Opinion and Comment

Messages from Market Volatility

Few investors would refute the fact that the positive global macroeconomic environment over the last few years has been extremely favourable for equity markets. 2017 alone provided the model backdrop of synchronised global growth on a consistent upward trajectory, rebounding international trade, benign inflation, surging corporate profitability, and well-articulated messages from global central banks regarding their intentions on policy tightening and interest rate hikes. It was a ‘Goldilocks’ scenario; a unique period, the first of its kind since the financial crisis. Growth was strong, but not so hot that it caused rampant inflation, nor too cold that it resulted in a slowdown, or even recession. Renewed optimism in the previously unloved bull market, alongside recovering corporate earnings, pushed many markets to new highs and financial market volatility to unprecedented lows.

2017/18 Tax Year End Planning Opportunities

It’s that time of year again… The run-up to the tax year end on 5th April 2018 provides an opportunity to finalise your affairs for the 2017/18 tax year. We outline below the easiest ways to ensure your finances are managed tax efficiently:


The ISA allowance of £20,000 per tax year provides a great opportunity to move funds into a tax free environment. This can be funded from cash or by recycling investments in your general investment account, potentially also utilising part of your Capital Gains Tax allowance.

A Flexible ISA allows you to replace any funds withdrawn within the same tax year without it counting as part of
the annual allowance.

Finally, you can also make provision for children under 18 using the Junior ISA. You can contribute up to the £4,128 allowance which cannot be accessed until the child turns 18.


Pensions are extremely tax efficient benefitting from: tax relief on the contribution (of up to 45%, 20% upfront with the balance via your tax return); tax free growth; 25% tax free cash entitlement on retirement; and exemption from your estate for inheritance tax purposes.

Current UK legislation allows you to contribute up to 100% of your UK earnings each tax year and receive tax relief, up to the annual allowance of £40,000 (gross). Unused allowances from the preceding three tax years can potentially be “carried forward”.

However, there are also complexities with pension regulations affecting high earners with earnings in excess of £150,000, whose allowance may be reduced to £10,000 and those whose total pension assets are likely to exceed the Lifetime Allowance, currently £1M. It is therefore important to seek advice to ensure you benefit from the expected tax efficiencies.

Capital Gains Allowance

Capital Gains Tax (CGT) is payable on your total capital gains above the tax-free allowance of £11,300. The CGT rate on investments is 10% for basic rate and 20% for higher rate taxpayers. For properties other than your primary residence, the rate is increased to 18% and 28% respectively. Using this allowance annually can save tax on investments of up to £4,520 for a couple liable to higher rate tax, enabling portfolio optimisation and ISA funding.

Charitable Donations

Philanthropic donations benefit both the donor and recipient. Many people are familiar with Gift Aid, but even more efficient is the gifting of investments. The donation is deducted from your taxable income, exempt from CGT and is immediately outside of your estate for IHT purposes.

Inheritance Tax

You are able to gift £3,000 annually which is exempt from IHT. You can carry forward any unused exemption from the previous tax year so could gift up to £6,000. Gifts out of surplus income are also exempt provided they meet certain criteria.

Personal Allowance

Those with income falling between £100,000 and £123,000 suffer a punitive effective tax charge of 60% due to the loss of your tax free personal allowance. Making pension contributions or charitable gifts can reclaim the personal allowance by adjusting your effective income.

VCT, EIS and SITR Investments

A further, higher risk option to potentially consider once other allowances are used are Venture Capital Trusts, Enterprise Investment Schemes, Seed Enterprise Investment Schemes, and Social Investment Tax Relief. They offer substantial tax incentives to encourage investment into small companies. On top of income relief of 30% (50% for SEIS), VCTs benefit from tax free dividends, while EISs shelter CGT and are IHT efficient once held for 2 years. They are only suitable for certain investors who can tolerate high risk to their capital and are planning to invest for at least 5 years.

For more information, please contact your existing adviser or if not yet a client, please do not hesistate to get in touch.

Cashflow Planning

When we meet our clients, some of the most common questions we are asked are:

  • When can I afford to retire and how much can I spend?
  • How much do I need to save to meet my desired lifestyle in retirement?
  • What level of return do I need to meet my desired lifestyle in retirement?
  • How much risk do I need to take with my investments?
  • Can I afford a large capital expense such as a new car, or make gifts to family?
  • Can I meet my goals if my investments don’t perform as well as expected?
  • How would my family cope if I am unable to work, or if I die prematurely?

Having a financial plan can provide you with the answers to these questions. Cash flow modelling is an important part of our financial planning for clients. It helps us to answer many of these concerns by allowing us to forecast your current and future financial situation.

When creating a financial plan, we will firstly establish your lifetime goals. We will then assess your current situation and determine how close you are to achieving your goals based on aspects such as your income, expenditure, assets and liabilities.

After this, the next step is to develop and implement a plan to establish what action you need to take. The plan can then be used to help make well informed financial decisions. As your situation evolves over time, the plan will be monitored and reviewed and adjusted where necessary.

When the cash flow is run, there are typically two scenarios:

1) You have a surplus of assets. This means you can meet your financial goals and opens opportunities to discuss the potential for:

  • Retiring early
  • Enhancing your lifestyle by increasing expenditure.
  • Making gifts to family
  • Reducing inheritance tax liabilities
  • Reducing unnecessary risk associated with your investments.

2) You have a shortfall of assets. This means your financial circumstances are not sufficient to meet your future aspirations. The advantage of having a plan will highlight potential shortfalls or threats to your situation and put you in an informed position well in advance. This means you can do something about it at an early stage and remain in control of your financial future. It opens opportunities to discuss:

  • Your desired retirement age
  • How much you need to save to achieve your goals
  • The level of return you require to meet your goals
  • Assessing the level of risk you are taking with your invested assets.
  • If there is the potential to downsize or other methods of releasing capital
  • Reducing expenditure in retirement.

Example – Income Shortfall in Retirement

The following chart shows a forecast of a client’s cash flow over their lifetime. Each bar represents one year. Where they are coloured blue, it means there is enough income or liquid assets to draw upon to meet the client’s income need for the year. The need is represented by the black line running along the chart. Where bars are coloured red, there is a shortfall. In other words, there is not enough income or liquid assets to meet the income need for that year.

In the following example, the client has a shortfall at age 89. Before retirement, there is an excess income which is not being used.

Using the cashflow software, we are able to see what might happen if the excess income is used to fund a stocks and share ISA each tax year. The results are as follows;

The chart above shows that the shortfall has now been filled. This indicates that by investing the excess income in an ISA, the client has a much better chance of achieving their retirement objectives and being able to meet all planned expenses until age 100.

Example – Pensions and Tax planning

The cashflow system can also help to identify future tax liabilities. In the following example, the client faces a Lifetime Allowance Tax (LTA) charge at age 75 due to the value of their pensions. This is demonstrated by the large spike at age 75. In this example, the LTA charge is in excess of £150,000.

The following scenario demonstrates what could happen if the client takes a phased retirement approach. They decide to draw a higher level of income from their pensions in the earlier years of retirement when they are likely to be more active and have a greater need for the money.

This scenario shows that through careful planning, the LTA charge can be eliminated.

In addition, the projection shows that the client can afford to take the additional income and spend more in retirement and there is still no shortfall in the plan.

In summary, having a financial plan can help you stay in control of your financial future by giving a clearer picture of what it might look like. It ensures you have the right provisions in place now, to enable you to make big decisions at the right time, to ensure you can meet your lifetime goals without your money running out.

Aram Kupelian
Paraplanning Manager

Rachael Foy

The Benefits of Being Benevolent

For those of a benevolent persuasion, it may be troubling to learn that according to the recently published CAF (Charities Aid Foundation) World Giving Index, there has been a global decrease in giving over the last 12 months. This follows a high point recorded by the same index last year. The proportion of people across the world who reported donating money in 2016 (when the research for this year’s report was conducted) is the lowest seen for three years. The UK which has for some years been the most generous country in Europe, according to the Index, fell from 1st to 2nd place in Europe.

At Holden & Partners we have always advocated that clients, when appropriate (and if they have a particular charitable interest), maximise the generous reliefs available for charitable gifting. As you may or may not know, there are a number of ways that allow individuals to give to their favourite causes whilst at the same time benefitting from the generous tax concessions on offer. The main ways of facilitating charitable giving for individuals are as follows:

Donate money to charity

If you give money and sign a Gift Aid declaration, the charity can reclaim the basic rate tax you’ve already paid on that donation. This means that a £1 donation is worth £1.25 to the charity.

If you’re a higher-rate taxpayer and fill in a Self Assessment tax return form, you can also claim back the difference between higher rate and basic rate tax on the value of your donation. For a 40% rate taxpayer, that means for every £1 you donate, you can claim back 25p in tax relief.

Give straight from your salary

If your employer has a payroll giving scheme, such as Give As You Earn, you can give directly to charity from your pay before tax is deducted. This means you receive tax relief at your highest rate of tax, so giving £1 would cost a basic rate taxpayer only 80p.

Transferring/gifting shares or units in an investment fund to a charity If you own shares or units in an investment fund, you can sell them and give the proceeds to charity via Gift Aid. Alternatively, and significantly more tax efficiently, you can give your shares directly to a charity. However the shares will need to be listed on a recognised stock exchange to be accepted by the charity. Giving shares is highly tax-effective, as donors receive full tax relief on any capital gains tax and can also claim income tax relief on the fair market value of the shares. For example, if you own units in a fund worth £20,000, have gross taxable income of £20,000, and gift the units to charity, you could reduce your tax liability through charitable giving to zero. If the units had previously gained in value by £15,000, for example, since they were purchased, there would be no capital gains tax to pay on the disposal. These gifted funds are also out of your estate for inheritance purposes.

Many clients at Holden & Partners, with our assistance, have set up a general charity account to help facilitate charitable giving. Crucially, such a charitable account offers individuals flexibility over giving whilst also providing the ability to benefit from all the aforementioned tax reliefs. Shares can be gifted to the account, with tax reliefs received, whilst the individual then has the freedom to select a particular charity to which the funds should go and when. The account can have a cash balance from previous transfers so the individual can select a cause close to their heart when the time arises. The account can be topped up with further transfers or payments and can be held by the client indefinitely.

Charitable bequests through your Will

If you do not want to or cannot make gifts to charity in your lifetime, an alternative is to make provision for charitable bequests in your will. Significantly, such bequests are not liable to Inheritance Tax (IHT). If you leave more than 10% of your net estate to charity the rate of IHT falls from 40% to 36%.

Give land and property

Giving land and property direct to charity, like gifting shares and fund units, is also exempt from capital gains tax and inheritance tax, and income tax relief can be claimed on the value of the gift.

The UK taxation system, due to the tax reliefs on offer, effectively encourages charitable giving and it will be interesting to see whether the fall in charitable giving across the world and in the UK is a long-term trend. At a time when many charities in the UK have suffered from government cuts to their funding, this is a major concern, especially for all those who depend on the services and support they provide. Facilitating charitable giving is an important aspect of the service we provide to our clients; so if you have any further questions on this area, please speak to your adviser. As you can see, when it comes to charitable giving, the benefits of being benevolent are both altruistic and financial.

Steven Pyne
Managing Partner

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MIFID II is the latest re-incarnation of European-wide legislation aimed at increasing transparency in markets and providing improved client protection. It becomes effective on January 3rd, 2018. The main areas in which clients will see a change in the way that they invest, and how Holden & Partners addresses these issues are as follows:

  • Record of conversations – whenever your adviser has a conversation with you regarding your investments or financial planning strategy, a recording of that conversation will be made and retained.
  • Transaction reporting – financial planning firms will be required to make a report of all transactions made by clients that fall within the scope of the new legislation. To do this all investors will need a Legal Entity Identifier (LEI).
    For individuals, this will normally be a National Insurance Number (NINO). Where, for any reason, a NINO is not available, there are prescribed alternatives that can be used. Should it be necessary, Holden & Partners may contact clients regarding any further information that is needed to generate a personal LEI. Any clients who are not contacted may assume that no further information is needed.
    For trusts, companies, pension funds, charities, or unincorporated bodies, clients will need to obtain a LEI from the London Stock Exchange. Certain clients may have already received communication from a product provider, or obtained a LEI but, regardless, Holden & Partners will be contacting all clients individually to ensure that they such an identifier before January 2018 and to offer assistance to obtain it, should it be needed.

Market Commentary H1 2017

The first half of 2017 continued in a similar vein to the latter stages of 2016; an extremely supportive period for markets in which numerous global equity indices reached all-time highs. Investors witnessed robust gains in Q1 especially, driven by a raft of positive economic data and the perception of a stronger global recovery. Further advancement was seen in Q2, although movements in the latter stages of the period became more nuanced as investors distinguished between improving corporate earnings and economic data in Europe, and a slight disappointment in expectations in the USA. In contrast to recent years, political and economic surprises were not accompanied by an increase in market volatility – in fact, the VIX index (measuring the volatility of the US equity market) reached its lowest level since 1993, perhaps suggesting that investors are now focusing more heavily on underlying economic growth than the instability created by specific events.

2017’s pro-equity environment started with President Trump’s inauguration in January, as markets were buoyed by the administration’s plans to cut taxes, reduce the regulatory burden on companies, and increase infrastructure spending, alongside the expectation of higher GDP growth and inflation. Nonetheless, the so-called ‘reflation’ trade started to lose momentum within a few months as little progress was made on implementing the reform agenda, with the failure to pass revisions to healthcare legislation in March demonstrating Trump’s inability to deliver on many of his policies. With this came the realisation that a large boost to economic growth was unlikely, and the subsequent unwinding of the rally in value-orientated stocks which had surged since the election result. That being said, equity valuations continued to rise on the back of positive economic data, although this became softer in Q2 as several leading indicators disappointed. The Federal Reserve (Fed) looked through low inflation readings to further tighten policy with a 0.25% interest rate rise in June, whilst the dollar weakened due to a lack of conviction over the success of fiscal expansion and the expectation of other central banks around the world withdrawing monetary stimulus.

Who holds the ‘Trump Card’ on Climate Change?

On the subject of climate change, it appears President Trump has started his administration the way he means to go on. From the wholesale denouncement of global warming as a ‘hoax,’ to the appointment of environmental naysayers Scott Pruitt and Rick Perry as head of the Environmental Protection Agency (EPA) and Department of Energy respectively, his presidency looks set to be characterised by an attempted rejection of science and mistrust of all those with climate-related expertise. To the extent that climate change deniers support Trump’s agenda, including the backing of fossil fuel generation, he will continue to promote their dissenting voices.

Undoubtedly, this is a development that will preoccupy the minds of investors, not least those with an emphasis on environmental, sustainable, and thematic (EST) investment within their portfolios. It is all the more concerning given the recent conclusion from the UK Met Office and NASA that sixteen of seventeen hottest years on record have occurred since the year 2000, and the World Economic Forum (WEF) declaration that climate change is the one of the most impactful risks currently facing our planet. Yet, despite the grave warnings from various authoritative bodies, Trump is in the midst of repealing many of his predecessor’s policies on the subject, including the ‘Clean Power Plan’ (CPP), the blueprint by which the US intended to meet its wide-ranging commitments under the 2015 Paris Climate Change Agreement.

Perspective on Donald Trump

Politically Correct Investment Strategies

Both written and unwritten constitutions are under threat with the pillars supporting them under attack, as populist forces gather, chipping or pulling apart conventions and traditions embedded across Western democracies. Looking back at periods of calm, today’s investors are being challenged in a way unimaginable a decade or so ago.