The Bell Are Ringing
First, the positives. Tax free cash on pensions is alive and well. Tax relief is maintained at the current generous rate for higher and additional rate taxpayers. For a business owner looking to extract funds, pensions are the number one option for tax-efficiency. No limit on ISAs, capital gains tax didn’t get too extreme. Lifetime gifts survive for inheritance tax planning, as does the gifting from regular income exemption. All in all, nowhere near as bad as the rumour mill would have had you believe. Can you hear them? That quiet sound in the distance, growing ever louder as the days creep on closer to Santa’s big outing. Yes indeed, the Christmas bells are starting to chime, ladies and gentlemen. December is here, with its snow, its Glühwein, and its last-minute-panic-buys. That last part is I’m sure more applicable to the male contingent – certainly in our house anyway.
We have recently started working with a new family that are involved in the jewellery business. They attend the same venue every year on Christmas Eve, selling their inventory, and the gentleman joked that they have repeat male customers that state “you have saved Christmas for me”, as they find a last minute piece of jewellery that fits the bill. I can believe that.
One thing I always look forward to at Christmas is the way our dog Mac reacts to people unwrapping gifts. Because historically, one or two of the gifts are always for him and he of course can’t comprehend which one it could be this year, he treats the unwrapping of a gift as an activity that should be undertaken with fierce enthusiasm.
It must be supervised by him at all times, and the human given some stern prodding should they take too long. He’ll hop on the spot, sniffing frantically at the parcel until it’s clear what’s inside. His commitment doesn’t drop whether it’s the first parcel or the 20th. Some boy.
On that note, a quick one to say that the firm won’t be sending individual Christmas cards to all clients and contacts. In lieu of cards and in keeping with the previous paragraph the firm will be making a donation to Savings and Rehoming Strays.
Now onto the personal finance news.
Delayed payments
One of the things that surprised me is how clean Japan is, despite the fact that there are hardly any bins. It’s rude to eat in public here, you see, and even the tourists stick to the rule. There is next to no litter anywhere. The subway train floors were clean enough to eat from, never mind the spotless velvet (I kid you not) seats. The Japanese must be horrified when they visit London or NYC. It didn’t get a fantastic amount of coverage, but don’t be too surprised if a payment from your bank to a new payee – particularly if it’s a payment to an investment organisation – now takes a little longer. Banks now have extra leeway of up to four days to pause a payment if they suspect fraud is involved.
I’m a fan of this move. Yes, it’s going to be a little less convenient occasionally, but for me, this a sad necessity of the world that we now live in. So just a heads-up if you’re likely to be affected by this.
Your Personal Rate of Inflation
Inflation, according to the latest CPI figures released on the 20th November, is currently running at 2.3% over the previous 12 months. This is, on paper and certainly compared to the 9.6% high of Oct 2022, a pretty good figure, and very close to the Bank of England’s overall target of 2%.
Source: Office for National Statistics.
However, all is not as it appears. There is one thing I’d like to specifically highlight from the budget, and it revolves around pensions, which for many people is their chief investment/retirement asset.This is only CPI, which is of course an amalgamation of data from across the UK – the price of goods and services varies greatly - and crucially, it ignores some of the most influential contributors to the overall cost of living.
A much better example – but still not perfect – is the ‘Consumer Prices Index including owner occupiers' housing costs’ (CPIH). It needs a bit of rebrand, I’ll admit, but at least it’s a greater representation of the average person/family. This measure includes the costs associated with owning, maintaining, and living in a home such as mortgage interest payments, council tax, and energy bills. Therefore, a much better reflection.
It’s currently running at 3.2%:
Source: Office for National Statistics.
However, thefact remains thatHowever, the most important number for you and your family is your own personal rate of inflation. I would estimate that for the majority of this newsletter audience their personal rate is significantly higher than the UK average. To look at my own situation and take just one example, our nursery costs have risen by approximately 11% over the past 12 months. We haven’t changed nurseries or added a second child (yet), this is pure raw inflation at work.
You will have your own examples of costs above the national average, and I’d wager not many examples below it. under the proposals there is one fairly nasty looking consequence from Wednesday. The Bank of England has a decent calculator with which you can assess your own situation.
So, whilst national headlines are useful, it’s important to not only understand but be driven by our own situation. Inflation is, after all, the great destructor of wealth. We did not see it, we do not feel it, but over time it will utterly destroy your hard-earned wealth.
To end the inflationary chat on a positive note, we have a brief moment in the sun just now, folks.
A good rate of interest on even instant-access cash is actually above the official rate of inflation. This is rare, and whilst cash is not the place to be long-term, we’re still in the realm of decent rates of interest compared to the headline rate of inflation. Certainly compared to the meagre offerings of 4/5 years ago.
The moral of the story is do what you can to protect your savings or unfortunately suffer the – inevitable – consequences. For short term cash this means a good rate of interest, and for the longer-term funds this means investing.
Optimism Prism
Your monthly dose of the good stuff:
• 'We've met up for a pint every month for 64 years'
• Value in the meantime: the social enterprise transforming London’s empty buildings
• New campaign launched to help veterans into quality careers
Recommendations
Perhaps not my typical recommendation, but I found it a gripping listen. If, like me, you’re fascinated by true crime stories, here is a superb story from someone in the most famous criminal organisation of them all.
Whilst I don’t agree with all of the points – inheritance tax, amongst others – Dan Neidle’s analysis of the Budget is thorough and interesting. The points about tax reform, particularly concerning the UK’s outdated approach to corporation tax, are on the money.
On the recommendation of a client – thanks S! - I was introduced to Dave MacLennan of Mortgage Advice Brokerage (in the teams section, scroll down) in Dunblane. By the time this newsletter reaches you we will have just moved house, with Dave’s assistance, and his communication and advice throughout were top-notch. Big thumbs up.
There we are for another month. Take care of yourselves out there folks, and have a superb Christmas and New Year when it arrives.
All the best,
Andy
The compliance bit:
· This newsletter 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.
· An investment in a Stocks & Shares ISA will not provide the same security of capital associated with a Cash ISA.
A pension is a long-term investment and the value is not guaranteed. Any advice or considerations are personal to each individual’s circumstances
