More Bands than Glastonbury*
*Tax bands that is.
The title of this month’s newsletter will become clear in a little while, but let’s get to the important points first of all – a belated Happy New Year to one and all. I hope 2024 is everything you wish it will be.
Inflation nation
Continuing the theme of fresh beginnings and a positive outlook, let’s start with good news. Data released in December had the rate of core inflation (CPI) falling to 3.9% year on year. This was very welcome, and lower than the anticipated figure of 4.4%. In theory, and whilst only as good as the previous batch of data, this gives the Bank of England a little more flexibility in their approach to interest rates. The general consensus is that we will start to – hopefully, but as always nothing is guaranteed – see some falls in interest rates in mid/late 2024. Keep those fingers and toes crossed everyone.
Corporate cash
On the subject of interest rates, I’ve been working with a few corporate clients recently where we have been seeking better returns on cash in the business bank account. Long story short, Purpose FP is able to access 4% -4.5% depending on the amount. Although if the BoE drops the base rate, this too will fall. This is for instant access cash, not investments – please get in contact if relevant.
Glastonbury and the Scottish Tax System
They like a good band at Glastonbury, and clearly so too do the Scottish Government. Income tax bands at least.
I would promise the jokes will get better, but they probably won’t. Sorry.
We now have six – yes, six – different income tax bands in Scotland, whereas the rest of the UK has three. It’s a bit of a minefield when it comes to planning, especially with the added complication that the higher rate of national insurance – when the rate we pay drops from 10% to 2% - is tied to the rest of the UK’s (rUK) higher rate tax band, £50,270. But Scottish higher rate tax – 42% compared to the rUK’s 40% - starts at £43,663. This therefore means that Scots lose 52% of all earnings between £43,663 - £50,270.
I’m all for paying the appropriate amount of tax but 52% at that level of earnings is, frankly, outrageous.
A quick video here discussing the new rules further, alongside some strategies to maximise tax-efficiency.
Predictions are hard, especially ones about the future
Every December/January we have a slew of economic experts and investment managers giving us their forecasts of where the stock market will end the year. The short, unsatisfactory and somewhat disturbing reality regarding these predictions is that we can ignore all of them. No-one knows, and all the PhDs in the world sadly are of little use when accurately predicting the future direction of the stock market.
For one, the stock market and the economy are not the same thing. It is easy to assume, amidst grim economic news, that the stock market will similarly be struggling. But often the opposite is true.
As one example of the difficulty of forecasting, taken from a trade magazine:
What the experts predicted for 2023:
Legal & General Investment Management’s (LGIM) head of investment strategy and research Ben Bennett was negative on equities because he thought profits would fall due to tough macroeconomic conditions.
He said labour costs were rising and even a mild recession would lead to a sharp drop in company profits.
“If we see a 20%-25% decline in S&P 500 profits, then past relationships suggest that the index could also fall by 20%,” he said.
He reckoned that the S&P 500 could drop to 3,000 points, 21% below its end of December 2022 level, and that would be a good entry point for investing more in shares again”.
The S&P 500 was 3,839.5 on the 30th December 2022. It never once fell to this figure throughout 2023, and ended the year on 4,769.83, on the 29th December 2023. This was a gain of over 24%.
If you’d been waiting on the market to hit the above forecast low of 3,000, you would have missed a tremendous amount of growth.
The Optimism Prism
Your monthly dose of the good stuff:
Wild and Wonderful Saiga No Longer Endangered with 1.9 Million Roaming Central Asian Steppes
The Brentford pub offering food and warmth to homeless people
The Billionaire and Founder of Cirque du Soleil is Donating a $5 Million Piece of Land to His City
Recommendations
Love him or loathe him, there is no denying the impact he has had on the world. And whilst it’s a marathon read, Walter Issacson’s biography of Elon Musk is well worth your time.
If you’re a Spotify Premium subscriber, you now have access to 15 hours of audiobook listening per month for no additional charge.
I’m a history geek, and I do love a podcast. My favourite is Noiser’s :A Short History Of. Episodes are around an hour long, expertly crafted, and they cover everything from Joan of Arc to the Cold War.
The compliance bit:
This article is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
The value of investments may go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
A pension is a long-term investment and the value is not guaranteed. Any advice or considerations are again personal to each individual’s circumstances.
