxes without ‘increasing’ tax rates!

Please remember that if you have a trust that holds anything other than £10 or non-income income-producing assets you must complete an annual tax return.

Contact us on info@penguinwealth.com or call 029 2045 0143 to book in a meeting to come in and see us, with your Trustees, to discuss this and the ongoing changes to Trusts. We’d love to see you!

Scheme Specific Protected TFC

From 6 April 2024, HMRC has laid out they intend to simplify the calculation for scheme-specific protected tax-free cash (SSPTFC). They will do this by removing the link to the lifetime allowance. Unfortunately, in making the legislation they have made a mistake in the formula which means it doesn’t work. They are aware of this error and have said they will bring forward regulations to correct the error. They advise that until this is fixed, clients should not request to take a SSPTFC lump sum.

So, if you do have protected TFC benefits and wish to withdraw them, please be aware that this may not currently be possible until HMRC has rectified their mistake. The schemes will be enforcing HMRC’s suspension on these payments and so sadly there is nothing that providers or advisers can do to help access these funds until this is corrected.