The World In A Week – The trillion dollar question?

Written by Millan Chauhan.

Previously, there were four other US stocks with a market cap greater than $1 trillion which included Alphabet (Google), Microsoft, Amazon.com, and Apple. NVIDIA has now joined this exclusive club following its immense rally year-to-date. NVIDIA was founded by Jensen Huang in 1993 and it has taken thirty  years for it to eclipse the $1 trillion market cap. Its capabilities stemmed from being a dominant player in the video game chips segment which benefitted greatly from the pandemic as demand for gaming increased substantially. However, the Company pivoted into the AI chips market with NVIDIA producing one of the core crucial components which is the graphics processing unit (GPU). With AI’s potential being understood, adopted in practice, and realised, the demand for this type of technology has skyrocketed as companies are devoting significant resource towards increasing their longer-term efficiencies within their business. The stock has returned +175% year-to-date and its valuation has become significantly more expensive but those now willing to pay more than 50x next year’s predicted earnings presumably expect their competitive position to remain unchallenged for years to come.

Last Friday, we saw further signs of a strong labour market in the US with 339,000 jobs added in May which vastly exceeded expectations of 190,000. However, we did see the US unemployment rate increase to 3.7% from 3.5% which was also above forecasts of 3.5%. The next Federal Open Market Committee meeting is in mid-June where the Committee will have received May’s inflation reading by then to make their interest rate decision.

Elsewhere, in Europe we saw eurozone inflation slow to 6.1% in May from 7.0% in April which was below forecasts of 6.3%. Christine Lagarde, President of the European Central Bank (ECB) stated that inflation is still far too high and that it is set to remain elevated for much longer. The ECB is also set to meet next week and will make its interest rate decision.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 5th June 2023.
© 2023 YOU Asset Management. All rights reserved.


Inheritance tax cut on the cards

The Prime Minister Rishi Sunak is said to be considering cutting Inheritance Tax (IHT) ahead of the next general election in 2024.

According to a report first published by financial news site Bloomberg, Sunak is considering a cut to IHT alongside other potential tax cuts in order to garner more public support ahead of a new election campaign. There is however little detail on the proposed cut and what it might contain.

What might an IHT cut contain?

The number of households liable to IHT has slowly crept up over a decade, mainly thanks to the threshold staying at £325,000 since 2009. This means that property values which have risen naturally over time have tipped homeowners over the threshold, resulting in more estates being subject to larger IHT bills. The basic 40% IHT rate has also remained the same for some time. As such, these two aspects of the tax could be the chief target of a change,  either with a cut to the rate or lifting of the threshold.

IHT is one of the most disliked taxes in the country, aside from the fact it is payable when someone dies, chiefly because it is seen as taxing assets and income that have already been heavily taxed along the way in life. Cuts to the tax would be a popular move. Research from legal firm Kingsley Napier found that three in five Brits (63%) support increasing the allowance, while nearly half (48%) would be in favour of abolishing the tax, which brought in £6.1 billion to HMRC last year, altogether.

Complexity

IHT was the subject of a review by the Office of Tax Simplification (OTS) in 2018. However, the main findings of this were that the process of IHT was too onerous for families and the administration should be simplified. The Government however rejected the changes in 2021.

Other potential changes could include the rules around gifting, the residence nil rate band – currently £175,000, and other aspects of the tax. It is however unlikely that we’ll see IHT cuts imminently. There are two key opportunities for the Government to make such a move, this Autumn in its financial statement update, or in the 2024 Spring Budget. This is open to political speculation and is dependent on how the economy fares this year. Government borrowing has already come in less than expected in the past 12 months, which suggests Chancellor Hunt could have more room for manoeuvre come his next financial update.

Ultimately, much will depend on the polls and whether the Prime Minister thinks he could win next May (a typical time of year to hold the general election) or wait until the last opportunity of December 2024.

Either way, the key message for anyone thinking about planning their wealth for the long term is to have a strong plan in place for any outcome. As the goalposts move, having access to key advice for structuring your wealth is critical for positive lifelong outcomes.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 16th May 2023.


Food prices rising at record levels – but does that mean higher inflation and interest rates for longer?

Households have felt persistent pressure on their everyday costs, but food price inflation has been particularly pernicious in recent months.

The Office for National Statistics (ONS) reported year-on-year food price increases of 19.1% in March 2023 based on the consumer price index (CPI) measure. This was an increase from 18% the month before. Consumer data provider BRC-NielsonIQ saw its shop price index show 17.8% price increases year-on-year in April – the highest increase seen in 45 years.

With the headline rate of 10.1% CPI inflation, should we be concerned about inflation persisting for longer, and thus bigger interest rate hikes?

Why food prices are soaring

Food prices are just one aspect of a wider basket of goods and services the ONS measures in order to gauge the general rise in the cost of living for households. Food price rises are particularly high because they suffer from the secondary effects of the kind of inflation the UK, and most of Europe,  is suffering. The current high level of inflation is primarily stoked by an energy crisis, which in turn is caused by returning demand post-pandemic and then the invasion of Ukraine by Russia.

Energy prices are a painful place to see rapid rises because they essentially affect everything else. From factory lines to food processing and just about anything else you can think of, households and businesses all need energy to function. If the price of energy rises, it holds that the prices of things we make should rise to cover that cost. Food is especially volatile because it has even more external factors that can affect it, plus major food production supplies, such as from Ukraine, are under extreme and unusual pressure.

Food prices are so volatile most countries produce ‘core inflation’ statistics that exclude food prices. CPI core inflation is currently at 6.2%.

Interest rates

With food inflation so persistently high, this begs the question whether the Bank of England will meet the challenge with more aggressive rate hikes in order to bring prices down. However, precisely because the bank knows how volatile food prices can be, it will be cautious about acting upon those figures alone.

Energy prices are starting to come down in earnest, with wholesale gas prices now below the level they were at before the invasion of Ukraine in February 2022 and at the lowest level since December 2021. Plus, other global macroeconomic effects such as an unusually strong dollar are busy unwinding. A strong dollar tends to increase inflation pressure because many commodities are traded globally priced in dollars.

If the pound falls versus the dollar, then those commodities become more expensive for the country to acquire and vice versa.  Since reaching a low of £1:$1.07 at the end of September last year, the pound has steadily gained ground and is now trading around $1.26.

All that said, the Bank of England will be cautious about ending rate hikes, or even starting cuts, until it is sure inflation is coming back to earth in a meaningful way.

Where does this leave me and my money?

Inflation is a critical metric to watch when it comes to long-term wealth management. The level of inflation has a direct impact on where central banks go with interest rates and this in turn has profound implications in everything from government debt and taxation levels to market performance and cash value erosion. Over time the figures might seem irrelevant but the only way to keep ahead of inflation and prepare for major financial and tax-based changes that will affect your portfolio and lifetime wealth is careful management.

If you would like to discuss inflation, interest rates and the general outlook for the rest of 2023 and the implications for your wealth, don’t hesitate to get in touch.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 16th May 2023.


When is your Tax Freedom Day?

Tax Freedom Day is the day in the year where, theoretically, you’re no longer working solely to pay your annual taxes and instead begin keeping your own money. These numbers are of course calculated by averages. Individually speaking, everyone will have a slightly different Tax Freedom Day of their own.

In 2022 Tax Freedom Day fell on 8 June, whereas in 2021 Tax Freedom Day fell a full week earlier, such is the heightened burden of taxation. It reminds us that any money you earn effectively goes straight into the Government’s coffers. Last year it took an average worker 159 days to start earning money for themselves. The Tax Freedom Day of 2022 was the latest on record, according to the Adam Smith Institute, thanks to a persistently increasing tax burden on households, and it is only predicted to fall even later in 2023. However, it is possible to bring your Tax Freedom Day forward.

Planning for tax efficiency

This especially matters if you’re facing taxes on more than just income. Taxation comes in many forms and can be a serious barrier to successful wealth growth.

Through an individual’s lifetime, taxation will take a cut of:

  • Property through stamp duty and council tax
  • Income through income tax (and National Insurance)
  • Expenditure through VAT
  • Profits on investments through capital gains tax
  • Profit on investment income through dividend tax
  • Passing on your estate to loved ones through inheritance tax (IHT)

There’s good news and bad news in this. Some of these taxes are essentially unavoidable. Income tax, council tax, VAT and stamp duty are effectively unavoidable unless you become a tax exile. Obviously with income tax there are ways to reduce the burden, but typically this comes from reliefs such as Marriage Allowance, which won’t apply to everyone and will only reduce the liability by a relatively small amount.

However, there are significant and effective ways to mitigate the effects of taxes on investments, long-term savings and other liquid investments. This comes primarily through the use of pensions and ISA allowances.

Pensions allow for the deferral of tax liability until you access your pension. Of course, there are implications when you do draw down, but the relief at source available makes this worth it to a large extent. Plus, the 25% tax free allowance and other ways to structure drawdown make pensions still very valuable. Add to that the recent abolition of the lifetime allowance and pensions are a viable method for mitigation still. Plus, pensions are currently largely exempt from inheritance tax, adding another feather to the cap of the vehicle’s tax efficiency. They can also be a good way of getting around the gifting allowance, as individuals are able to pay in to pensions for children or grandchildren from any age.

ISAs provide a reverse benefit to pensions for long-term tax liability mitigation. While you won’t get upfront relief for contributions, there are essentially no implications when it comes to using the money at the other end.

Finally, one of the most disliked and complicated taxes, inheritance tax (IHT), has a myriad of rules and allowances that allow for mitigation. However, what is essential to remember with IHT is these mitigations are best applied over time. This makes careful wealth management and planning critical. Coupled with well-structured growth through ISAs, pensions and other methods you could see your own personal Tax Freedom Day start to fall much earlier in the year.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 16th May 2023.


Should you trust finfluencers?

Financial influencers or ‘finfluencers’ are a major social media trend at the moment.

With millions of followers across platforms such as Instagram, TikTok, YouTube and elsewhere, these people purport to offer anything from small-time money tips to investing advice and financial ‘hacks.’ However the UK’s financial regulator, the Financial Conduct Authority (FCA), alongside the Advertising Standards Agency (ASA), has warned against finfluencers pushing financial products they have no authority on.

Far from helping you or your children with money, these finfluencers often recommend highly risky financial strategies and ideas that range from unregulated cryptocurrencies to straight up scams. Sarah Pritchard, executive director, Markets at the FCA comments: “We’ve seen more cases of influencers touting products that they shouldn’t be. “They are often doing this without knowledge of the rules and without understanding of the harm they could cause their followers.  “We want to work with influencers so they keep on the right side of the law, as this will also help protect people from being shown scams or investments that are too risky.”

Can you trust finfluencers?

Finfluencers have become something of a global phenomenon in recent years, with millions of followers and a global reach. However, it is precisely this global reach that creates the first issues for anyone listening to what they have to say.

Top finfluencers such as Humphrey Yang, Tori Dunlap or Taylor Price have combined followings of nearly 100 million people.  The first issue with these three is all are US-based. So, any information they pass on is likely not useful for anyone in the UK anyway. Also looking at their CVs, while Humphrey Yang says he’s an “ex financial adviser”, neither Dunlap nor Price appear to have any particular financial qualifications.

This phenomenon doesn’t stop with dedicated finfluencers however. Regular ‘influencers’ who routinely talk about areas such as beauty, food, travel and leisure are often paid by companies to promote products. Sometimes these can be innocuous things like face creams or clothing, but frequently people can be seen promoting financial products or investments that are wholly inappropriate. This is the nub of the campaign from the FCA which is warning against such activity.

The FCA partnered with well-known influencer Sharon Gaffka, famous for her stint on Love Island, in the campaign, who added: “When you leave a show like Love Island, you are bombarded with opportunities to promote products and work with brands, if like me, you’re new to this kind of work, it can be a little bit overwhelming. “This campaign with the FCA and ASA will hopefully make sure other influencers stay on the right side of the law and prevent them from unknowingly introducing their followers to scams or high-risk investments.”

Why financial advice matters

The allure of finfluencers is that they are easy to access and create content that is engaging – designed to capture your attention and make big claims based on spurious ideas. The reality of good financial management and long-term wealth growth is clear and concise planning and advice over many years, that takes into account different products, investment and strategies to achieve the strongest growth, income and tax efficient outcomes.

It’s essential that you speak to a financial adviser to ensure the best outcomes for your money. Conversely, if you have children who are achieving life goals such as home ownership and even saving for the future, it is important to bring them along on the journey too. This way they will have the best understanding of your plans, and how they factor in, and could benefit too.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 16th May 2023.


Energy market update: what’s happening to household bills

Households have come through Winter and things could be looking up for energy bills. The threat of power cuts failed to materialise, but many households would have felt the pinch as monthly direct debits soared to cover rising prices.

Now as we look towards Summer, the energy market and the Government’s response to the crisis is taking on a new dimension.

Ofgem price cap

The main measure to manage price stability for household energy bills has been in place for several years already – a price cap set by the energy market regulator Ofgem. It currently stands at £3,280, having taken effect from 1 April. This is down from the previous cap of £4,279. It is important to note however that bills will vary and these figures are an average used by Ofgem, and the cap actually applies to the kilowatt hours (kWh) used by a home, plus standing charges.

While it is good news that the price cap has been lowered, in practice it is still much higher than previous cap levels – thanks to high energy costs caused by excess post-pandemic demand and the conflict in Ukraine.

Energy Price Guarantee

Although it’s important to be aware of the price cap level, it is currently moot thanks to the Government’s additional Energy Price Guarantee (EPG), which was created to protect households from soaring costs last Winter.

Initially, the Government set the EPG at £2,500 per household. This was calculated like the price cap, keeping the cost per kWh lower than the market price – effectively subsidising household bills. The EPG was set to rise to £3,000 in April, but at the Spring Budget Chancellor Jeremy Hunt confirmed it would be maintained at the same initial level until June this year. The Government has also been paying a £400 rebate to all households, which should have been arriving monthly in the bill payer’s bank account over six months in payments of around £67.

Energy price outlook

The Government’s EPG is set to end in June. However, it looks increasingly likely that Ofgem will set a new price cap at this point below the EPG level anyway – rendering it effectively unnecessary. This is chiefly thanks to easing of the energy price shock and the market normalising, as it adapts to the new environment after Russia’s invasion of Ukraine.

In terms of actual prices to expect, this is subject to change, but current estimates from Cornwall Insight, an energy market analysis firm, suggest a new price cap of £2,024 in July this year, and £2,074 from October. This is of course subject to change as the market develops, but hopefully the direction of travel will continue downward for now, particularly if the global economy shows signs of weakness in the months ahead.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th April 2023.


The ins and outs of insurance protection

Insurance protection is an often-overlooked aspect of good wealth management. While we’re able to control our proactive wealth growth through saving, tax planning and other wealth tools, personal protection cover looks after what we can’t control. It is a critical aspect of an overall portfolio and should be a key consideration for anyone looking to ensure their loved ones are taken care of should the worst happen.

What do we mean when we talk about “protection?”

Insurance protection comes in a few different formats. This isn’t travel, home or car insurance which are all typical everyday insurance policies we buy through comparison sites. These kinds of policies underwrite you, your earnings and your future longevity.

What kinds of policies are there?

Life Insurance

Life insurance is perhaps the best-known protection policy but can vary in a few ways. Life insurance pays out a lump sum to a nominated person or persons should you die unexpectedly. The lump sum can vary depending on the policy you obtain, but it is common for cheaper policies to only cover outstanding major debts such as a mortgage.

You can opt for the level of pay-out you want; however, this will be reflected in the monthly payments you have to make. It is also possible to opt for a policy that pays regular payments rather than a lump sum. The proceeds of a life insurance pay-out are tax-free, but if your partner were to receive a large cash lump sum, inheritance tax could be a future consideration for them.

Income protection

Income protection is designed to pay out if you fall ill or suffer an injury which leaves you unable to work. Income protection typically pays out regular payments that, assuming you have the correct level of cover, should take care of your essential living costs should you be unable to work. This is particularly important if you don’t have savings to fall back on or have regular payments such as a mortgage that you would not be able to pay, were you to be unable to work due to ill health.

Income protection can pay out continuously until retirement if you become unable to work over the long term. Payments are tax free and multiple claims can often be made.

Critical illness

Critical illness insurance is a policy designed to pay if you fall sick with a major illness such as cancer, stroke or heart attack, or if you suffer a life-changing injury that prevents you from being able to work. However, the key difference with income protection is that critical illness cover only covers a list of illnesses specified in the policy, typically the most common kinds of serious illnesses.

The benefit of critical illness insurance is that it is generally cheaper than income protection, which is a broader policy. You will receive a tax-free lump sum pay out should you fall ill with one of the covered conditions, and partial pay outs can generally be claimed if you fall ill with a less serious condition. Some plans cover children in your policy too.

How much cover do I need?

The level of cover you need should be whatever you feel comfortable would take care of your needs, while meeting an acceptable monthly premium cost. As a rule of thumb, start with any major payments such as the mortgage and calculate from there how much you think you would need were you unable to work, or how much your partner or children might need to ensure they can continue to live in the family home.

Life insurance is really important if you have dependents, be they a partner or children. However, if your partner could cover the mortgage without your income and you don’t have dependent children, it might not be a necessary policy. It is also important to check with your workplace whether you have some kind of death in service benefit in place. This can sometimes negate the need for, or reduce the cover required for your policy.

What affects protection costs?

The costs of protection come down to your personal circumstances. In the first instance, the level of cover you require, and the longevity of that cover, will determine the cost of the policy premiums. Beyond that, a series of other factors matter too. Insurers will assess you based on your age, weight, pre-existing health conditions and your family medical history. They will also take into account other lifestyle factors such as whether you engage in extreme or dangerous sports, whether you work in a dangerous job or if you smoke. All of these can increase your ultimate premium levels.

An insurer will consider your marital status, how many dependents you have, your living costs and debts before suggesting any policy level. This can be very tricky to assess. If you would like to talk about your cover options or anything else related to your long-term wealth journey, don’t hesitate to get in touch.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th April 2023.


Faster State pension age rise paused: what it means for you

The Government has abandoned plans to bring forward the increase in the State Pension age, at least for the time being.

Claims surfaced in January that the Government was seeking to bring forward the State Pension age increase to 2035, leaving people aged 54 and under with an extra year to wait before receiving the valuable benefits. This was largely down to money-saving pressures from the Treasury as it looked to steady the Government’s long-term finances. However, now this would appear to no longer be necessary.

The Government has kicked a final decision on this into the long grass and it is not expected to happen until after the next General Election in 2024, as it is seen as a vote-losing decision if taken. Work and pensions secretary Mel Stride confirmed the pause to MPs, commenting: “Given the level of uncertainty about the data on life expectancy, labour markets, the public finances, and the significance of these decisions on the lives of millions of people, I am mindful a different decision might be appropriate once these factors are clearer.”

Current plans

Under current plans, the current State Pension age of 66 is set to rise to 67 between 2026 and 2028. It will then rise to 68 between 2044 and 2046. The latter change will affect anyone born after April 1977. A report published last year by Conservative peer Lady Neville-Rolfe aimed to ensure no one spent more than a third of their lives in retirement. The report recommended bringing forward the State Pension age increase to 68 by several years to 2041.

However, the Government is still reviewing actuarial data around life expectancy. A review by the Government into its retirement system funding found that life expectancy was not increasing as fast as expected, leaving the State Pension funding in a better position. Major events such as the pandemic and various crises in the health and care system appear to have clouded the picture on life expectancy for Brits somewhat. If indeed life expectancy isn’t increasing, or is even reversing, then the age changes may no longer be necessary at all.

The State Pension was created after the Second World War when life expectancy for average working adults was much lower than currently. This is why, in recent decades, the Government has been forced to undergo drastic changes to the rules and age boundaries, including equalising the retirement age for both men and women.

The State Pension has undergone a 10.1% uplift this year which means those in receipt of the new full State Pension will receive £10,600 a year. While this is a small amount of money, it still forms an essential, consistent part of retiree incomes, especially in later life.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th April 2023.


Budget Statement Spring 2023 Summary

The “Back to Work Budget” could create a quiet revolution in financial planning outcomes

Chancellor Jeremy Hunt’s Spring Budget 2023 took place against a backdrop of great economic uncertainty, with interest rates rising, inflation stubbornly high and the banking sector beginning to wobble. Uncertainty over inflation, interest rates, the progress of the economy and even the banking sector abounds.

However, despite concerns about how much fiscal power this would leave the Chancellor in the Budget, he managed to introduce a series of measures that could lead to a radical rethink in terms of financial planning strategies.

Spring Budget 2023 – the key measures

Economic forecasts

The Office for Budget Responsibility (OBR) has issued fresh economic forecasts showing a modestly improved outlook for the UK economy.

It predicts the UK will no longer slip into a technical recession – two quarters of economic retraction – in 2023 but growth will instead flatline, before picking up in the middle of the decade: 1.8% in 2024, 2.5% in 2025, 2.1% in 2026, 1.9% in 2027.

Inflation is set to fall to 2.9% by the end of 2023, according to the OBR, down from a peak of 11.1% in October 2022, while it expects the Bank of England base rate to peak at 4.3% in the third quarter of 2023.

The fiscal watchdog has forecast higher-than-expected employment but predicts unemployment will rise to 4.4% in 2024 from 3.7% at the end of 2022, before returning to a structural rate of 4.1% by 2028.

Employment will increase in the long-term thanks largely to the State Pension age increase in 2028 and other measures in the Budget designed to encourage people back into the workforce, it says.

Real household disposable income is expected to fall by 5.7% over two years (2022-23 and 2023-24), 1.4 percentage points less than previously expected. The fall is thanks chiefly to rising energy costs for households and will be the largest decline since 1956-57.

As for the property market, the OBR sees house prices falling around 10% between the fourth quarter of 2022 and the end of 2025. However, it believes prices will have recovered by the end of 2027.

Meanwhile, it sees mortgage rates peaking much lower than previously, just above 4% in 2027 – 0.8 percentage points lower than it predicted in November.

Business and economic measures

The Government has pressed on with the previously announced hike of corporation tax to 25% from 19%. However, Jeremy Hunt stated that just 10% of businesses would end up paying this level of tax.

He also announced the replacement of the business tax super deduction with a ‘full capital expensing’ scheme, worth £9 billion a year over three years to businesses. The OBR forecasts this will increase business investment by around 3% a year.

The Ministry of Defence has had a spending boost of £11 billion over five years, while a new potholes fund of £200 million has been created for local councils to fix roads. The Chancellor is also setting £60 million aside to help local pools and leisure centres in financial straits.

Meanwhile nuclear power will be reclassified as sustainable for tax purposes alongside wind and solar, while a new ‘Great British Nuclear’ institution will be created to oversee a transition to more nuclear power for the country. The government will also tender for the provision of small nuclear reactors.

Personal taxation

Big change comes for pensions. The pensions annual allowance is rising 50% – from £40,000 to £60,000.

The big rabbit from Jeremy Hunt’s hat came with the abolition of the pensions lifetime allowance. It had been expected to be raised from £1.073 million to £1.8 million but it has been removed completely. The charge has been cancelled from the new tax year 2023-24, while it will be abolished entirely in a future finance bill.

Alongside this, the money purchase annual allowance (MPAA) and tapered annual allowance (TAA) have been hiked from £4,000 to £10,000.

Plus, the adjusted income level required for the tapered annual allowance to apply to an individual increases from £240,000 to £260,000. However, the pensions tax-free lump sum has been capped at 25% the original lifetime allowance or £268,275.

All these changes will take effect from 6 April this year. There are no changes to income tax thresholds or ISA allowances for the new tax year. There are also no new reductions to dividend or capital gains tax allowances, other than those already announced for the new tax year.

Households, lifestyle and sins

Among the Chancellor’s banner announcements were big changes to how childcare provision is funded and regulated in England and Wales. The childcare staffing ratio is being aligned with Scotland at 5:1 while nurseries will receive a significant funding uplift and all schools will begin to offer wraparound care from September 2026.

Hunt also announced a giveaway worth more than £6,500 a year on average for young families with the extension of free childcare hours to children aged nine months and over.

Any child over two years old will be able to receive 15 hours of free childcare a week from April 2024.  From September 2024 this will be extended to nine months and over and from September 2025 this will increase to 30 hours. The policy is expected to cost the Government around £4 billion a year, according to the OBR.

The energy price guarantee (EPG) has been extended for a further three months. This will cap the average household energy bill at £2,500.

It is expected that the price of energy will fall below the guarantee level in the intervening period, making further guarantees from the Government unnecessary as average bills reach £2,200 by year end according to the OBR.

Fuel duty has been frozen for another year while the 5p reduction – introduced last year amid soaring prices – has been maintained for another 12 months.

As for sin taxes, alcohol duty is increasing in line with RPI. The Government is increasing draught relief – the level of tax on fermented alcohol bought from a pub (i.e., beer, cider and wine) – giving pubs an 11p tax advantage over supermarkets. Tobacco duties are increasing again by RPI + 2%.

Download the full Budget Statement Spring 2023.


High earners are failing to claim pension tax relief – how to claim

High earners have failed to claim around £1.3 billion in pensions tax relief in the last five years, according to figures obtained by pension provider PensionBee.

While the number of people failing to claim has fallen in the past five years, the amount of money going unclaimed is still too high. In 2020/21, the average amount that taxpayers failed to claim was £425 for basic rate payers, and £527 for higher rate payers. Anyone can claim tax relief on pension contributions, up to 100% of their income with a cap of £40,000. If you are a basic rate taxpayer, you’ll get a 20% top-up on your pension contributions, while if you’re a higher rate taxpayer, this increases to 40%. Additional rate taxpayers receive 45%.

The reason why higher rate taxpayers miss out on valuable extra contributions comes down to a technical way in which employers pay their staff. Those who pay to a pension provider using a “net pay” or “gross tax basis” arrangement will earn tax relief automatically. However, if your employer and pension provider operate on a “relief at source” method, the pension provider will claim 20% of the tax relief from HMRC and pay it into the pot. If you’re paying the higher rate of tax, the relief isn’t automatically applied at the higher level.

How to claim for higher rate relief

The first thing to do is check with your employer whether your pension payments are paid under relief at source. This also includes self-invested pension pots (SIPPs) that you contribute to independent of your employer. If that is the case, then to claim the additional tax relief you’ll need to fill out a self-assessment tax return. If you already do this annually that is good, you can use the form to make the claim. PensionBee says around 75% of higher rate payers already do this. However, this leaves one in four not claiming, while around half of additional rate taxpayers don’t either.

You can either fill out a self-assessment tax return, or instead contact HMRC to claim. Claims can be backdated for up to four years, which could add up to a highly valuable extra amount into your pension pot.

Pension savings are especially valuable because unlike in ISAs, your wealth is given a head start thanks to the tax-free element. This means over years of contribution and investment; your money will have more resources to grow with over time.

Of course, a pension is just one aspect of an overall wealth growth strategy. If you would like to discuss this or your options more broadly, don’t hesitate to get in touch.

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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 14th March 2023.