How to protect your budget from the energy price crisis

Gas price rises have soared thanks to rocketing demand for the fossil fuel as the global economy gets going again.

It is something of a perfect storm for households as the government’s energy price cap is rising too. It now stands at £1,277 and is predicted to rise again next April to above £1,600, thanks to mounting wholesale prices.

The issue it has created for the UK is that many firms in the energy market rely on low prices to offer better deals to households than the ‘big’ firms.

But this has led to a lot of companies collapsing as energy prices rise. The upshot of this is that consumer choice in the market has been totally wiped out. Price comparison services such as uSwitch have even suspended their energy price comparison services as a result.

So, what can you do to keep a handle on your energy bills with such issues at hand?

Still try and switch

If you weren’t already on a cheap deal, you could still find a provider that will offer you a better price than the energy price cap currently stipulates.

Firms such as Octopus Energy, E.On and others still offer lower prices although you may not be able to find them on price comparison sites at the moment. It is worth researching and getting quotes from as many companies as you can.

Improve your home’s efficiency

Improving energy efficiency of your home can range from minor tweaks to big projects, but there are some ways to go about it – especially if you live in an older property. For starters, excluding any kind of draft and keeping doors inside closed will retain more heat in rooms.

Other ideas, which may seem more wacky but are in fact quite effective, include getting radiator foil which reflects heat from your radiators back into the house.

Smart plugs and timers strategically placed in the house can also be a good way to save energy, especially if you forgot to turn the TV off at the socket before bed.

Other higher investment and more long-term efficient solutions include getting brand new roof and wall insulation installed. This can cost thousands but will be recouped as your bills come down over time.

Finally, installing new eco-friendly biomass boilers or solar panels have a high upfront cost, but could in time pay you for putting energy back into the grid. According to Renewable Energy Hub such equipment could save you up to £2,000 a year in energy bills.

Turn down the thermostat

Ultimately the ‘price’ you are quoted is only ever an estimation by the energy company of what they think you will use.

If you live in a three-bed house and they estimate you’ll use £1,500 of energy per year, it doesn’t mean you’ll actually use that amount. The one sure-fire way to pay less for your energy bills is to simply use less energy! This means turning down the thermostat, putting on a jumper and slippers and having a hot water bottle in bed at night.

Although it is not advisable to slash your energy usage in mid-winter, especially if you’re older or have any health conditions, finding ways to cut down on overall energy usage can have miraculous effects on your bills.

Minor changes such as turning off electric appliances you’re not using at the wall socket, cutting down on tumble dryer cycles, and switching to energy efficient lightbulbs will have a significant impact on your bills in the end.

 

by Jess Wooler

Budget 2021: Here’s what to expect from Rishi Sunak’s upcoming tax announcements

The Chancellor, Rishi Sunak, will deliver his latest taxation and spending policies on 27 October.

The Budget will account for the government’s spending plans and how it intends to fund that spending. While we can only predict what is likely to come up, we already know that the government is adding 1.25% to the annual cost of National Insurance. This will already add hundreds to the tax bills of anyone who earns an income via salaried employment or company dividends.

Other policies we already know are on the horizon:

  • Self-employed tax tweak – as part of the government’s ‘Making Tax Digital’ shift, basis periods for self-employed workers are being reformed. While not costing them more upfront, it will net more income for the Treasury as it speeds up the timeline for taking revenue.
  • Corporation tax hike – a range of coronavirus relief measures are due to expire, meaning that overall corporation tax burdens will rise significantly in the new tax year.
  • Minimum wage hike – announced by Boris Johnson at the Conservative Party conference, the so-called living wage is set to be raised to £9.42 an hour.
  • Student loan repayment threshold – this is likely to be lowered from the current £27,295 salary threshold, meaning more graduates will have to start paying the 9% levy on their incomes.

It is possible that further tax rises or changes to personal allowances may be limited. The government will be (politically) aware that more tax hikes will not be welcomed by the public. But Boris Johnson’s Government still has a lot of time before the next election. With restraint and paying down the debt of the coronavirus heavy on Sunak’s mind, what else could be coming up?

Here are some potential policies the Chancellor could unveil.

Capital gains tax

Recently touted and often referred to, a capital gains tax hike might hit the Conservative’s wealthier voters hardest but would be the easiest to square with the so-called ‘Red Wall’. Capital gains are taxed at a lower level than income, with many critics saying the rates should be equivalent as it effectively gives a tax break to those able to earn a living via capital gains – i.e. people who already have capital.

Inheritance tax

This is another one that has been on the cards for some time, but hasn’t yet materialised. Inheritance tax (IHT) is a much-loathed duty for families to pay after the death of a loved one. But it is also the target of the Office for Tax Simplification (OTS) because it is a very complicated levy to pay and is riddled with rules, exemptions and differing allowances.

Chances are that if Sunak does anything, he’ll work to simplify rather than raise or lower IHT rates. This would likely have the effect of not directly seeming like a hike – but will most likely raise more revenue for the Treasury as people will lose ways to avoid paying.

Pensions tax relief

Almost always on the chopping block but never actually cut (yet) – the rate of pensions tax relief for higher rate payers has been a low-hanging fruit for a long time. Doing away with higher rate tax relief on pensions could net the Chancellor an immediate multi-billion-pound windfall and would only affect higher earners.

If you would like to discuss your portfolio or any of the potential changes mentioned in this article, don’t hesitate to get in touch with your adviser.

 

by Jess Wooler

Inflation is causing chaos, but good wealth management can bullet-proof your finances

Inflation is rising quickly, and with it the cost of living for everyone. But canny wealth management can be the best safeguard against the rising tide of costs.

Inflation – or the pace at which the price of goods and services rises – is at its highest level since March 2021. The current rate of inflation, as of 15 September, is at 3%, based on the Office for National Statistics (ONS) CPIH which includes housing costs and is considered the most accurate measure.

Areas such as petrol costs, energy bills prices, food shops and all manner of other expenses are soaring in price as the country adapts to demand after the worst of the pandemic. But day-to-day personal finance pressures of rising bills aside, one of the most pernicious impacts of high inflation is the erosion it causes to wealth.

Inflation is the very reason why good wealth management matters. The current top-rated easy access cash ISA offers a rate of just 0.6%, according to Savers Friend.

Inflation is still expected to increase this year, but relatively speaking the average rate on inflation over the last 30 years has been 2.9%.

Using this calculator from Candid Money, we can see the impact inflation has on savings. At a rate of 3%, £100,000 of savings today will only have the purchasing power equivalent to £54,379 in 20 years’ time. That is an extraordinary erosion of wealth.

Were this pot of cash to sit in the best-buy cash ISA mentioned above, it would grow to £112,746 and have today’s equivalent purchasing power of just £62,425.

Instead, if you were to invest that £100,000 with an average return of 5%*, after inflation averaging 3% over 20 years, you’d be left with a pot worth £271,264 – which would have the equivalent purchasing power today of £150,192. And this is without added future contributions.

The importance of tax

The other greatest factor that will have an impact on the value of your wealth, ultimately, is tax. While it is unknown what the government will do with its latest measures, we have a taster of what is to come in the form of the National Insurance hike.

There’s no guarantee on what measures will be changed, but it is likely as the government looks to pay down coronavirus debt it will at the very least attempt to close some loopholes and end some tax perks.

The issue here is it is extremely difficult to keep ahead of these kinds of tax changes. While it’s a reasonable bet that ISAs will be protected, other tax wrappers such as pensions are under constant scrutiny for what is called ‘salami slicing’ or the whittling down of allowances and closing of other benefits.

Combined with the harsh realities of inflation, smart wealth management, undertaken in conjunction with a qualified financial adviser, is a no-brainer that will save your hard-earned nest egg from crumbling.

*Investment returns are never guaranteed, this is taken as a representative example.

 

by Jess Wooler

National Insurance hike: From dividends to salaries - what it means for your money

The government has announced that it intends to hike National Insurance payments by 1.25% from April next year.

The change will take effect from the new tax year, 6 April 2022. It will have an impact on  anyone in employment, self-employment and those over state pension age but still in work. Workers’ wages, investment incomes and anyone who takes an income via dividends will be affected.

The government says it is raising the tax in order to help fund the cost of social care, while also using some of the cash in the short term to clear the backlog of NHS patients caused by the pandemic.

How much will I pay?

When it comes to extra tax on salaried income – a basic rate payer who earns £24,100 a year would be £180 worse off after the NI hike in 2022-23. A higher rate payer on a wage of £67,100 would contribute £715 more in the same period.

What about dividends?

The government says it will also increase the tax paid on dividends to help fund the cost of social care. The current tax-free allowance for dividend income is £2,000 per tax year. Above this, basic-rate taxpayers have to pay 7.5% tax on dividend income. This will rise to 8.75%. Higher rate and additional rate payers will see dividend taxes rise to 33.75% and 39.35% respectively.

Are limited company owners affected?

The move will also affect anyone who owns a limited company. Many adopt this structure as a way to pay themselves an income via dividends, as the rates are generally speaking around 5% lower than income taxation. Anyone who takes a salary from their company and dividends too faces a double hit of extra taxation.

If you would like to discuss the National Insurance rise and what it might mean for your portfolio or income, don’t hesitate to get in touch with your adviser.

by Jess Wooler

The World In A Week - Facebook, faceplants

Equity markets were generally flat last week in Sterling terms, with the only real exception being MSCI Japan that sold-off -3.0% in Sterling terms, though a large portion of this was down to Yen weakness, which declined -1.7% versus the pound. The environment continued to be challenging for bond markets, the focus on inflation expectations and the forward-looking interest rate environment drove yields higher. The Barclays Global Aggregate Index and the Barclays Global High Yield Index sold-off -1.4% and -1.3% respectively.

With the third quarter earnings season still a week away, the focus during the week was on the September payroll numbers coming out of the US. The report came as a disappointment, with payrolls rising $194k in September versus expectations of $500k. However, details within the report illustrated bright spots, and likely positive enough to keep the Federal Open Market Committee (FOMC) on track to announce the beginning of tapering at their November meeting. Some of the positive read throughs from the Non-Farm Payrolls (NFP) included an increase in the average work week and average wages, which should ultimately help increase spending. Despite the overall lacklustre report, bond yields reacted in-line with the expectation for the Fed to proceed with tapering, as the US 10-year treasury yield closed above 1.6% for the first time since June.

On the corporate side, we did have a few announcements. PepsiCo, in the US beverages sector, beat expectations as they saw stronger organic sales driven by their international business, which is potentially a positive evaluation for multi-nationals. The Company’s gross margins missed their target due to higher costs/labour, which is not a huge surprise in this extraordinary inflationary environment. Levi’s (US clothing and apparel) also stood out, beating and raising expectations, as they were able to offset cotton price headwinds by pricing power. The moral of the story appears to be that pricing power, and a strong brand, is what is likely needed to win in the current inflationary environment.

Last week was one that founder and CEO of Facebook, Mark Zuckerberg, would probably rather forget. At a U.S Senate hearing, whistle-blower Frances Haugen called out the social media behemoth for allegedly placing profit before child safety, society, and democracy. Amid a storm of criticism, Zuckerberg responded with a “not true”. To compound matters, Facebook services including Instagram and WhatsApp went dark for several hours, making a winner out of Snapchat and helping send Facebook shares down the most since the coronavirus pandemic began.

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 11th October 2021.
© 2021 YOU Asset Management.  All rights reserved.

by Jess Wooler

The World In A Week - The Dot-Plot Thickens

Last week saw the Bank of England signal their intention to raise interest rates from February 2022 with mounting concerns regarding this “transitory” inflation.  Interest rates are currently at 0.1%, having been cut from 0.75% in February 2020 following the COVID-19 pandemic.  The emergence of this news resulted in lower demand for UK Government debt which saw the 10-year gilt yield rise to 0.88%, its highest level for over 3 months.  The Federal Reserve announced it would keep rates the same at 0.25% and will likely begin raising rates in 2022.  The Federal Open Market Committee also stated that it will start pulling back on the pace of its monthly bond repurchases from November and is expected to release a schedule at November’s meeting.

The Bank of England Monetary Policy Committee expect inflation to rise further as we head into the winter season. We are already seeing visual evidence of this from the fuel-driver shortage which has caused mass disruption to fuel supply levels.  Brexit is partly to blame for this, given numerous EU-born drivers fled back home to continental Europe, and the pandemic slowed down the ability to get new HGV drivers trained up.  The British transport department announced that 5,000 foreign HGV drivers would qualify for temporary visas up until Christmas, to ease the pressure on domestic supply chains, but it remains unclear whether this will be enough to fix the situation.  A further 5,500 visas have been made available for poultry workers to protect the food industry from facing similar issues.

The Furlough scheme, that ends on 30th September, has also contributed to the lack of fuel supply with workers not rushing to get back into employment.  With the scheme entering its final week of operation, Rishi Sunak hopes this will rectify the supply of labour shortage we are currently experiencing.  On paper, the Furlough scheme has cost £70bn over the last 18 months but has supported over 9 million jobs and protected thousands of British businesses that would have otherwise struggled to remain in operation.

Elsewhere, last week saw the climax of the German elections which will see Angela Merkel end her 16-year term as Chancellor of Germany.  Expectations are that  Germany's centre-left Social Democrats (SPD) will beat the Conservatives (CDU) in federal elections. However, should there be no clear majority, which is the most likely scenario, a coalition deal will have to be struck.

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 27th September 2021.
© 2021 YOU Asset Management.  All rights reserved.

by Jess Wooler

The World In A Week - All Over the Shop

After a sedate summer, August has proved to be a bit more of a challenge for markets as global equities (as measured by the MSCI All Country World Index in GBP) lost -0.2% last week and are now down -1.3% for the month to date.  Japanese equities have massively bucked the global trend this month, rallying +7.2% in GBP as the market cheered the resignation of Yoshihide Suga from the position of Prime Minister following a disappointing initial vaccine roll-out.  We have benefited from our overweight to Japanese Equity and believe many of the reasons we have liked the market are now being given more attention by other global investors.

Market commentators are of course always on hand to offer explanations for the softness in performance we have witnessed this month.  Our view is that it is likely a confluence of factors, after a period whereby equity returns have essentially gone in a straight line up and to the right this year.

Inflation is the most important topic that is being debated, and the debate is likely to rage for longer than most anticipated.  Inflation data is all over the shop (pun intended).  “Core” inflation in the US, which excludes volatile food and energy prices, was up only +0.1% in August, but this was supressed by airline tickets and used cars (which had risen sharply in prior months) rolling over, likely due to the persistent but manageable COVID-19 delta wave in the U.S.  For September to date, used cars are once again looking like a positive contributor, as are energy prices, given the brewing energy shortage we are witnessing in Europe.  Sky-high shipping costs, as well as labour and delivery shortages, across the globe give credence to our view that inflation might stick around a bit longer than expected.  Indeed, the Nespresso capsules which power this update took over a week to deliver for that very reason(!).

Given our steady but pro-active approach, there are already multiple exposures in our portfolios that actually stand to benefit from higher inflation and the resulting higher interest rates, including our short-dated inflation linked bonds, Property & Real Assets and value equities.

Further afield, coffee is not the only thing that has been brewing, as there could be potential trouble on the horizon from the anticipated default by Evergrande, the world’s most indebted property developer.  The Chinese behemoth owes more than $300bn to creditors, including a crucial interest payment due on Thursday.  One of our Absolute Return managers has been buying protection against the consequences of such a default getting out of hand.  As ever, challenges present opportunities.

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 September 2021.
© 2021 YOU Asset Management.  All rights reserved.

by Jess Wooler

The World In A Week - Wars on all Fronts

Last week was generally negative for equity markets. Most regions sold-off around -1%, with the FTSE All Share Index in the UK down -1.5% and the S&P 500 in the US down -1.6%.  There were some exceptions to this, with MSCI Japan +3.6% and MSCI China +1.1%.  Our overweight exposure to Japanese equities will have been a positive contributor to performance.

Last week marked the 20th anniversary of 9/11. A terrible event and a scar on human history, one which has left a deep national trauma on the US. The last twenty years has seen the US spend trillions of dollars trying to rid the world of terrorism.

At the same time the war on COVID-19 continues around the world.  As the delta variant wreaks havoc in the US, President Joe Biden has gone on the offensive against anyone who is not willing to be vaccinated and federal employees could be fired if they do not take the vaccine.  Israel, which has been one of the leading nations with vaccine rollout,  is now one of the world’s biggest pandemic hotspots.  There are stark warnings coming out of Africa that the proliferation of COVID-19 variants could lead to vaccine-evading mutations.  In the UK, preparations are starting for a program of “mix and match” of coronavirus vaccines as booster shots, to fight against such possible mutations.

In big tech land – Apple has been fighting its own wars in the courts against Epic Games. Apple has been ordered by a federal judge to substantially alter its business model, forcing them to allow its developers to “steer” customers away from Apple’s payment processing service.  The ruling, one of the first major legal actions taken against a tech giant in a new era of antitrust scrutiny, is sure to echo loudly in Washington where a legislative effort to rein in the power of Big Tech is underway.  This fight could have many ramifications and is one to watch.  Apple’s stock price fell -3.5% on the announcement of the ruling.

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 13th September 2021.
© 2021 YOU Asset Management.  All rights reserved.

by Jess Wooler

Daniel Craig’s kids won’t see any of his money, but there are ways to bequeath responsibly

With the release of ‘No Time To Die’, James Bond star Daniel Craig says he’d prefer to spend or give his money away than leave it to his kids.

Actor Daniel Craig announced in an interview that he intends to give away most of his wealth when he dies, rather than leave it to his kids.

The James Bond actor went as far as to call inheritance ‘distasteful’. In his interview with The Telegraph, he did however demure slightly saying he does not intend to leave “great sums.”

Craig explained he intended to give away his money to charitable causes, and to otherwise spend his wealth before he dies rather than bequeath it to his children.

The James Bond actor’s approach could be seen as a noble one – his wealth will go to good causes and his kids won’t have the poison chalice of unearned wealth thrust upon them.

But there needn’t be such a gulf between approaches. There are several, arguably more responsible, ways to see that loved ones are looked after outside of the ‘traditional’ inheritance.

Gifts

Regular gifting is a great tax efficient way to use some of your wealth to help out loved ones. The rules are pretty straightforward, and the allowances not so high that you’ll need to worry about spending splurges.

The annual limit for gifting is £3,000, known as your ‘annual exemption.’ You can gift up to £3,000 to one person, or split this amount between as many people as you want.

It is also possible to carry forward the allowance for one year if you don’t use it in the previous tax year – meaning you could give £6,000 away.

You can also give up to £250 to anyone with no limit on how many £250 gifts you give – as long as you don’t use any other allowance to give to that person.

Finally, if your child is getting married you can gift them up to £5,000, separate from the above allowances. For a grandchild the marriage gift can be up to £2,500. Anyone else and you can write off a gift of up to £1,000 for a wedding.

JISAs

If you would like to share wealth with a child over time but they’re still too young to take responsibility for the cash, a Junior Isa (JISA) could be a fantastic option to help grow a nest egg for them.

The allowance for JISAs is now very generous - £9,000 per year per child. If you contribute regularly to a JISA it is classed as ‘excess income’. As long as it is not materially affecting your lifestyle, it is therefore inheritance tax exempt.

Pensions

The ultimate in responsible inheritance – setting up a pension for your child can be both tax efficient, and will ensure they can’t access in until pension freedom age (currently 55 but set to rise to 57 in 2028).

The Junior Sipp allowance is more restricted at £3,600 a year, but like the JISA is exempt from Inheritance Tax (IHT) as long as you can prove it doesn’t affect your day-to-day finances.

The ultimate benefit of a pension for your child is that they can’t access it until retirement. Plus with so many potential years of gains and compounding to be had, the sum you leave in their account could become extremely valuable over time (performance permitting).

If you would like to discuss any of the above options for inheritance planning, don’t hesitate to get in touch with your adviser.

 

 

 

by Jess Wooler