Wealth Management Update - August 2020 | Financial Advice Cardiff

Wealth Management Update – August 2020

10 Aug 2020 | Wealth Management Update |

Economic recovery … how, what, when and where?

The short answer is … nobody knows. All anyone can do is analyse and predict based on historical information and what is happening right now. Nobody has a crystal ball … not even us!

 

It is possible we will enter a recession if growth is down in the third quarter of the year. We have all been locked down with nothing to do, nowhere to go and therefore nothing to spend money on (well we don’t know about you, but we had a LOT of Amazon deliveries!). The government is introducing measures to try to encourage us to start spending – the meal incentives and the re- opening of non-essential stores are all an attempt to get us opening our wallets again. The plan to kick-start the economy is starting to work, albeit quite slowly, and we have seen some recovery since lockdown, so it is equally possible we will not see a recession!

 

No one knows what will happen next but, amidst the media’s scaremongering, it is important to remember we have recovered from worse economic crises (although it may not seem like it right now) and what we are going through is temporary. By this time next year we hope most of the impact of Covid will have been reversed, but as this depends on so many factors we cannot say for sure this will be the case. But we will get through this!

 

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Public-sector pay rise 

An above-inflation pay rise of up to 3.1% is to be given to 900,000 public- sector workers, including doctors and teachers. Whilst this is good news in itself, many claim it is not a sufficient reward for what front-line workers have had to endure during this pandemic, nor is it enough to make up for the lack of adequate pay rises in the past.

 

This pay rise does not apply to nurses or junior doctors as they have negotiated their own separate deals in the past couple of years. It will also not be applied to social care workers as the government has not announced increases to local authority funding.

 

Underlying what looks to be a somewhat generous offering from the government is the fact that the level of pay for frontline workers is still below the level it was in 2010, after inflation is taken into account. Government departments will also not get any extra funding for these pay rises and so the cost will need to be absorbed by each entity. This will likely result in trade-offs and tough decisions for those departments whose income streams have been the most affected by Covid.

 

The Chancellor has been forthright about the need to exercise restraint in regard to future public-sector pay awards and has confirmed that tougher decisions will need to be made about the allocation of public funds in the aftermath of the Covid pandemic.

 

Opinions are divided; whilst nearly everyone is pleased to see an above- inflation pay rise for those workers who saw us through such tough times, there are many who will see this pay rise announcement as an appeasement of public-sector workers. Whichever side you are on, balancing the books in the years to come is going to be one heck of a job, and one we are certainly glad we won’t be in charge of!

 

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CGT to be reviewed … again?

Last month we reminded you about some changes to Capital Gains Tax (CGT) regarding property that were announced back in April.

A new review has now been launched to ensure the system remains fit for purpose in its entirety. It will focus on CGT for individuals and smaller businesses and will cover allowances, exemptions, reliefs, losses, as well as admin and technical issues. There will also be a review of how gains are taxed in comparison with other sources of income – a real belt-and-braces review by the sounds of things!

 

The cynics amongst us will be smelling a tax rat, as the review aligns perfectly with the need to generate more income for the Chancellor to use in the aftermath of Covid. Meanwhile, the Treasury is adamant that it is standard practice to keep taxes under constant review.

 

We suppose the money to pay back the big debt the government has been left with (borrowing is set to hit its highest level in peace time!) has to come from somewhere and CGT is likely the main focus, as presently the rate of tax is much lower on gains than on many other sources of income. A potential increase in CGT may be a starting point for further tax reviews and so, in the longer term, may not be the only increase under consideration.

 

The Treasury has asked for all information to be with them by October 2020, so although we may hear mention of it in the Autumn Budget we may not see any changes. But keep an eye out for what are likely to be big changes in the Spring Budget 2021!

 

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Are LPAs going digital?

We are sure you all know what a Lasting Power of Attorney (LPA) is so we won’t bore you by going over the details again. If you don’t know what one is then get in touch with us because it’s more than likely you need to get one!

 

The Office of the Public Guardian (OPG) who registers LPAs has unveiled a new digital service for existing attorneys to enable them to prove their status and their right to act on the donor’s behalf to institutions such as banks and healthcare providers. Once an LPA is registered with the OPG, the attorneys and donor will be sent an activation key to allow them to create an online account and add their newly registered LPA. They are then able to generate an access code that can be given to organisations to allow them to view the LPA online and verify the attorney’s status. This new system aims to avoid long delays whilst still protecting the donor against any misuse of the LPA.

 

The OPG will offer the service for any new LPAs registered from 17th July 2020 but there are plans to backdate this to those registered in 2019. Whilst there are no current plans to backdate it earlier than 2019, if all goes well it is quite possible this will change in the future.

 

It all sounds fantastic … if it works! We are sure there will be challenges along the way, with lots of tweaking and head-scratching lessons to be learned, but fingers crossed it will come to fruition and make the lives of those acting as attorneys that little bit simpler.

 

Want to find out more about Lasting Powers of Attorney? Contact the Penguin Team and let us help you protect your Estate

 

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Stamp Duty takes a holiday

The Chancellor announced a Stamp Duty holiday for house purchases completed as of 8th July 2020 or later, ending on 31st March 2021. It will apply to the first £500,000 of main residence property purchases.

 

Stamp Duty is one of the biggest costs incurred when buying a new house and so the savings could be huge. On a property of £500,000 the savings could be as much as £15,000! The Chancellor has said that an average Stamp Duty bill will fall by £4,500 and nine out of ten property purchases will pay no stamp duty at all!

 

This incentive is an attempt to give those who were planning to buy, but  who may have been financially hit by Covid, the opportunity to go ahead with purchase of a new property. It is also an effort to boost the property market post-lockdown. If you, your children, friends or other family were thinking of moving soon it is worth considering acting now to take advantage of this time-restricted incentive. The Stamp Duty holiday may even make moving home possible when it was not possible before.

 

Although the markets have picked up since the end of lockdown and in light of Sunak’s announcement, they are still down by about a third on last year – this is not unexpected considering the year so far! Hopefully, the combination of this rather generous incentive and the lengthy reflections people may have had about their living situation during lockdown will be enough to get the property market moving and back to the highs of previous years.

 

House buyers in Wales will pay Land Transaction Tax (LTT) instead of Stamp Duty.

Here’s a look at how LTT works, who it affects and how it’s different to Stamp Duty.

 

Stamp Duty vs. LTT

Stamp Duty is a tax you pay when you buy a property or a piece of land worth £125,000 or more. If you’re a first-time buyer, you won’t pay Stamp Duty on properties worth £500,000 or less.

It’s a banded tax, which means the more the property/land is worth, the more you’ll pay in Stamp Duty.

 

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HMRC tax gap reduced … but is it enough?

It is expected that what HMRC expect to get in tax is not the same as the money they actually receive, but recently HMRC reduced the ‘gap’ between the two to a record low of £31 billion! To put this in perspective, this is the same amount as the budget for the Department of Transport and Department for Business, Energy & Industrial Strategy combined in the 2018/2019 tax year.

 

This very substantial gap arises for several reasons including human error, tax evasion, insolvency and criminal attacks. Human error alone accounts for £3.1 billion of missing tax receipts, with income tax, national insurance contributions and CGT the biggest culprits for tax discrepancies.

 

Whilst HMRC may see this record low as an improvement, it is still a huge amount of missing revenue that could be recycled back into the public sector. In reality, HMRC are likely to come under increasing pressure to reduce this figure further, considering the effects of Covid on the economy. Whether this is achieved by bringing in tougher regulation, simplifying the rules or modernising their systems to reduce errors, we wouldn’t be surprised if we hear more about this soon.

 

BEST SAVINGS SELECTION

Top three Cash ISAs

 

Name Contact £100

Gross % 

£1,000

Gross %

£5,000

Gross %

Cynergy Bank cynergybank.co.uk 0.90 0.90 0.90
NS&I nsandi.com 0.90 0.90 0.90
Teachers BS teachersbs.co.uk 0.70 0.70 0.70

 

Please check with the terms and conditions before opening any account. If in doubt consult with your Financial Adviser directly as the above are for information only.

 

Source: Moneyfacts Magazine August 2020 Edition

Medical photo created by freepik – www.freepik.com

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