If you’re feeling a bit dizzy from all the U-turns in economic policy under Truss’ leadership recently, we can’t blame you! It’s difficult to keep up with it all at the moment, so we are here to help. Let’s have a look at what’s been going on…
Goodbye Kwarteng, Hello Hunt
Jeremy Hunt has recently replaced Kwasi Kwarteng as Chancellor, bringing with him even more economic changes.
Liz Truss has stated that Government spending will low grow less rapidly than she planned, meaning lots of U-turns on her previous plans.
The Medium-Term Fiscal Plan
On 26th September 2022, Kwarteng revealed that his Medium-Term Fiscal Plan would be presented on 23rd November.
This announcement is still in place, except now it’s happening earlier than planned and being delivered by a different man (Hunt). The Treasury announced on 10th October that the Chancellor would bring forward the announcement of this plan to the 31st October as opposed to 23rd November.
Triple Lock Confusion
The triple lock means that the state pension rises each year in line with either inflation, average earnings, or 2.5%, depending on which figure is the highest.
On 17th October, Hunt indicated that the Government was considering shelving the triple lock on pensions. However, two days later during Prime Minister’s Questions, Truss confirmed that the triple lock was there to stay.
“Firstly, we will reverse almost all the tax measures announced in the Growth Plan three weeks ago that have not started Parliamentary legislation” -Jeremy Hunt
Income Tax U-Turns
Hunt has announced that he’s reversing the proposed 1% cut in the basic rate of income tax announced in Kwarteng’s mini-budget. Instead, the basic rate will remain at 20%.
He’s also announced that the Government will not proceed with abolishing the 45% additional rate of income tax, as was previously announced in the mini-budget.
Alcohol Duty Freeze U-Turn
Hunt has also abandoned Kwarteng’s plans of freezing alcohol duty rates for a year, commencing 1st February 2023. This freeze is no longer going ahead, which is estimated to save the Treasury £600 million a year.
Corporation Tax Double U-Turn
Kwarteng announced in his mini-budget that the previously planned rise in corporation tax due to come into force in April 2023 would no longer go ahead.
Since his replacement, Truss has stated that the rise will go ahead next year after all, rising from 19% to 25%.
Energy Bill Price Cap
During Prime Minister’s questions on 19th October, Truss seemed to lean heavily on her energy bill price cap as a supportive measure for those most vulnerable. However, this energy bill support to ensure that the typical household’s average bill doesn’t exceed £2,500 is only to last until April 2023. The support is only actually in place for half a year.
Stamp Duty Land Tax
One remaining element of Kwarteng’s mini-budget is the changes to Stamp Duty Land Tax. The nil-rate tax threshold will stay at the increased £250,000, and £425,000 for First-Time Buyers.
So, that’s all of the recent changes summed up… for now! Things may be due to change again with Truss’ resignation, so stay tuned.
by Red Star Wealth
With the Bank of England’s emergency bond buying support set to end today (Friday 14th October), we think it’s important to fill you in on what exactly has been going on.
The Mini Budget
Kwarteng’s mini-budget on 23rd September 2022 saw the Government announce enormous tax cuts with very little explanation as to how these would be funded. This has triggered strong waves of uncertainty which have in turn affected the UK’s financial situation.
It led to a steep drop in the value of the pound as well as rises in government borrowing costs.
Government Borrowing
One of the ways in which the Government generates enough money to fund its spending plans is by selling government bonds (also known as gilts) to investors. This acts as a form of debt which is paid back over time with the addition to interest.
They sell these bonds to investors such as large pension funds and big banks on international markets.
These investors have been demanding much higher interest rates to lend to the UK government because they have concerns over whether their tax cut plan will actually work.
What is the Link with Pension Funds?
Pension funds tend to invest in bonds as they are seen as a low-risk investment, giving a low but reliable return over a long period of time. They also buy a form of insurance to protect the value of these bonds.
As government borrowing costs increased, insurance providers began charging a higher rate of interest.
In order to afford these extra payments, many pension funds began selling their bonds, with further reduced their price and pushed up their interest.
This created a negative spiral, as the more bonds pension funds sold, the higher the cost of government borrowing became, meaning insurance payments rose, meaning even more bonds were sold, and so on, and so forth.
Bank of England Emergency Intervention
The Bank of England (BoE) decided to implement an emergency bond buying scheme as a temporary measure to stop the prices of government bonds falling any further and thus limit the need for pension funds to sell any more of them.
It did this by buying lots of government bonds. By buying these bonds, government borrowing costs should reduce, as it eliminates the need to pay those huge interest rates demanded by investors we mentioned earlier.
By buying these bonds, the BoE has helped stabilise their price, preventing further sales from pension schemes that could ultimately cause their collapse. They have essentially halted the market turmoil that was putting pressure on pension funds.
Despite announcing that they would buy up to £65bn bonds, with a daily purchase limit of £5bn a day, they have only bought around £5bn in total.
Only a Temporary Measure
The BoE’s intervention is a temporary measure aimed at maintaining financial stability. Their bond-buying scheme is due to end today, despite pension funds trying to get them to extend their intervention.
On Wednesday, when they announced that their emergency support would end on Friday as planned, the price of 20-year UK bonds hit new lows, with interest rates going up to levels not seen since 2002.
However, the idea behind the BoE stopping their intervention is that they expect demand to increase as pension funds rebalance their portfolios and stabilise. Think of the measure of them allowing pension funds some time to get back on their feet.
The BoE has not completely withdrawn support either. They have announced further measures to help pension fund sthat have been negatively affected by the recent market volatility. Under this measure, funds will be able to use a wider range of assets to access money to meet short-term financial needs. This should mean less pension funds having to turn to selling government bonds to raise cash, which is what was happening after Kwarteng’s mini-budget.
What a mess! If you’re still worried about what this means for you and your pension, reach out to a financial adviser for help.
by Red Star Wealth
Some of the figures from Now: Pensions’ Gender Pensions Gap Report 2022 show a shocking gender disparity in retirement incomes. There is currently a £136,800 gap between men and women’s pensions, giving a gender pension gap of an enormous 33.5%. This essentially means that women would have to work an extra 18 years in full-time employment to save the same pension level as a working man. Join us while we look through the reasons why this gap exists and how you can help build up your pension.
Childcare Responsibilities
Many women take career breaks for caring responsibilities, during which time they perform no paid work. Women also make up the biggest proportion of part time workers in the UK, partly because they take on more childcare responsibilities. The 2022 Gender Pensions Gap Report estimated that 42% of women in the UK have caring responsibilities, highlighting just how big an impact this can have on women’s working lives.
Given that raising children is unpaid work, women are often unable to make as high pension contributions. Career breaks also mean less opportunities for career progression through promotions, so women often miss out on pay rises as a result, so have lower incomes to make pension contributions from.
The Glass Ceiling
Amongst FTSE 100 companies, only 8% of CEOs are female, highlighting the lack of women in leadership roles.
Part of this is because there are still underlying notions of women being less capable then men. The Reykjavik Index for Leadership measures the extent to which societies view men and women as equal in terms of their suitability for leadership roles.
A score of 100 represents complete agreement that men and women are equally suited to leadership. The 2021/2022 index for the G20+ saw the UK with a score of 82. Whilst this is above the G20 average of 68, it still means that there is gender inequality. Why is it not 100? Why are women still not seen as equally capable of men?
Auto-Enrolment Pensions
Auto-enrolment was introduced in 2012, making employers legally obliged to offer workplace pensions for employers who meet the eligibility criteria. Part of this criteria is earning £10,000 or above from a single job role (not as a combined income from multiple jobs).
This is a great scheme… but only for those with traditional working patterns. If you are self-employed, take a career break or work multiple part time jobs, you may feel to meet the eligibility criteria. In fact, 23% of employed women fail to meet the criteria, as they are more likely to fall into all of these categories.
This means that many women aren’t automatically paying into a pension, and instead have to organise it themselves if they wish to join a pension scheme. And if they don’t, their pension pot simply won’t grow.
What could the Government do?
Reduce or remove the £10,000 auto-enrolment trigger so that more working women start automatically contributing to a pension fund
Make pension sharing more common in divorce
Make childcare more affordable so that more women are able to return to work after maternity leave
What can you do?
Try to pay in the maximum amount into your pension each month that you can reasonably afford. Just because the current auto-enrolment minimum is 5% from you and 3% from your employer, does not mean you can’t contribute more than this. If you get a pay rise or your expenditures go down, it’s always good to consider putting a bit more away for your retirement.
The earlier the better. The longer you make pension contributions for, the more you save. Pensions also work on a system of compound interest… the more you have, the faster it grows.
Auto-enrolment isn’t the only way to put money away for retirement. If you don’t fit the eligibility criteria it can be worth having a look into setting up a personal pension to see if it’s for you.
Try to keep up contributions even when you have a family, even if you are putting away less than before.
Keep an eye on your pensions pot. Check it like you would your bank balance to keep track of where you’re at so it’s easier to see if you need to start increasing contributions.
If you take a career break and stop making contributions, try to contribute a higher percentage of your income when you return to bridge the gap.
Try to share caring responsibilities more equally amongst you and your partner, so that you can both focus on paid work to the same extent.
by Red Star Wealth
Have you been considering becoming a Buy to Let landlord but don’t know whether its worth the investment? If so, you might want to read on…
Changes in Stamp Duty Land Tax (SDLT)
Since 2016, there has been a stamp duty surcharge on second homes and Buy to Let properties in England, Wales and Northern Ireland.
This means that anyone who owns an existing property and chooses to buy another for £40,000 or more is now subjected to an additional 3% SDLT. In a nutshell, if you own another property, you’re charged for it.
As of 2021, an additional 2% SDLT (on top of the aforementioned 3% surcharge) has been added for overseas buyers purchasing additional properties in the UK, even if this is their first UK property purchase (with their other property being overseas).
What About Tax Relief?
Since April 2017, a new plan has been phased in wherein mortgage interest tax relief for individual landlords is being restricted by the government.
As of April 2020, landlords can no longer deduct mortgage expenses from their rental income to reduce their tax bill. Instead, they receive a tax-credit, based on 20% of their mortgage interest payments. This is far less than the previous system for higher rate taxpayers, wherein landlords effectively received 40% tax relief on their mortgage payments.
Scrapping the Wear and Tear Allowance
Previously, landlords received a wear and tear allowance (a type of tax relief). This was 10% of the “relevant rental amount,” and acted as a flat rate allowance, claimable every year regardless of the actual expenditure of new furnishings.
As of April 2016, this has been replaced by a renewals allowance, wherein landlords of residential properties can only be granted tax relief on the costs they actually pay for replacing furnishings, appliances and kitchenware.
Higher Rate of Capital Gains Tax (CGT)
CGT is a tax on the profit when you sell off an asset that has increased in value.
April 2016 saw the rate of CGT reduced for all chargeable gains except in relation to those on the disposal (selling) of residential property.
This means if you were to dispose of shares or mutual funds, you would be taxed at 10% or 20%, whilst if you were to dispose of residential property, you would face CGT of 18% or 28%.
Lettings Relief
Landlords used to get up to £40,000 per owner if the property was rented out for part of, but not all of, the period of ownership. However, this is now only available if the owner has been living there with the tenant, meaning lettings relief has effectively been abolished.
Final Years Relief
Final years relief is an exemption from CGT. It used to be granted during the last 36 months of ownership, regardless of whether the owner had occupied the property or not during this time.
As of April 2016, this period of relief from CGT has been reduced to 9 months, making it just a quarter of what it used to be.
Electrical Safety Standards
As of June 2020, all landlords must get the electrical installations in their properties inspected and tested at least once every five years. If their tenants or the local authorities request it, they must be able to provide a copy of the electrical safety report.
This is great for keeping tenants safe, but it is one of many things that Buy to Let landlords will have to stay on top of and pay for.
Finding Tenants
Buy to Let property is intrinsically reliant on tenants. You have to find tenants in order to get an income, and you will still be incurring costs regardless of whether the property is empty or not.
Is Buy to Let property investment becoming more hassle than it’s worth? That’s for you to decide. Though this blog has focussed on its decreasing desirability, it can still be a very good source of income and is still a popular asset.
by Red Star Wealth
If you feel like you haven’t quite been able to wrap your head around the enigma that is cryptocurrency, this blog is the one for you
What is Cryptocurrency?
Cryptocurrency is any form of currency that exists virtually, using cryptography to secure its transactions.
Rather than using ‘real’ money in the ‘real’ world, cryptocurrency exists entirely within the digital sphere… it is not tangible.
What is cryptography?
Whilst its name makes it seem complicated, cryptography is just a way of encrypting transactions to keep them secure
An Inversion of Traditional Banking
Cryptocurrencies are entirely self-governing, with most being supported by a technology called a blockchain. Every transaction made is automatically logged onto a database referred to as the Blockchain. This Blockchain acts as a kind of digital accounts book, shared amongst numerous computer systems.
This is very different to traditional banking systems which favour a single ledger that only a central authority can access. In short, with traditional banks, you can’t always see what they’re getting up to!
The complete transparency of cryptocurrency is deliberate, made in reaction to the 2008 Financial Crisis.
The Financial Crisis in a Nutshell
Banks and other lenders recycled enormous levels of debt into subprime financial products that were far too complicated for most people to understand. Very few people had access to the books, as access is of course restricted to a central authority.
When the products defaulted, the world economy was hugely affected, which led to massive amounts of money being given to banks to bail them out for the same problems they had caused.
People using cryptocurrencies make direct online payments to one another, cutting out the middle-man of banks and traditional financial agencies.
Now the complicated bit… how does it work?
Today, there are thousands of different cryptocurrencies being traded, so let’s just stick with one. We will use Bitcoin as an example, as this was the first modern cryptocurrency.
Source: https://coinmarketcap.com/all/views/all/, showing the number of cryptocurrencies (20,876) at time of writing
Every ten minutes or so, bitcoin transactions are batched into a block, which is then added to the blockchain we discussed earlier.
Adding the new blocks into this shared ledger is called mining, which is the way that new bitcoin are released into its virtual system.
Whoever wins the competition of solving the cryptographic problem can then add the new transactions block to the larger blockchain. They are also rewarded by gaining new bitcoin.
What’s the Catch?
This all sounds good, right? Avoid the banks and take matters into your own hands! But you may want to rethink that, as cryptocurrency is incredibly volatile. It is entirely driven by demand and supply, with no outside regulation from institutions like the Financial Conduct Authority, meaning it has huge fluctuations.
The reason you might have heard stories where people have made their millions off Bitcoin, is because the rewards of cryptocurrencies can be incredibly high. Those who make their millions do so by trading currencies as the rates rise and fall in order to take advantage of the peaks and troughs of the market.
As Isaac Newton said, every action has an equal and opposite reaction. Therefore, the chance of high reward also brings the chance of high losses. In fact, Bitcoin is down more than 50% this year, and is worth just 70% of its highest recorded price. These are not fluctuations to be taken lightly.
Read the Guardian’s interview of former primary school teacher, Duncan, who has faced losses worth £36,000 from investing in cryptocurrencies. If you still want to invest in cryptocurrency after this read, it might be a good idea to avoid putting all your life savings into it at least.
So, that’s cryptocurrency all summed up… if you prefer handling ‘real’ money, you might want to check out this blog discussing whether cold, hard cash helps us budget!
by Red Star Wealth
We often avoid thinking about our deaths because it can be scary and unsettling… but making a will is definitely worth considering
What is a will?
A will is a legal document that you create before you die. It expresses your wishes as to how you want all of your assets to be distributed after death. You can also add information like who you’d like to take care of your children and pets.
You are in Control
Making a will helps you maintain control even in death, so that your wishes are met. Your assets go where you choose, to whichever family member, partner, friend, or charity you specify.
It also allows you to appoint guardians for your children, rather than this decision being left up to the local authorities or courts. Therefore, you know that your children will be properly cared for, by who you want, when you die.
Caring for Your Family
Making a will means you can provide for your family (or whoever else you choose) in death. If the family home is in your name, it is a good idea to create a will to ensure your family inherits your share of the property, or right to reside in it, so that they don’t lose the family home.
What Happens if You Don’t Make One?
If you don’t make a will, the courts will have to name someone to administer your estate. This decision may not be the same as what you would have made.
The process of naming an administrator can prove time-consuming and expensive for your loved ones. Also, there may be lots of bickering over who believes they should inherit what…by making a will, speculation is removed as you are clearly laying out what you want to happen to you and your assets. This will likely help prevent arguments and family divides.
Making a will means that all of the arrangements and decisions surrounding your estate aren’t completely left up to your family… bereavement is difficult enough as it is.
Dying Intestate
If you die without having written a valid will, you’ve died intestate. This means that your estate has to be shared out according to different rules, as you haven’t stated otherwise.
Under intestacy, only married/civil partners and close relatives can inherit your assets. It is particularly important to create a will if you have an unmarried partner or step-children whom you wish to pass your estate onto.
There is a whole host of rules regarding intestate death… check out the citizens advice website for more detailed information.
Listen up Newlyweds!
When you marry, your existing will will automatically become invalid in England and Wales, so you must update it.
