The pound in your pocket
Sterling is under pressure, falling in value against the dollar, the Euro and other currencies such as the Australian dollar. In consequence, imported goods and trips abroad are becoming more expensive.
The decline in sterling also affects retired people living abroad on UK pensions and UK residents funding outgoings on overseas property or re-paying foreign currency mortgage loans. Equally, the cost of buying overseas property is increasing by the day.
Despite on-going concerns about the US budget deficit and the financial health of the ‘Club Med’ members of the EU, there appears to be little immediate prospect of the pound picking up in value. Economic growth remains weak and both the government and the Bank of England seem to favour a weaker currency, which helps exporters and reduces the burden of national debt. It also encourages inward investment into the UK by foreigners.
Investors in major UK companies will to a substantial degree be shielded from the decline, because many derive a sizeable proportion of their earnings from overseas sales. Some big mining and oil companies declare dividends in dollars, which provides a boost to sterling payments. Investments in foreign companies should also benefit.
However, long-term investment decisions should not be made on the basis of what could prove to be short-term currency movements. The possibility of “currency wars” has been forecast, as policy makers jockey for competitive advantage. As always, the best policy is to diversify risk and opportunity.
Nil-rate band trusts
News that the nil-rate band for inheritance tax is to be frozen until 2015/16 has reminded some clients of the legislative changes which were introduced in 2008 and which provide similar benefits to those conferred by the “nil-rate band trusts” which many clients have included in their Wills.
Assets passing on death are exempt from inheritance tax up to a value of £325,000, and each partner in a marriage or civil partnership is entitled to this exemption in respect of their own assets. However, transfers within such relationships are entirely free of inheritance tax, so the benefit of the nil-rate band exemption would be lost on the death of the first partner.
Before 2008, many clients and their partners were advised to establish back-to-back Wills under which an amount equal to the nil rate band was directed to be held on trust for potential beneficiaries including the surviving partner. This arrangement served to utilise the nil-rate band, while the rest of the estate passed tax-free to the survivor outright.
The legislative change in 2008 obviated the need for a trust, by enabling the survivor to inherit their deceased partner’s nil rate band and to pass assets worth up to £650,000 free from inheritance tax. However, Wills which contain nil rate band trusts need not be re-written, and may provide other benefits.
Will-writing to be regulated?
Currently, there are very few legal services which only authorised lawyers are permitted to provide. These “reserved activities” include litigation, probate activities, notarial activities and the administration of oaths.
In the days before the Legal Services Act of 2007, when only solicitors and barristers practised law, the ability of the Law Society and the Bar Council to police standards of behaviour provided some reassurance that consumers’ interests would be safeguarded.
Now, however, the Act is permitting non-lawyers to enter the market and there have been calls to extend the range of services which can be provided only by regulated firms.
The first area of concern has been Will writing, and the Legal Services Board, the over-arching legal regulator, has now recommended to the government that this should be made a reserved activity. The Law Society had proposed that administering estates and arranging powers of attorney and trusts should also be regulated, but as yet this plea has fallen on deaf ears.
Reclaiming overpaid tax
In April 2012 HM Revenue and Customs reduced from six years to four years the time limit for reclaiming over-paid tax. Consequently, anyone wanting to claim back tax which was overpaid in the year 2008/9 needs to act before 5 April 2013.
Those who could be eligible for rebates include pensioners and low earners who have had tax deducted at source from bank and building society interest and pensioners who have not received higher age-related personal allowances.
People who have worked for less than a full tax year, perhaps because of redundancy or becoming self-employed, need to check whether the tax they have paid was calculated on the assumption that salary would be paid for the whole year. It is also worthwhile for employees to check that they have actually received the P11D benefits on which they have been taxed.
Members of personal pension schemes only receive basic rate tax relief of 20% when making their contributions, and must reclaim the additional 20% relief via their tax returns. Those who have not already done so may also be affected by the time limit, as could those who have made donations to charity which could benefit from gift aid.
Risk warnings
This document has been prepared based on our understanding of current UK law and HM Revenue and Customs practice, both of which may be the subject of change in the future. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future. It is important to note that in selecting ESG investments, a screening out process has taken place which eliminates many investments potentially providing good financial returns. By reducing the universe of possible investments, the investment performance of ESG portfolios might be less than that potentially produced by selecting from the larger unscreened universe.
