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Issue 78 - When The Polls Close, What Next?

How Could Election Results Impact Markets

With a General Election less than a month away in the UK, we are hearing concerns from people as to what the impact on markets might be with any given result. The UK is not the only country going to the polls as we have EU parliament election results unfolding right now and of course, the US election in November.

There is a fear that “the wrong” result will create chaos in markets, but the reality is that is not generally the case. For a starter, whoever wins in the UK or the US, the economic and geopolitical pressures will be the same and if the winner was previously the opposition party, then the reality will set in immediately.

It is somewhat more complex in the EU, with a predicted trend to swing to the right, but once again, the economic challenges remain the same. The political fallout will take some time to work through!

Markets as always are looking ahead and anticipating outcomes and therefore much is already factored in with regard to anticipated results. On the day that Rishi Sunak announced his “snap election” markets did move but by only 0.16% which is about as exciting as it got! The fact the announcement prompted a nothing response says a lot in itself.

On the day, it would seem there was more speculation about why the PM could not find an umbrella and that it was perhaps, a satirical ending to what has been a somewhat negative period for the Conservative government.

The opinion polls suggest a Labour victory, although nothing can be ruled out. It would however, take one of the biggest turnarounds the UK has ever seen for the Tories to remain in government.

Historically, the FTSE share index has tended to remain fairly flat or even slightly down in the six months after a Tory victory, whereas it has tended to rally by around 6% over the same period following a Labour victory.

A Labour win therefore, is likely to be met with a strengthening market.

Let’s not forget the economic backdrop though; we are anticipating Inflation returning to the Bank of England target of 2% - it stands at 2.3% presently, and interest rates are set to fall as widely forecast and hinted at by the Bank last month. These factors too will be positive for markets and therefore, 4th July should not be a date to fear in the UK (unlike that date in 1776!).

The trend on interest rate reductions has arguably started with the European Central Bank cutting rates by 0.25% with effect from June 12th  – there will be more that follow.

Turning to the US, the election results are too tight to call at the moment. The resilience of Donald Trump to court actions and the controversy that surrounds him may well seem baffling to many, but his loyal supporters see no problems and opinion polls have just 2 points between Trump and Biden. Of course, President Biden has his own court concerns with actions against his son, Hunter, not helping the Biden image. I have but one question, with a population of in excess of 340 million, how is it not possible to find younger candidates – or could independent candidate, Robert F Kennedy be a disrupter – I doubt it, but it does add another element.

Sadly, it would seem the US is more divided today than perhaps since the Civil War and that is not good news for the western world so whoever comes out the victor, we need some bridge -building to go on.

As for market expectations, a quote from The Central Trust Company in the US captures it well – “analysis points to minimal impact on financial market performance in the medium term based on potential election outcomes. The data shows that market returns are typically more dependent on economic and inflation trends rather than election results.”

With all of that in mind, the election results should hold no fear for market performance, so either sit back and enjoy the political carnival or cancel the papers, turn the TV off and find a new hobby to pursue – whichever suits you best!

A Date For The Diary

Inheritance Tax (IHT) – Panel Breakfast in Tunbridge Wells – 2nd July 2024

On 2nd July, Martyn Bates will be joined by Nathan Blackmore from Way Trustees and Adam Saunders from Sutton Winson, International Insurance Brokers, to co-host a panel discussion. They will be looking at possible IHT liabilities and effective planning solutions to help minimise or avoid IHT, whilst retaining control of assets.

This will be held at 10.00am at The Finance Hub offices, located at the southern end of the Pantiles in Tunbridge Wells. There is no charge for attendance, but places are limited, so if you are interested, please email martynbates@abc-ifa.com to reserve your place or to find out more details. Alternatively, you can use the following link:

Tax Deferred Is Tax Saved

One of the main hurdles to negotiate with medium and long term investment planning is finding the best way to shelter from tax. For UK investors, the starting point is often an ISA (Individual Savings Account) which is free of all taxes, both while invested and when withdrawals are made. Thereafter, pension funds come a close second, as they are largely sheltered from tax on the investment returns, and tax relief is often available when contributions are paid – however, the long-term sting in the tail, is that the majority of pension income will be assessable for tax when drawn.

Using any allowances available has always been a key part of investment planning, but again, we have seen allowances reducing. As an example, the personal annual allowance for Capital Gains Tax in the UK has dropped from £12,300 to £3,000 over the last 2 years, which makes avoiding this tax much more of a challenge.

Add to that a concern that the Labour party have already talked about linking the rates of Capital Gains Tax to the same marginal rates that are used for Income Tax and this could make a huge difference to the amount of tax payable. This all begs the question, it there an alternative?

There Is an Alternative

There is an “insurance based” contract which is used in many jurisdictions to help address this issue. In some countries it will be referred to as an Offshore Investment Bond, an International Portfolio Bond or in France, as and Assurance Vie contract. Whatever the name and wherever it is used, the principles are the same.

Investments held within this type of “wrapper”, will enjoy a number of beneficial tax treatments, the key starting point being that any capital gains, dividends or interest made or received, will not result in personal tax for the investor, all the while the funds remain within the wrapper.

This enables active portfolio investment management without the burden of tax concerns and can have a significantly positive impact on returns as a result.

Access to the capital will typically be retained at all times and when withdrawals are needed, that is when personal tax can play a part.

Typically, it is the gain element of any withdrawal which will be assessable for tax, and this will typically be in proportion to the whole gains made to date. However, there are further rules which apply in some country locations, which enable further reductions in the amount assessable or the timing of tax charges.

The considerations vary from country to country, but the opportunity to shelter investments from tax and to have some control over when tax is paid can be hugely advantageous as part of an overall investment strategy.

A final thought, are these investments high risk or likely to be challenged by tax authorities? The answer is that you are able to determine what level of investment risk you take and the product providers are highly regulated and therefore, there is no material additional risk and as far as the tax authorities are concerned, these types of investment wrapper have been used for over 50 years without concern.

Food for thought perhaps and maybe, time for a review!

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.”

Most 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 introductions 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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