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Issue 76 - Lies, Damned Lies & Politics!

I appreciate that my title for this News & Views is a mis-quotation – with the original being attributed to Mark Twain, when he was talking about Statistics rather than Politics, but with all that is going on in the world of politics now, it seemed to me to be a rather apt adaptation.

As I have expressed previously, I like to think of myself as being apolitical and able to keep an open mind, but with all the political hot air and rhetoric going on both sides of the Atlantic, it becomes ever more difficult to decipher fact from fiction. As we know, it is against their creed for any politician to use the word yes or no in reply to a question – far too straightforward, but the levels of politicians talking in riddles, half-truths and clear spin, seems to be reaching new heights, with no effective means of calling them out it would seem.

The problem is, we have most of this year to look forward to more of the same – in that regard, I will be glad when the year is over, or at least the Elections!

A real concern though, which is often raised, is whether the results of Elections, either in the UK or US, are likely to have serious impact on the markets and in the main, my answer has to be, probably not. History shows that this is not normally the case and if you think about it, even if the people in the ‘driving seat” change overnight, that is the only thing that does immediately change. The financial and economic situation they inherit does not suddenly change and as we have often said, markets are trying to guess what the future may bring and with lack of real clarity until way after any Election result, there is unlikely to be a severe knee jerk reaction in markets.

To my mind, the main drivers remain inflation and interest rate expectations and unless or until something changes drastically in either regard, Election results should not make a great difference in the short term.

Another concern though is with the Central Banks and the “knife-edge” that they work on when setting interest rate policies – there has to be a real concern here that delaying rate reductions could have a negative impact and potentially even fan the flames of stagflation which, combined with a wave of shrinkflation, which is becoming all too evident in many areas, could totally stifle any real chance for growth to return to the economy. As always, we will have to wait to see and hope that some lessons can be learnt from the past!

“What News From The UK Budget Statement?”

I deliberately delayed the timing of this News & Views, to enable us to see what the March 6th Budget Statement in the UK had to say, as I had hoped there would be something of interest to talk about, but it would seem that was a forlorn hope!

With much talk about a Budget to stimulate growth, this to my mind, was a big disappointment and arguably, saw the continuation of a major U-turn by the current Conservative Government, which to many has gone unnoticed.

The further 2% cut in National Insurance Contribution (NIC) rates for both employees and the self-employed, will be welcomed by them I am sure. However, this goes hand in hand with a continuing freeze on Income Tax thresholds and tax bands, which arguably, more than wipes out the NIC savings for most people. A strong political headline but also political sleight of hand.

The NIC reductions may help the working population, but the tax band freezes hurt everyone from those who are new to the workplace right up to the retired population.

Sadly, nothing was done to ease the tax burden for employers, with their NIC rates remaining the same and with the impact of increased Corporation Tax, (increased from 19% to 25% from April 1st 2023) which will impact corporate year ends now, many of which fall on 31st March, it is very difficult to see how this latest budget could be described as a “budget for growth”.

The political U-turn I was referring to, is that earlier Conservative Government’s pledges to reduce Income Tax and remove more people from Income Tax altogether – it would seem this commitment, like so many others, has been forgotten!

There was one potential bright spot though and that is the introduction of the new British ISA £5,000 allowance but sadly, we have no details as yet. This has been flagged as an attempt to stimulate growth via new investment, but with this proposal only now entering a consultation phase, we do not know how it will work and whether it will attract significant new investment – another one on the “watch list”.

As we are now approaching the tax year end in the UK (5th April), I thought it might be useful to repeat the key year end considerations that I mentioned last time which are below.

“New UK Tax Year Looming!”

Pension contributions remain a favourite topic, for those with earned income, in view of the tax savings that can be made and, in some circumstances, the ability to lower tax bands and/or extend the basic rate tax band can be achieved.

With the abolition of the Lifetime Allowance, (LTA) for pension funds, this has largely removed a fear of overfunding. Also, with total flexibility in accessing benefits over the age of 55, an exemption from Inheritance Tax (IHT) and the ability for pension funds to “cascade” down the generations; rather than being a “stuffy old pension,” they are in fact an exceptional IHT and succession planning tool which can be used to great effect.

With the ability to contribute up to £60,000 per year and to carry forward unused allowances from the previous 3 years, the scope for planning is huge.

As a reminder, pension contributions will attract tax relief in the tax year they are paid which is why considering your tax position now could identify that a pension contribution before April is appropriate to make.

“Most allowances work on a use it or lose it basis.”

The pension allowance is rare as it can be carried forward – most allowances work on a “use it or lose it” basis and this applies to things like ISA contributions as well as personal and Capital Gains Tax allowances, including some IHT allowances.

We also saw a major change this tax year with Capital Gains Tax, (CGT) as the personal allowance reduced by over 50% to £6,000 each person – worse still, this is due to halve again in April. If you might have capital gains and unused allowances, consider using them before April.

If any of these areas are of interest or concern to you, please get in touch with your usual contact at ABC or email info@abc-ifa.com and we will follow up from there.

“A Quick Look At The Markets”

Over the last month, markets have been largely in positive territory, with one notable exception being the UK AIM market which has shown a very small decline.

With the latest inflation data being due in the US later this week, Jerome Powell, (Chairman of The Federal Reserve) has once again said that the next interest rate movements should be downwards but won’t yet commit to a time scale – perhaps the figures this week will offer some clues.

The Bank of England are making similar noises and therefore markets will be factoring this into their pricing going forwards and the “cautious optimism” we are hearing from the Fund Managers we work with is continuing and we look forward to seeing this reflected in fund performance.

As always, if we can assist in any way, please do let us know and we will keep in touch.

Best wishes from all at ABC.

“We have capacity and would welcome personal referrals.”

The majority of our clients come to us by way of personal referral, which is a very strong starting point, and we would therefore be very pleased to receive any referrals that you might think appropriate. Rest assured, our follow up will be totally confidential and without cost or commitment for an initial chat or meeting to determine if we are able to assist.

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