What could this election year have in store for investors?

If elections have consequences, as Barack Obama said, then 2024 looks like being a highly consequential year. Some 64 countries are due to hold elections this year (including the US, India, Brazil, Russia and very probably the UK), representing over half of the global population and, in economic terms, half of the world’s gross domestic product (GDP).

Depending on the outcomes, some of these elections carry significant global implications, influencing not only the geopolitical landscape but also impacting global and regional investment markets. So, how could this year’s elections affect the investment landscape and, by extension, your portfolio?

What are the investment implications?

Election years are typically marked by increased uncertainty and speculation because there’s nothing that markets hate more than uncertainty. A change in a country’s leadership or policy direction can affect everything from its stock market to commodity prices, influencing investor sentiment worldwide.

From a UK perspective, elections in countries such as India, Brazil, and even the European Union, could have wide-reaching implications, and the results will be important in terms of supply  chains, access to commodities and trade policies. With 70% of revenues earned by FTSE 100 listed companies derived overseas, domestic shareholders will be keeping a close eye on global election results. It’s impossible to talk about elections in 2024 without discussing the elephant in the room – the US.

A rematch?

As the world’s largest economy, the US sets the tone for global economic policies regarding trade, regulation, and fiscal stimulus. Democratic presidents are usually better for the US  economy, and for investment returns in general, but given his low approval rating, the re-election of President Joe Biden is far from certain. The race is unlikely to be a straight line,
and an election victory for Trump, despite numerous legal issues, could cause ripples worldwide as investors work out the likely implications for the US and indeed the rest of the world.

What should investors be thinking about?

Uncertainty about election outcomes and the potential for policy changes often lead to short-term fluctuations in asset prices. And while keeping an eye on political developments is important, there’s no reason to be overly concerned about how an election year could affect your investment over the longer term. It’s important not to be distracted by short-term ‘noise.’ The best way to prepare for potential market volatility is to have a well-diversified investment portfolio that is aligned with your long-term financial objectives and managed to meet your personal financial goals.

IHT receipts at record levels

Figures released by HM Revenue & Customs (HMRC) show that IHT receipts have hit record levels while new data shows the taxman is hunting down thousands of families that have not paid
the correct liability on inherited estates.

Record sums
In the first ten months of the 2023/24  financial year, HMRC collected £6.3bn in death duty receipts, £0.4bn more than during the same period of the previous fiscal year. This represents a 7% rise and suggests this year’s annual figure will comfortably surpass last year’s record-breaking total of £7.1bn.

Frozen thresholds

The increase continues an upward trajectory that has been evident in recent years, largely as a result of the nil-rate threshold being frozen at £325,000 for over a decade. This, combined with growth in property prices, has effectively dragged more households into the IHT net.

Investigations rising

Recent years have also seen record amounts of underpaid tax clawed back by HMRC through a specialist team targeting the estates of wealthy deceased individuals. Data obtained via a  reedom of Information request shows a total of 2,029 IHT investigations were opened between April and November 2023, with £172m recovered over that period as a result of targeted  investigations.

IHT concerns

New research* also suggests IHT is the number one financial concern among wealthy individuals. In total, the survey found that more than a third of wealthy Brits are worried about IHT, with notable increases in levels of concern reported across both the 25 to 34 and 55 to 65-year-old categories over the past year.

Complex rules

The rules surrounding IHT are notoriously complex and people therefore often require professional advice in order to find the most efficient solution for their personal circumstances. If you have any concerns or need advice in this area do get in touch; we’re always here to help.

*RBC, 2024

Reaching self-actualisation in retirement

To enjoy a financially secure retirement, it’s important to spend time doing some in-depth thinking well in advance to determine your goals and requirements in order to achieve the lifestyle you dream of. You need a robust financial plan.

When thinking about the income you’ll need in retirement, many people find it helpful to think in terms of Maslow’s levels of need that human motivations move through, starting with the physical requirements for human survival, and ending with mankind’s highest aspirations, reaching ‘self-actualisation’ at the apex of the pyramid. Adapting this approach to personal finance was pioneered in the US. Using this hierarchical approach in a personal finance context can be a useful tool in deciding how to plan your income in retirement.

Survival income – This is the base of the pyramid and consists of the income you need to pay all your basic household expenses, your regular bills and running costs.

Safety income – The next layer up, this is the amount you might need to meet life’s unexpected events, such as health and later-life care costs, loss of income and any emergency financial help you might want to give your family.

Freedom income – This layer is all about assessing the likely cost of doing all those things that you never had time to do before you retired, including travel expenses, major purchases or indulging yourself in other ways.

Self-actualisation
Many people add a gift layer representing money they want to pass on to children and grandchildren during their lifetime, and some add a dream layer, their ultimate ‘bucket list,’ to the very top. The apex of ‘self-actualisation’ represents the ultimate in reaching your full potential, being self-fulfilled and enjoying peak experiences. Maslow described this level as the desire to accomplish everything that one can, and “to become everything one is capable of becoming.”

By viewing your retirement finances in this way, you can gain a clear picture of how much money you’ll need to help you enjoy the retirement you’ve always wanted. We can build a clear and comprehensive strategy.

Preparing portfolios for resilience in 2024

The past few years have been challenging for investors with a series of unforeseen events and rising geopolitical tensions weighing heavily on global markets and, as a new year dawns, many issues remain unresolved. However, while such times are disconcerting for investors, the best way to achieve financial empowerment is by sticking to a sound strategic plan that optimises investment decisions and thereby tackles any potential issues head on.

Geopolitical risk
Although it may sometimes feel we are living through unprecedented times, geopolitical risk is not a new phenomenon – it has always been a feature of the investment landscape. Russia’s invasion of Ukraine and, more recently, the Middle East conflict, however, are both clearly major events most people did not foresee. And, when such events do occur, even the most well-informed investors find it difficult to accurately predict their impact on markets and investment portfolios.

Economic prospects
The global economy is currently in a relatively precarious position with the long-term consequences of the pandemic, war in Ukraine and the Middle East, and YOUR WINDOW ON WEALTH
increasing geoeconomic fragmentation hindering prospects. The International Monetary Fund’s assessment, for example, produced just before October’s Middle East conflict erupted, points to an easing of growth across advanced economies this year, while China looks set to experience its slowest growth rate for years.

Investment pragmatism
While geopolitical events need to be closely monitored, investors must also be disciplined with any changes to investment strategy based on hard facts rather than knee-jerk reactions to the latest news headlines. The key to successful investing is undoubtedly to focus on long-term objectives and mitigate any potential risks by maintaining a well-diversified portfolio spread across different asset classes, industries and geographical regions.

New year, new opportunities
While geopolitical tensions are expected to present ongoing challenges, as 2024 unfolds new investment opportunities will inevitably become available. We’ll be on hand throughout the year to help you make the most of any opportunities, by carefully repositioning your portfolio and ensuring it remains firmly aligned with your financial objectives.

Powering Up Your Pension

Paying a lump sum into a pension can be a particularly effective way to save for your future. If you have accumulated extra money from a windfall, work bonus or through saving, now could be the ideal time to power up your pension with a single contribution.

Above and beyond
One-off pension payments are permitted at any time, with the government encouraging people to do so through tax incentives. Making a single contribution basically enables people to go above and beyond their regular commitments, and thereby move closer to achieving their ultimate pension saving goals.

Tax efficiency
Tax relief is available on contributions up to a maximum of £3,600 a year or 100% of earnings, whichever is greater, with the level of relief dependent on a person’s marginal rate of Income Tax. For instance, a £1,000 lump sum contribution could effectively cost a higher rate taxpayer just £600, after receiving £200 basic rate tax relief from the government and claiming £200 in additional relief from HMRC.

Allowances
For 2023/24, the annual contribution limit for tax relief purposes is 100% of a person’s salary or £60,000, whichever is lower, although unused allowance from the previous three tax years can be carried forward. If you want to make the most of your available allowance(s), get in touch and we’ll help you power up your pension.

If you have accumulated extra money from a windfall, work bonus or through saving, now could be the ideal time to power up your pension

Living The Retirement Dream

Research* has revealed that the ultimate retirement dream is actually very simple – financial security for the rest of your life.

This is according to a survey*, which questioned 2,000 respondents aged 50 and over on their aspirations for later life.

Hopes and dreams
Nearly all the respondents to the survey (94%) said that financial security was one of their biggest retirement wishes. Other retirement aspirations included:
• Being able to maintain one’s desired lifestyle (94%)
• Spending time with family (90%)
• Being able to afford care if required (81%)
• Being able to afford big family events, such as weddings (73%)
• Travelling (72%)
• Being able to support family financially (69%).

However, 41% of retired respondents admitted that they’ve ended up needing more money than anticipated.

Avoiding the shortfall
Due to rising life expectancies, many people can expect to spend several decades in retirement. You therefore need to give careful consideration to the below:

How much do you need? – what level of income will you need for your preferred lifestyle?

What do you have? – let’s take stock of your pension(s), savings and investments, and any other assets you currently have.

When do you want to retire? – this will give you an idea of how long you have to save before entering retirement.

Think about tax – there are serious benefits to properly utilising the tax allowances available to you.

Take advice – research** has revealed that people who take financial advice can expect to retire three years earlier on average. Advised consumers also believe they can fund their desired
lifestyle for six years longer than their non-advised counterparts.

Achieve the dream in 2024
Make 2024 the year you make your retirement dreams come true. We can help you work towards enjoying the retirement you’ve always dreamed of.

*Legal & General, 2023,
**Standard Life, 2023

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not
necessarily be repeated.

It is important to take professional advice before making any decision relating to your personal finances. Information within this newsletter is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not
necessarily be repeated. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency.
Taxation depends on individual circumstances as well as tax law and HMRC practice which can change.

The information contained within this newsletter is for information only purposes and does not constitute financial advice. The purpose of this newsletter is to provide technical and
general guidance and should not be interpreted as a personal recommendation or advice.

The Financial Conduct Authority does not regulate advice on deposit accounts and some forms of tax advice.

All details are correct at time of writing – December 2023.

Lifetime Allowance removal provides pension boost

Several months have passed since the Spring Budget, which, although not necessarily packed with good news stories, held one announcement that certainly did bring considerable cheer to higher rate taxpayers. A recent survey has revealed the dramatic impact that Chancellor Jeremy Hunt’s decision to scrap the pension Lifetime Allowance (LTA) is having on people’s retirement planning strategies.

Purpose of the move
In his first Spring Budget Statement delivered on 15 March, the Chancellor announced that the LTA charge would be removed from April 2023 and that the LTA would be abolished altogether from April 2024. This decision was essentially designed to remove a disincentive for retirement saving amongst higher earners and dissuade an increasing number of this group from retiring early.

Boosting pension contributions
New research* suggests the change has already had a significant impact on higher earners’ pension saving and retirement planning decisions both in terms of spurring more  contributions and encouraging retirement delays. According YOUR WINDOW ON WEALTH to the survey, 51% of higher rate taxpayers have restarted, increased or made plans to increase their pension payments since the announcement, with average additional payments amounting to £650 a month.

Extending working lives
In addition, 23% of respondents said they had delayed their planned retirement or are likely to delay their retirement due to the fact that they can now save a higher amount in their pension pot without facing a heavy tax charge. Furthermore, around 10% said they had actually come out of retirement as a result of the change, while another 6% were planning to come out of retirement.

Advice is paramount
While abolition of the LTA has undoubtedly simplified some decisions in relation to retirement and estate planning, it has also effectively increased the need for clients to seek professional advice on their pension arrangements due to the change in tax treatment. There is also always an element of political risk in financial planning which means clients may need to act quickly if they are to make the most of the opportunity the Chancellor has provided.
*1Investec, July 2023

Dividend Allowance cuts: implications for investors

With the UK in the midst of a sharp tax-raising drive, understanding the full impact of fiscal changes on investments has arguably never been so critical. One area that has been  subject to particularly draconian reductions is Dividend Allowance, with changes in this area likely to have a significant impact on many investors.

Six-year slide
The annual tax-free Dividend Allowance was first introduced in 2016/17 and originally stood at £5,000. In 2018/19, it was reduced to £2,000, and was then halved to £1,000 from the start of the current tax year. This figure is set to halve again next April to stand at £500 – overall, this equates to a 90% reduction in the value of the allowance in the space of just six years.

Implications
Once an investor uses up their annual allowance they are liable for Income Tax on dividends, with the rate payable based on the Income Tax band they fall into. These changes will therefore inevitably increase the tax pressure on any individuals who own significant dividend-paying stocks or rely on dividends as a primary source of income.

Other options
The Dividend Allowance is just one of the tax-free allowances investors can utilise in the UK. As a result of the cuts, it could therefore be increasingly beneficial for dividend-heavy investors to explore routes that offer exemption from dividend tax on qualifying shares, such as ISAs (which are also free of Capital Gains Tax). Alternatively, it may be appropriate for some investors to consider equity options that prioritise long-term capital growth over dividend payments.

Achieving Real Financial Empowerment

Traditionally, people might have assessed their financial health by simply checking the balance on their bank account or totalling their amassed level of wealth. In recent years, however, a different measure has emerged which seeks to balance financial stability with emotional wellbeing.

Financial empowerment

This new concept places greater emphasis on goals and developing a financial plan to achieve life’s aspirations; in other words, it’s about people gaining control over their finances rather than their finances controlling them. Achieving genuine financial empowerment does not therefore focus simply on someone’s level of wealth, but on handling that money so it has a truly positive impact on their wellbeing.

A state of mind

In many ways, financial empowerment is about understanding the emotional relationship with money by focusing on an individual’s mindset as well as their finances. Taking time to strategise, by aligning spending and savings commitments with long-term goals while being prepared for life’s unexpected financial challenges, can provide a logical, ordered approach that brings satisfaction and pride to our financial lives. In effect, it creates control that affords a sense of financial freedom and thereby puts us on track to a fulfilling, well-lived life and retirement.

Empowerment versus income

Analysis*, which compares people’s emotional experiences with their level of empowerment and earnings, offers further valuable insight. It found that financially empowered people had mostly positive experiences, even those in lower income brackets, while those who felt disempowered were generally less happy with their finances than their peers. This suggests that a sense of personal power rather than someone’s income level is the key to achieving emotional wellbeing in their financial lives.

It’s all in the planning

Financial empowerment effectively derives from equipping ourselves with the right tools. With the clear, transparent advice and professional support our firm provides, we can construct a well thought-out, long-term but flexible plan that will allow you to live the life you want and thereby achieve true financial empowerment.

*Morningstar, 2023

Pensions – Whats Changing?

During the Spring Budget the Chancellor announced several changes to pensions including increasing the Annual Allowance and the Money Purchase Annual Allowance. The changes, the most significant since pensions freedoms in 2015, have largely been met with positivity, bringing greater flexibility and opportunity.

Some higher-paid workers faced additional tax bills as a result of building sizeable pension pots or significant final salary benefits. The overhaul makes it easier for people to accumulate a  larger pension pot and not be penalised by taxes, also enabling them to build larger capital sums needed to produce sufficient retirement income. Let’s take a look in closer detail at some of the main changes, many of which took effect from 6 April 2023:

• The Lifetime Allowance (LTA) charge was removed, with the LTA (currently £1,073,100) itself expected to be formally abolished (likely to be April 2024), allowing people to save more into their pension over their lifetime without facing tax charges for exceeding it

• The standard Annual Allowance (AA) increased from £40,000 to £60,000 (max 100% of earnings), allowing many individuals to pay more into their pension each tax year and receive tax relief on it. Individuals are still able to carry forward any unutilised allowance from the previous three tax years. Increasing the AA will particularly benefit workers approaching retirement who may have neglected pension saving in the past, who will be able to pay more into their pension each year and receive tax relief

• The ‘adjusted income’ threshold for Annual Allowance tapering increased from £240,000 to £260,000 and the minimum tapered Annual Allowance increased from £4,000 to £10,000 (meaning that individuals with annual adjusted income of £360,000 or more will have an Annual Allowance of £10,000). The tapered Annual Allowance is the reduced pension Annual Allowance that is applied to those who now have an ‘adjusted income’ over £260,000, for every £2 earned above the £260,000 threshold the normal Annual Allowance is reduced by £1

• The Money Purchase Annual Allowance (MPAA) increased from £4,000 per tax year to £10,000, to encourage those drawing a pension to continue working. This is the amount you can pay into your pension after you have accessed pension benefits, and still enjoy tax relief. The additional MPAA means anyone already using their pension but continuing to work, or looking to  return to work, will be incentivised to do so as they can increase the size of their pension pot and receive tax relief.

Good for you

The changes only really impact the highest earners, those with generous company pensions and those wanting to aggressively fund their pensions later in life. The government is hoping the changes will incentivise those in certain high demand, high earning professions such as GPs and NHS consultants to postpone retirement. Professional pension advice is essential to ensure you make the most suitable decisions with your pension and to maximise your pension provision without encountering tax issues.