The Financial Conduct Authority (FCA) recently announced a plan for tougher regulations of cryptoassets, such as Bitcoin.

Recently published research undertaken for the FCA showed that in August 2022, nearly five million UK adults owned cryptoassets, typically cryptocurrencies such as Bitcoin and Ethereum. That was more than double the number in 2021, despite a drop of 75% in the total market value of cryptoassets between November 2021 and June 2022.

The degree of crypto’s volatility puts such investments in serious jeopardy. In fact, there is some question as to whether crypto should be classed as investment at all. Making decisions around what to include in your investment portfolio should always include professional advice.

Losses and regulation

The FCA is understandably concerned about the spread of cryptoassets. Since the start of 2022, there have been several failures of crypto businesses that the regulator says has resulted in “significant losses for consumers”. Some of those crypto-crashes hit the media headlines, including the spectacular fall from grace of Sam Bankman-Fried’s FTX and the demise of the Terra/Luna stablecoin. Across the Atlantic, two of the world’s largest surviving crypto exchanges, Binance and Coinbase, were sued in June by US regulators for allegedly breaking securities law.

The FCA is in a slightly awkward position when it comes to crypto because the government is anxious to “put the UK at the forefront of the developing global cryptoasset fund management sector”, in the words of the Andrew Griffith, Economic Secretary to the Treasury. Banning cryptoassets or limiting them to institutional and high-wealth investors, is therefore not a straightforward option the FCA could adopt. In a simpler world, the regulator might well justifiably prefer an outright ban because of the demonstrably high risks involved in crypto.

Instead, the FCA is addressing the promotion of cryptoassets to ensure that would-be purchasers are fully aware of the potential risk. From 8 October 2023:

·    Risk warnings will make clear that consumers should not expect to be protected by the Financial Services Compensation Scheme or the Ombudsman Service if something goes wrong.

·    Investment incentives and refer-a-friend bonuses will be banned.

·    There will be a 24-hour cooling off period for first-time investors.

Interestingly, the FCA consumer research shows the most common reason for buying cryptoassets was “as a gamble”. That attitude matches the view of the Treasury Select Committee, which recently recommended cryptocurrency trading should be regulated as gambling.

The kind of attention that cryptoassets are increasingly under should serve as warning enough for those tempted to by-pass professional advice. The Committee said that “…cryptocurrencies such as Bitcoin have no intrinsic value and serve no useful social purpose, while consuming large amounts of energy and being used by criminals in scams, fraud and money laundering.”  That viewpoint could actually make a good risk warning for the FCA to use. In the meantime, the FCA’s concerns should be heeded.

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.   

Hard on the heels of the Sunday Times Rich List, will new proposals for a wealth tax gain any traction?

In 2020, a group of economic research bodies set up the Wealth Tax Commission to examine the options for a wealth tax to cover the huge costs then being incurred to handle the Covid-19 pandemic. The Commission produced a comprehensive report at the end of the year that suggested:

·    A one-off wealth tax (as opposed to annual);

·    A rate of 5%, payable at 1% a year for five years; and

·    The tax to be payable on all wealth above £500,000, including pensions and main residences.

 
The tax would have produced £260 billion in total, almost as much as income tax is projected to raise in 2023/24. While the proposals received considerable attention at the time, they were given the cold shoulder by the government and soon disappeared from view.

About two and a half years later, a new wealth tax proposal has been put forward by a group of three tax-campaigning organisations. Their launch came shortly after the latest Sunday Times Rich List was published, showing that 350 individuals and families together hold combined wealth of £796.5 billion.

The new wealth tax was substantially different from the Commission structure:

·    It would be an annual tax;

·    The rate would be 2%; and

·    It would only be payable on all wealth above £10 million.

The high threshold means that the annual amount raised each year would be less than the previous proposal – the campaigners suggested up to £22 billion, although the Commission’s 2020 research suggested a figure of around £17 billion for a similar structure– there are only around 22,000 individuals with wealth of greater than £10 million, according to the Commission.

Polling for one of the three organisations, undertaken by YouGov, showed 74% public support for the 2% wealth tax. Such a result is hardly surprising – most people are in favour of a tax from which they could only benefit.

This latest wealth tax proposal seems destined to suffer the same fate as its predecessor. Were the government to provide a counter argument, it could point out that the freezes it has made to the personal allowance and higher rate threshold alone will raise an extra £21.9 billion in 2023/24, rising to £25.5 billion by 2027/28. This seems unlikely however…

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.

For specialist tax advice, please refer to an accountant or tax specialist.

An announcement in late May will herald a fall in gas and electricity bills from July.

Source: Ofgem, Cornwall Insights.

Remember the Ofgem price cap?

A little over a year ago it was the headline grabber, with the news that the so-called utility price cap set by Ofgem would be rising in April 2022 from £1,277 a year to £1,971 – a 54% increase. The price leap prompted a flurry of government measures, including £150 council tax rebates, followed by a universal £400 payment and the introduction of an Energy Price Guarantee (EPG).

It was all somewhat bewildering, especially as the cap (and the EPG) were not limits on total household energy costs, but merely a regionally based ceiling on the standing and unit charges that suppliers could levy. In the March 2023 Budget, the Chancellor added a further twist by deferring a £500 increase in the EPG to £3,000 from April to July 2023.

Since last October, the EPG has been lower than the Ofgem price cap, meaning the Ofgem measure lost its consumer relevance. However, it has mattered to the government, which has been forced to meet the significant cost difference between the two. From July, the situation changes.

On 25 May, Ofgem announced that its new price cap for the three months from 1 July will be £2,074, 32% less than its April – June figure. Consequently, the EPG is the figure that will now become irrelevant – the consumer will pay less thanks to the new Ofgem price cap and the government will be off the hook for subsidising domestic bills.

On current estimates from Cornwall Insights, the next two iterations of Ofgem price caps (October – December 2023 and January – March 2024) will be close to the July quarter and well below the EPG. Thereafter, the EPG disappears, leaving the Ofgem cap the sole price arbiter.

The July switchback to Ofgem may encourage some providers to offer fixed rate deals – at present over 90% of domestic users are on the standard variable tariff, which not so long ago was considered the worst deal. As with many other financial decisions, you may find yourself wondering how much you are prepared to pay for certainty (such as a two-year fix) over the uncertainty (variable rates) that might deliver lower – or higher – costs.

If you have gaps in your national insurance contributions (NICs) record, then 31 July should be marked on your calendar.

The introduction of the new state pension in April 2016 was one of the most significant reforms to state benefits in decades. If you did not reach state pension age before 6 April 2016, there were two important adjustments to rules relating to pension entitlement and NICs:

·    The period of NICs (including any credits) required to obtain a full pension was increased from 30 tax years to 35 tax years; and

·    The corresponding minimum period for entitlement to any pension benefit moved from just one year to ten.

These changes left some people worse off, particularly those with contribution records of under ten years. To mitigate the effects, the government relaxed the rules permitting voluntary NICs to be made to fill in any missing years. These had normally only been payable for a maximum of the previous six tax years, but a temporary extension of the backdating period was introduced to allow voluntary contributions to cover the years from 2006/07 onwards. This concessionary payment period was meant to end on 5 April 2023, after which voluntary contributions could only have been made to cover periods from 2017/18 onwards.

As is often the case with financial deadlines, publicity in the form of press stories and subsequent public awareness both arrived late in the day. However, when it did appear, there was a tsunami that the Department for Work and Pensions and HMRC had not anticipated. On 7 March, the government was forced to announce that the payment deadline would be extended to 31 July 2023. In addition, the Treasury said that all voluntary contributions would be payable at 2022/23 rates – a useful perk when the main voluntary rate (Class 3) was raised by 10.1% for 2023/24 to £907.40 a year.

It seems unlikely that there will be any further extension of the voluntary deadline beyond 31 July. If you have any gaps in your NIC record between April 2006 and April 2017 – even if you have now passed state pension age – now is probably your last opportunity to fill them. However, it will not always be beneficial to make the top up, so you should seek advice before making any payments.

The Financial Conduct Authority does not regulate tax or benefit advice.

The Financial Conduct Authority (FCA) has issued a warning on some trust services.

An asset protection trust might sound like a good idea if you have assets you wish to protect. Unfortunately, the reality may be rather different, as the FCA made clear in a warning issued in late April.

Asset protection trusts are nothing new and for years have been marketed as a one-stop solution for retirees to:

·    Reduce personal wealth and thereby limit the level of personal contribution towards long-term care costs;

·    Save on probate fees and speed the distribution of their estate on death; and

·    Cut inheritance tax (IHT).

In practice, the trust may achieve none of these goals. For example, where care costs are concerned, a local authority could treat the establishment of an asset protection trust as a “deliberate deprivation of assets”. In such circumstances, the care fee assessment would ignore the existence of the trust.

Probate may also be complicated rather than simplified – and costs increased – by an asset protection trust, as the assets in the typical trust structure would still need to be considered when preparing a probate application. Similarly, the typical trust does nothing to ease the burden of IHT because the person creating the trust retains a right to the income from it.

The FCA said that it had “…seen cases of firms seriously mismanaging trusts with unsuitable investments being made by trustees.” Those trustees may be associated with the promoter of the trust and, under the powers granted by the trust, have full discretion as to how to invest the trust’s capital. As the FCA says, “…where the trustees involved are not sufficiently competent, or not acting in your best interests, there is scope for your money to be misused.”

Before signing up to an asset protection trust, the FCA says you should seek:

·    independent legal advice to ensure that the trust delivers the intended protection; and

·    independent financial advice to validate any proposed investment strategy.

Do not be surprised if that advice leaves you wondering whether there is any benefit to an asset protection trust, other than for the promoter.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax or trust advice.

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.

The government has announced a new initiative to counter fraudulent activity, particularly in the financial sector.

You might not be surprised to learn that fraud is now the most common crime in England and Wales, although you may not be aware that it accounts for more than 40% of all crime. The growth in fraud has so far not been accompanied by a corresponding increase in prevention measures. At present, less than 1% of police resources are directed towards dealing with fraud.

In May, the Home Secretary announced a new fraud strategy – Stopping Scams and Protecting the Public. The Home Office’s plans include:

Stopping abuse of the telecom networks: Many scams start with unsolicited calls and text messages. The government says it will be “making it harder” for criminals to spoof phone numbers, which make their calls appear to be coming from your bank or another trusted source. Under the same heading, the government has launched a consultation on banning SIM farms, devices that can send thousands of fraudulent texts in a matter of seconds.

A ban on cold calling on investment products: Currently, there is a ban on cold calls from personal injury firms and pension providers (unless the consumer has explicitly agreed to be contacted). The government plans to extend this ban to all investment products, with an initial consultation on the mechanics “by summer”. The logic behind this move is that the ban will mean that anyone receiving such a call will know it is unauthorised – assuming they are aware of the law.

More protection for fraud victims: If you are a victim of unauthorised fraud (such as bank card theft), you are entitled by law to be reimbursed by your bank within 48 hours. However, if you fall foul of authorised fraud – for example, by being tricked into transferring money – you are currently not eligible for the same level of protection. The Financial Services and Markets Bill, currently on its way through parliament, will remove this distinction.

These and the many other proposals will inevitably take time to reach the statute book and, as now, will encounter the problem of offshore and ever more creative fraudsters. In the meantime, there is one sound piece of advice – if you receive an unsolicited call from your bank, the police or anyone else, tell them you will call them back on the number you have (e.g. on your bank card). A scammer will do everything to prevent that happening, but a genuine caller will have no such issue.

Recent data has revealed that inheritance tax (IHT) receipts reached a record level in the 2022/23 tax year.

Source: HMRC

Every month the government publishes data that sets out HMRC’s cash tax receipts in detail. The data issued in late April provided the first set of figures for the sums raised in the 2022/23 tax year. This showed that between 2013/14 and 2022/23:

·    Overall HMRC receipts rose by 59.6%;

·    Income tax receipts increased by 57.3%; but

·    IHT receipts jumped by 108.3%.

For comparison, between April 2013 and March 2023, prices rose by 31.1%, using the CPI as a yardstick.

As the graph shows, the path to the more than doubling of IHT receipts was not smooth. Receipts barely changed between 2017/18 and 2020/21, mainly due to the phased introduction of the residence nil rate band (RNRB) and low inflation. However, in the following two years, the IHT cash entering the Exchequer’s coffers rose by a third. That reflected both the end of the RNRB phasing and the rise in inflation.

Inflation is particularly important for future IHT receipts as both the main nil rate band and the RNRB are frozen at their current levels – £325,000 and £175,000 respectively – until at least April 2028. Such a prolonged freeze at a time of high inflation is a classic example of a stealth tax increase, dragging more estates into the IHT net and raising extra tax from those already caught.

Shortly before the 2022/23 IHT data emerged, the government quietly announced a technical change in its approach to discounted gift trusts, which have long been popular for IHT planning. The unexpected change was the first since 2013 and has reduced the attractiveness of the scheme for potential investors. Fortunately, there remain plenty of other options to mitigate the impact of the tax, from other lifetime trust-based arrangements to the careful structuring of a will.

IHT is a complex tax that requires a holistic, long-term approach to planning. If you would prefer more of your wealth to pass to your chosen beneficiaries rather than to HMRC, the sooner your plans begin, the better.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice, will writing and some forms of estate planning.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

The recent problems in the banking world have raised questions around the current maximum protection for bank deposits: is it overdue for an increase?

The figure of £85,000 is one you might have regularly seen in articles (or some adverts) about bank deposits. It is the maximum deposit value in an authorised deposit-taking institution that is covered by the Financial Service Compensation Scheme (FSCS). If the deposit is in joint names, the £85,000 is doubled. However, there is a trap to watch out for – more than one bank may operate under the same banking license. For example, the Halifax’s license also covers the Bank of Scotland, Birmingham Midshires and St James Place Bank.

With the recent problems in the banking world, such as the demise of Silicon Valley Bank in the US and Credit Suisse’s forced marriage to its Swiss rival, UBS, attention has been turning again to that £85,000 compensation figure. It was last revised in January 2017, when it was increased from £75,000. The limit had also been £85,000 between December 2010 and July 2015 before being cut under EU deposit protection rules, which set the limit at the sterling equivalent of €100,000 (the pound was stronger in those pre-Brexit days).

If the limit had been index-linked since it was first set at £85,000, it would now be around £120,000. Both the Chancellor and the Governor of the Bank of England recently suggested that the FSCS limit should be raised, but not because inflation had cut its value by almost a 30%. Their concern was more that the UK’s last experience of a bank run – queues outside Northern Rock in 2007 – reflected a different era.

If there were a Northern Rock Mk II crisis today, the news would be all over social media instantly and there would be no queues outside (any surviving) branches because all the customers would be withdrawing their deposits by phone, tablet or computer. Money would drain away much quicker than it did 16 years ago.

The logic behind the call for a higher level of deposit protection is that it would mean a smaller number of depositors anxious to withdraw their money. Stemming the outflow is crucial to keeping a bank alive. 

What neither the Chancellor nor Governor mentioned was the wisdom of having £85,000-plus in deposit at a time when inflation is so much higher than the rate of interest available.

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

If you are self-employed, the new tax year may be longer than you think.

If you are self-employed, until 2023/24, you have normally been taxed on the profits made in the accounting year that ends in the tax year. For example, if your accounting year ran to 30 April, then in the last tax year, 2022/23, you are taxed on the profits for your accounting year ending on 30 April 2022 – a few weeks after the start of the tax year.

Some while ago, the government decided that it would speed matters up by forcing all the self-employed (including partners in partnerships) to pay tax on the profits earned in the tax year. As is obvious from the example above, moving from the accounting year system to a tax year one implies a catch-up exercise that theoretically results in more than 12 months’ profits being taxed in a single tax year.

Unless your accounting year ends on 31 March or 5 April, that is what will start happening in this tax year. Taking the 30 April year end again, in 2023/24 the default position will be that your taxable profits are:

·    The “normal” calculation of profits for the accounting year ending 30 April 2023, plus

·    One fifth of a catch-up element equal to:

o   Your profits from 1 May 2023 to 5 April 2024 (341/366ths of the profits in your account year ending 30 April 2024), less

o   Any overlap relief because of double taxation that occurred earlier (typically when you started trading).

In the following four tax years (during which the personal allowance and higher rate threshold are frozen), your taxable profits will be those earned across the 12 months of the tax year (with pro-rated calculations, if necessary), plus that one fifth catch-up element. As an alternative, you can opt for any amount more than a fifth up to the full catch-up element to be taxed in 2023/24 with corresponding adjustments for later years.

If your head is hurting, you are not alone. At least you have the remainder of the tax year to consider the implications and prepare for what is likely to be a larger tax bill (as more income is being taxed) come January 2025. Make sure you take advice about the planning opportunities that arise – 2023/24 could be the ideal time to make a large pension contribution.  

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to

individual circumstances and changes which cannot be foreseen.

The government has deferred its decision on when to raise the State Pension age (SPA) to 68.

In the US drama series, The West Wing, the day before the parliamentary recess was referred to as “Take out the Trash Day”. On both sides of the Atlantic, this day marks an opportunity for the government to publish a flood of announcements, statistics and reports, safe in the knowledge that immediate scrutiny will be limited by the absence of politicians and the media’s difficulties in sifting through the sheer volume of information.

One of the 17 ministerial statements made on the day before parliament’s Easter recess concerned plans to raise the SPA to 68 (it will rise to 67 between 2026 and 2028). The Department of Work and Pensions (DWP) commissioned an independent review of the subject in December 2021 and an announcement had been expected for some time.

In the event, there was what might best be labelled a non-announcement. The government published its 40-page review alongside the 138-page independent review but did not reach a conclusion on when the SPA would rise from 67 to 68. Instead, the Secretary of State for Work and Pensions said the decision would only be made after another review, scheduled to happen “within two years of the next Parliament”. In other words, as happened in 2017, the issue has been kicked into the post-election long grass.

As the law currently stands, a SPA of 68 is due to be phased in between April 2044 and April 2046. The first independent review reported in 2017 had proposed bringing the schedule forward by seven years, largely in response to projections of improved life expectancy. Since then, life expectancy improvement has slowed significantly. One recent estimate is that the life expectancy of a man aged 65 in 2022 is about two years shorter than that of his counterpart from 2012.

The life expectancy data suggests that the phased approach during 2044–46 should remain but, as the Institute for Fiscal Studies has highlighted, that extra seven years could cost the government more than £60bn.

The saga of changing the SPA to 68 is a reminder that your retirement plans should not be overly reliant on your state pension.

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.

Figures released alongside the Budget have highlighted a projected surge in the number of people who will pay more than the basic rate of tax.

Source: OBR, HMRC.

Both the Budget and the Autumn Statement are usually accompanied by a weighty document called the Economic and Fiscal Outlook (EFO). The EFO is the work of the Office for Budget Responsibility (OBR), the body charged with producing an independent assessment of the government’s tax and spending plans. The EFO that emerged in March 2023 ran to 172 pages, so it may not have been entirely digested in most coverage of the Budget.

However, the OBR’s number crunching can yield some interesting information, not always to the government’s liking. The graph above is an excellent example. What it shows is the impact of three key changes to the income tax rules in the past two years:

1.    Prime Minister Rishi Sunak’s announcement in March 2021 as former Chancellor that the higher rate tax threshold would be frozen at its 2021/22 level of £50,270 for the following four tax years (to 2025/26);

2.    The subsequent extension of that freeze for another two tax years by Chancellor Jeremy Hunt in last year’s Autumn Statement; and

3.    Mr Hunt’s reduction in the additional rate threshold to £125,140 from 2023/24 (followed by Scotland doing the same for its top rate).

The black area on the graph shows the OBR’s projected number of higher and additional rate taxpayers that there would have been if the higher rate threshold had been inflation-linked after 2021/22, and the additional/top rate threshold held at £150,000 (where it started life in 2010/11). The red area sitting atop the black shows the increase in taxpayer numbers that occurs because of the six years of higher rate threshold freeze combined with the additional rate threshold cut.

The jump in the first half of the period is down to high inflation, which was not anticipated by the OBR (or anyone else) back in 2021. As the OBR projects less than 0.5% a year average inflation in the three years from 2024/25, the two blocks run roughly parallel in the second half.

By 2026/27, the OBR calculates that there will be 2.1 million more higher rate taxpayers and 0.4 million extra additional rate taxpayers because of the three measures. That means about one in five of all income taxpayers will be paying more than basic rate tax.

As the new tax year gets underway, what better reason to start your tax planning.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.

A recent report has highlighted the high number and value of Child Trust Funds (CTFs) left untouched by their now adult owners.  

The National Audit Office (NAO) recently issued the results of an investigation into CTFs. They were a subject well suited to the NAO, which is charged with examining how efficiently government money is spent. In the case of CTFs, over £2 billion was paid into accounts for
6.3 million children born between 1 September 2002 and 2 January 2011. Most children received one payment of around £250 each (£500 for those in low income families) from the government at the time their account was set up. With few exceptions, any other input to the CTF was privately funded, typically from parents. Between 2005 and 2010, just over a third of CTFs received such top-ups.

CTFs were initially designed to mature on a child’s 18th birthday. However, shortly before the first accounts matured in 2020, regulations were introduced to allow the matured CTFs to retain their favoured tax treatment until the (adult) child decided to withdraw or transfer their funds. It is as well this action was taken as the latest HMRC data (to 5 April 2021) shows that:

·    175,000 18-year-olds had withdrawn or re-invested the funds from their matured CTF account; but

·    145,000 (45% of the total) had not claimed their matured accounts.

The report revealed that £394 million was sitting in the unclaimed accounts, an average of £2,717 for each CTF. A more recent estimate from the Investing and Saving Alliance suggested that, by August 2022, 27% of CTFs that had matured at least one year earlier remained unclaimed. That figure is eerily close to the 28% share of CTFs that were set up in default by HMRC because the child’s parent or guardian had taken no action in the 12 months after receiving an initial CTF voucher.

It is not only the owners of CTFs that have lost interest in their accounts: the number of CTF providers has also dwindled, from 74 in 2011 to 55 by February 2023. ISAs offer a much greater choice of providers and may offer lower charges than CTFs, many of which charge a 1.5% annual fee. Existing CTFs can be transferred to Junior ISAs, while matured accounts can be moved into adult ISAs. As ever, where investment transfers are involved, seeking advice comes before action.

To trace a lost CTF, go to www.gov.uk/child-trust-funds/find-a-child-trust-fund. 

Tax treatment varies according to individual circumstances and is subject to change.

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested, even taking into account the tax benefits.

Past performance is not a reliable indicator of future performance.

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Investors do not pay any personal tax on income or gains, but ISAs may pay unrecoverable tax on income from stocks and shares received by the ISA managers.

Stocks and Shares ISAs invest in corporate bonds, stocks and shares and other assets that fluctuate in value.

The Financial Conduct Authority does not regulate tax advice.

A new government bill indicates that a change to the automatic enrolment minimum age, and increases to workplace pension contributions, could be on the horizon.  

Private members’ bills rarely get far in the parliamentary process. They all too easily fall by the wayside, as second and any subsequent readings of a bill must take place on a Friday – a back-to-constituency day for most MPs – and be concluded before 2:30pm.  For a bill to stand much chance of success, it therefore needs the support of the government.

Just such a bill is the Pensions (Extension of Automatic Enrolment) (No. 2) Bill, introduced by Jonathan Gullis, the Conservative MP for Stoke North. The Bill has just two sections that give the government regulatory powers to:

1.    Alter the minimum age (currently 22) at which workers must be enrolled into a workplace pension; and

2.    Widen the band of earnings on which contributions are based.

The intent behind the Bill is to reduce the minimum age at which automatic enrolment operates to 18 and to apply the 8% minimum total contribution rate to all earnings up to upper earnings limits (£50,270), rather than the current band between £6,240 and £50,270. Abolishing the £6,240 lower threshold will remove the multiple job anomaly, which means multiple jobholders can miss out on any pension contributions, even if their total earnings would be enough to qualify for automatic enrolment in a single employment.

The Bill’s two ideas are nothing new – they were put forward in a Department for Work and Pensions review of automatic enrolment in 2017, but given no timescale beyond the statement of an ambition to implement them “in the mid-2020s”.

In practice, no change is likely until after the next election. The government wants to consult on implementation and will likely phase in a new earnings band to avoid some low earners seeing their contributions double overnight. The Treasury will also have more than a passing interest, as higher contributions will mean more tax relief being given to employers and individuals (some of whom will be non-taxpayers).

While these changes are welcome, the government has dodged one other reform to automatic enrolment that many pension experts have called for as necessary to underpin a reasonable retirement – an increase to the minimum contribution level from 8% to a more realistic 12%.

Whether you contribute to a workplace pension alone or have other provision, regular reviews of your contributions and potential post-retirement income are advised.

Tax treatment varies according to individual circumstances and is subject to change.

The value of your investment can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

New research shows that global dividends have shaken off the impacts of Covid-19 and reverted to their pre-pandemic days, but the UK’s performance isn’t so promising.  

Source: Janus Henderson.

When the Covid-19 pandemic hit in 2020, it had contrasting impacts on the values of shares and the dividends they paid. While share prices dropped precipitously in the first few months of the year, they regained most of their losses by summer and, on a global basis, ended the year higher than where they started.  

In contrast, global dividend payments across 2020 were down 11.3% on 2019 in dollar terms according to the investment group Janus Henderson. In 2021, total dividends rose by 16.3%, but that still left them only 3.4% above their 2019 levels. Much of that recovery was due to US companies – 2021 total dividend pay outs in Europe, Japan and the UK were all below 2019 levels.

Janus Henderson recently published its global dividend data for 2022. This showed overall dividend growth (again in dollar terms) was +8.4%. In local currency terms, all of the world’s main investment regions recorded positive dividend growth. However, outside North America, the regional performances shrunk when converted into the mighty US dollar. For example, Japan’s 16.3% Yen-based dividend growth was negative in US dollar terms.

As the graph shows, taking a longer-term view, global dividends are now back on the trendline established before the pandemic. The UK, however, is a laggard over the same 2016–2022 timescale. In dollar terms, UK dividend payments are nearly 6% down, whereas the global figure is up almost 36%. Some of the UK’s relative poor performance is down to the weakness of sterling, which started 2016 at $1.4245 but by the beginning of 2023 stood at only $1.2308.  Another contributing factor has been companies leaving the London Stock Exchange, either because of a takeover (such as the supermarket, Morrisons) or because they choose to list elsewhere (for example, the mining group, BHP).

If you want income-generating share-based funds, the global dividend recovery is a reminder that you should not confine yourself to the UK equity market.

The value of your investment and the income from it can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

The Budget announced three important changes to childcare provisions in England, but one trap remains.

The cost of childcare has become a hot topic in recent years. Despite increasing demand, in March 2022 the number of childcare places available had little changed since August 2015.  The government has attempted to address this in England with a somewhat bewildering array of schemes. Childcare policy is set separately in Scotland, Wales and Northern Ireland.

The latest approach to the problem was a trio of major childcare measures in the Budget:

·    A three-stage expansion of the existing working parent childcare scheme:

1.    From April 2024, working parents of two-year-olds will be able to access 15 hours of free childcare a week for 38 weeks (or the equivalent of 570 hours a year).

2.    From September 2024, provision will be extended to working parents of children aged between nine months and two years.

3.    From September 2025, all eligible working parents of children aged between nine months and three years will be able to access 30 hours of free childcare a week (or the equivalent of 1,140 hours a year).

·    The hourly funding rate that the government pays to childcare providers in England will be increased from September 2023 and again in 2024. The current rate has been blamed both for the shrinking number of childcare providers and for increasing fees paid by those parents who meet their own childcare costs.

·    From April 2023, the maximum amount payable under Universal Credit (UC) towards childcare costs for one child will rise to £951 a month from the previously announced £646.35. For two or more children, the maximum payment increases from £1,108.04 to £1,630 a month. UC childcare payments will be made upfront if parents move into work or want to increase their hours. Do not forget, it is possible for a couple to have total income over £60,000 and still be entitled to UC.

One aspect the Chancellor has not changed in the rule that if either parent has “adjusted net income” of more than £100,000 a year, there is no entitlement to free childcare. The Institute of Fiscal Studies has calculated that this arbitrary threshold means that someone with adjusted net income of £100,000 and two children under three years of age would need a pay increase of at least £34,500 to be better off overall because of the instant loss of free childcare beyond an income of £100,000.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.

The rush to meet the voluntary national insurance contributions (NICs) top-up deadline of 5 April has forced HMRC to grant an extension to 31 July.

The last major reform to state pensions took effect on 6 April 2016. From that date the second state pension and basic state pension were replaced by the new state pension for anyone reaching state pension age. The new state pension was higher than its basic predecessor, but it came with two less attractive features:

·    Instead of a minimum of one year’s NICs record to claim any entitlement, the requirement was raised to ten years; and

·    The NIC record needed to obtain the full pension was increased from 30 years to 35 years.

To help people fill gaps in their NIC record and thereby gain more state pension, the government relaxed the normal rule that voluntary NICs to infill missing years could be backdated by no more than six years. Instead, voluntary contributions covering the ten years before the start of the new regime could be made at any time up to 5 April 2023. This loosening of the rules was first announced in April 2013.

A necessary extension

As can happen when deadlines are set a decade into the future, their relevance can be forgotten or ignored until nearly the last moment, at which point there is a mad rush – think of ISA tax-year-end investment but multiplied by ten. On this occasion, the surge was exacerbated by stories in the national press giving extreme (but accurate) examples where a single payment of £824 can make the difference between no pension and one of over £3,000 a year.  In more normal instances, the £824 could buy an extra £302 a year of pension – still a highly attractive deal.

Unfortunately, the deadline rush meant a flood of enquiries for HMRC and the Department for Work and Pensions, neither of which are renowned for their swift responses. By early March, the Treasury was forced to announce that “to ensure customers do not miss out, the government intends to extend the 5 April deadline to pay voluntary NICs to 31 July this year.”

If you think this could be relevant to you and you have not yet taken any action, then you need to do so now. Another deadline extension is most unlikely.

New measures affecting pension allowances announced in the March Budget could mean your retirement planning strategy needs to be reviewed.

If Jeremy Hunt did produce a ‘rabbit-out-the-hat’ in his Spring Budget, it was the announcement of the effective abolition of the pensions lifetime allowance (LTA) from 2023/24. Since 2006, the LTA has been a cornerstone of the pension tax rules, effectively setting a ceiling on the tax efficient value of all your pension benefits.

In its pre-Budget guise, for most people the LTA was £1,073,100, a figure that was due to be frozen until April 2026. That may sound more than enough, but a 65-year-old non-smoker using that sum for an inflation-proofed annuity would only generate an income of about £45,000 a year (before tax).

In his speech, Mr Hunt made clear that one of the main aims of the abolition was to discourage doctors from retiring early to avoid a pension tax charge. However, the beneficiaries of the change will stretch far beyond the medical profession. The LTA was £1.8 million in 2011/12, but since then has been frequently cut or frozen. Consequently, an increasing number of higher earners have reduced or stopped pension contributions for fear that they too would face a tax charge (at up to 55%) when they drew their benefits.

There were three other pension measures in the Budget:

·    The annual allowance, which sets a limit on the tax-efficient total contributions in a tax year, was increased to £60,000, but remains subject to taper rules for the highest earners.

·    The money purchase annual allowance, which applies if you have drawn pension income flexibly, was also raised, from a constraining £4,000 to a less restrictive £10,000.

·    A new total cash limit of £268,275 will apply on the tax-free pension commencement lump sum, unless they are covered by some form of LTA protection. The strangely specific figure is based on the effective 2022/23 limit -– 25% of the then LTA of £1,073,100.

Mr Hunt’s reforms could offer an opportunity to boost your retirement fund, particularly if you are one of those people forced to halt pension contributions some years ago. In those circumstances, you may be able to contribute up to £180,000 in 2023/24. However, before taking any action, advice is essential. Alas, not all the pension tax traps have disappeared.

The value of your investment and income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

The Financial Conduct Authority does not regulate tax advice. Tax treatment varies according to individual circumstances and is subject to change.

Occupational pension schemes are regulated by The Pensions Regulator

New research shows that UK companies continued to increase their dividend payments to investors in 2022, albeit at a much slower pace than in 2019.

As memories of the Covid-19 pandemic begin to fade, it is easy to forget the damage that was done to dividend payments from UK-listed companies. Early on in 2020, the Bank of England put a block on dividend payments from the major banks, a sector of the market that had always been a big provider of dividends. Then two other major dividend payers – Shell and BP – reacted to falling oil prices by slashing their dividends by 66% and 50% respectively.

Many more companies followed, either cutting their dividends or suspending them completely to preserve capital. By the end of 2020, the total dividend payout from UK companies was 42.7% down on 2019. Viewed another way, over £45bn of investors’ income disappeared in the space of 12 months. Even the global financial crisis of 2007/08 did not have as much impact.

In 2021, as the pandemic was brought under control, the dividend picture reversed almost as sharply. The total dividend payout rose by 42.9%. However, do not be fooled into thinking that meant all the lost income was recovered. Simple maths says that to recover from a 42.7% fall, we would need to see a rise of 74.5% (0.573 x 1.745 = 1.00). The total payout was still £19.4bn below 2019.

The latest data shows that in 2022, total payouts grew again but at a slower pace of 8.0%. That shrunk the gap with 2019 to £12.4bn. Most importantly for many investors, regular dividends (as opposed to the volatile one-off kind) rose by 16.5%.

At the time of writing, an investment in the UK stock market offers an average dividend yield of 3.4%. Many funds in the UK Equity Income sector, which focus on the higher dividend paying shares, have a yield of over 4.5%. The gap between equity yields and deposit rates has shrunk significantly since the start of 2022 as the Bank of England has consistently raised interest rates. That has tempted some income-seekers to keep their cash in savings accounts for the time being, rather than invest it. If that is you, make sure you take advice before making that your long-term strategy.

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

The new tax year starts on 6 April, heralding a raft of changes that will make an early tax review of the year ahead a wise move.

There is always plenty of attention given to planning for the end of the tax year, making use of allowances that are otherwise lost at midnight on 5 April. A March Budget normally adds to the focus as speculation mounts about what might change even before the tax year ends. Much less attention is paid to planning for the start of the new tax year, but that can be just as valuable an exercise.

In 2023/24, there will be important personal tax changes – and, in the face of double-digit inflation, non-changes – taking place:

·    The personal allowance and higher rate threshold will be frozen again (and will remain so until April 2028). In Scotland, the higher rate threshold will also rise by 1% to 42%.

·    The income thresholds for child benefit tax (£50,000) and personal allowance taper (£100,000) will also be frozen, as they have been since they were first introduced.

·    The additional/top rate threshold will be reduced from £150,000 (originally introduced at that level in 2010/11) to £125,140. At this lower figure, in theory the rate kicks in immediately until the personal allowance has been tapered away to nil. In Scotland, the top rate will also rise from 46% to 47%.

·    The dividend allowance will be halved to £1,000 (and halved again in 2024/25).

·    The annual exempt amount for capital gains tax will be cut from £12,300 to £6,000 (again ahead of another halving in 2024/25).

As a result, personal tax bills could increase in 2023/24, even if income does not. For example, if you are a higher rate taxpayer, the halving of the dividend allowance could cost you an extra £337.50 in tax (and £506.25 in 2024/25). Worse still, you might find that you have been ‘promoted’ from higher rate to additional/top rate. HMRC estimates that nearly a quarter of a million taxpayers will fall into this unhappy category.

There are a variety of actions to ease the increasing tax burden if taken early in the tax year. For example, investing in an ISA in April 2023 rather than March 2024 removes the income that would be generated from the investment from your 2023/24 tax calculation. Some other strategies are more complex, so advice is essential.

The Financial Conduct Authority does not regulate tax advice. 

Tax treatment varies according to individual circumstances and is subject to change.

A national think tank has proposed a new blueprint for taxing pensions, which might appeal to a future government.

Tax and pensions. This combination is enough to give most people a reason for their eyes to glaze over. However, the duo is one with a price tag of nearly £55bn in terms of relief from income tax and National Insurance contributions (NICs).

The last major overhaul to the tax and pensions framework took effect in 2006. At the time, it was labelled “simplification”. However, 17 years of tweaks – many designed to reduce those reliefs – have resulted in what has been described as “complification”. As seems to be the case with many of the UK tax regimes, a design that conceived as a sleek racehorse has ended up as a camel in need of major surgery.

The Institute for Fiscal Studies (IFS) is the latest organisation to put forward proposals to bring some rationality back into the world of tax and pensions. Among its proposals are:

·    Tax-free cash: As a broad rule you can draw 25% of your pension pot as a lump sum, free of tax, provided your pot does not exceed £1,073,100 – so a maximum tax-free sum of £268,275. The IFS thinks this represents too much of a tax subsidy to higher earners and proposes that the figure should fall to £100,000.

·    NICs: If your employer contributes to your pension, neither you nor your employer pays NICs on the contribution. However, if you make a pension contribution personally from your pay, then your employer pays NICs on that pay (at up to 13.8%) and so do you (at up to 12.0%). The IFS suggests that the NICs relief on employer’s contributions should be replaced by a subsidy, the level of which does not have to match the employer NICs rate. For employees (and the self-employed), the IFS goes in the opposite direction and says full NICs relief should be given.

·    Pensions in payment: There is a sting in the tail that comes with NICs relief for personal contributions – the IFS wants pension payments to gradually become subject to NICs, just as earnings are now.

It would be a brave politician that put some of the IFS’s proposals in their 2024 manifesto, but that does not mean they might not appear sometime after the election. In the meantime, maximising your pension contributions in the most tax-efficient way remains a priority.

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.