Archive for November, 2017

Prince Harry and Meghan Markle. Pic courtesy of Buckingham Palace.

Prince Harry and Meghan Markle are engaged!

Is a Royal wedding good for the economy and why should they and anyone getting married consider a pre-nuptial agreement?

All this and more is discussed in the Quantitative Sneezing podcast presented by Marc Shoffman and featuring Frances Sieber, a partner at legal firm Spring Law.

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There was plenty of policy to chew over in the Chancellor’s Budget.

The flagship move was the stamp duty changes- abolishing the tax for first-time buyers purchasing properties up to £300,000 and in high-priced areas on the first £300,000 of houses worth up to £500,000 – but this has already raised fears of a rise in house prices.

Policy and that whole deficit issue aside, Hammond’s speech was probably more memorable for the gags.

One YouTube user has put together a handy video of the best jokes.

 

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Estate agent Strutt & Parker managed to offend a whole generation this week when it claimed millennials would have a better chance of getting on the property ladder if they spent less on luxuries.

The millennial generation is often chastised for wasting its money on fads such as avocado toast and flat whites and then complaining that they don’t have any funds left to save for a mortgage deposit.

There is an argument for watching your spending, but in an environment where house price growth continues to outpace wages, it is by no means easy to save to get on the property ladder.

The government will claim it is helping with savings schemes such as the Help to Buy ISA – which lets first-time buyers save for a deposit tax-free – or its equity loan mortgage scheme, which helps buyers access a home loan with just a 5 per cent deposit.

But all this is useless if there aren’t enough homes.

Developers will say they are building more and can point to 2016 house building data that shows supply is now up close to the 2007 peak, but much of this is new builds. Not everyone wants to live in a new build property, especially with the ongoing debates about rising ground rents.

Right now, the government is essentially pushing up demand for purchases with schemes such as Help to Buy, while builders are left to cope on their own.

Chancellor Philip Hammond risks pushing demand up even further if he, as rumoured, provides stamp duty cuts for first-time buyers in his Budget on Wednesday 22 November.

This won’t suddenly make loads of cheap properties available.

What is really needed is support for everyone so current owners can upsize and downsize. That will unfreeze properties in the chain for all sorts of buyers.

This in turn may incentivise developers to build better and more properties to keep up.

More supply of both new and old properties should see prices coming down.

That leaves a lot more money left for avocado toast!

 

There has been plenty of coverage of revelations this week that millions of pounds from the Queen’s estate has been invested in offshore tax havens.

The Paradise Papers highlighted hundreds of millionaires using offshore schemes to hide their cash.

This has rightly shone the spotlight on the issue of tax evasion and avoidance, but it is important to get the terminology right.

Tax evasion is illegal. This is where an individual or saver deliberately omits, conceals or misrepresents information in order to reduce their tax liabilities.

Tax avoidance, technically is legal, as long as it is in the spirit of the law. The trouble is HMRC and lawyers and financial advisers may differ on how far the spirit stretches.

HMRC defines avoidance as bending the rules of the tax system to gain a tax advantage that Parliament never intended. This often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage.

This could for example mean understating the value of transactions to reduce stamp duty or misrepresenting profits to reduce corporation tax.

Clamping down on those avoiding and evading tax for illicit gain is important, but at the same time, we must give people confidence to use legal methods of tax relief.

Anyone with a pension or an Isa is technically a tax avoider. Both let you save money and earn interest tax-free. But they are perfectly legal, as long as you keep to your allowances.

You can currently put up to £40,000 per year in a pension and £20,000 into an Isa.

There are other perfectly kosher savings vehicles such as Enterprise Investment Schemes or Venture Capital Trusts that give tax relief for those backing smaller companies.

Additionally, everyone has a personal savings alliance where basic rate taxpayers can earn up to £1,000 in savings income tax-free, while higher-rate taxpayers get a £500 allowance.

Amid all the focus on overseas tax avoidance schemes, it is worth noting that there are offshore investment funds, authorised under the Alternative Investment Fund Managers Directive, that are also perfectly legal.

It is important in all the hysteria over getting the wealthy to pay their fair share to remember the legal ways you can avoid tax so that people can still feel confident about saving without fear of the taxman.

Hopefully the Lego men and women below can help when it comes to tax planning.

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Toy story: The impact of interest rates

Posted: November 4, 2017 in News

The Bank of England has raised interest rates for the first time in a decade.

The Bank of England base rate is one of the main figures used by financial providers to set prices of loans or savings products.

The base rate, typically known as interest rates, is set each month by the Monetary Policy Committee and had been at record lows of 0.25% since August 2016.

But amid increasing numbers of people getting into debt, the Bank of England was concerned that people were relying too much on credit, so has increased interest rates to 0.5%.

This may be good news for savers as banks and building societies use the base rate as a starting point for pricing their own products, so they technically could now offer better returns for your money  (that obviously doesn’t mean they will!) so you could earn more interest and save up for that mortgage deposit or special event faster.

The downside is that banks also use these rates as part of their pricing for mortgages. So the cost of home loans could increase and those on tracker or standard variable rates, which typically follow the base rate, will see their monthly repayments increase.

There is of course an argument that if you can’t afford a 0.25% increase in mortgage payments, then maybe you shouldn’t have a home loan. But that’s for another day.

Here is a simplified explanation of the impact of the interest rate rise using Sylvanian Families:

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