Britain Votes to Leave the European Union - What's Next for Investors?

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The results are now in, Britain has decided to leave the European Union. You will no doubt have many questions around the implications of the decision, and we are on hand to offer any support we can. This post offers some commentary on what this result could mean for you as a personal investor.

Market volatility and uncertainty

The market has been subject to significant volatility and uncertainty of late and this will be exacerbated by the vote to leave and the likely political changes which will come about within the UK Government. The market will likely respond unfavourably to this potential short-term uncertainty and while the market may be expected to decline in the short term, a fall in the value of sterling relative to the Euro and/or Dollar will actually make UK exports more competitive and will boost the sterling equivalent of overseas earning for many of the large corporates in the FTSE 100. Therefore, after an initial dip, the market may return to a focus on those underlying fundamentals which may be favourable than the initial reaction might suggest.

Personal investors should also note that while the market may be driven by sentiment in the short term, not all companies will be affected in the same way by the vote to leave.  Even within the same sector different companies will be impacted in different ways.  In time the market will differentiate between those companies and this may serve to demonstrate that any initial blanket market reaction will in fact have provided buying opportunities for discerning investors able to differentiate between the impacts on different companies.

The negative short-term outlook may soon be reversed for those companies which will benefit from their exports being more competitive or their overseas earnings being more valuable in Sterling terms.  Investors will need to be sure-footed in identifying those companies which may benefit from the outcome of the vote and look for opportunities where whole sectors have been written down without any meaningful differentiation between companies to reflect the variation in impact the vote will have.  The market will return to valuations based on fundamentals in due course.

It is vitally important for markets and for personal investors that any changes in Government take place swiftly and that those charged with negotiation our exit from the EU set out as clearly as possible how they plan to steer the course for the UK going forward.  We would urge the Government not to undertake any knee-jerk reactions in terms of an emergency budget, and shout such a budget be deemed necessary tax incentives which encourage investment should not be a target for savings. To do so would be short sighted as the UK economy now more than ever before will be reliant on the small businesses, many backed by personal investors, to drive economic growth and future employment.

Sometimes doing nothing is best

Investing in the stock market can be very rewarding.  However, as share prices fluctuate, it is also possible that you can lose money. This can particularly be the case when you react to short-term stock market falls.

Stock markets go through periods of uncertainty and although the sharp falls that can be experienced at such times is understandably unsettling for investors, even tempting some to change their long-term planning by selling their investments, stock market volatility does tend to be short lived and therefore most experts agree that investors are probably better off sitting tight through these unnerving periods.

Those who sell or delay making new investments when stock markets become uncertain are actually employing a strategy known as 'market timing'.  The intention is often to invest once stock markets have calmed down or to buy when stock markets have gone even lower.  This can be a very dangerous strategy.  Sharp falls in stock markets tend to be concentrated in short periods of time.  Similarly, the biggest gains are often clustered together.  It is also quite common for a large gain to follow a big fall (or vice versa).  Accordingly, an investor who tries to anticipate when the best time is to invest runs a very high risk of missing the best gains.  This can have a big impact on their long-term return.



The information gathered for this post has been derived from articles from The Share Centre and Fidelity FundsNetwork in conjunction with the views and opinions of the Senior Partner at GDA Financial Partners.


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Why it’s important to think ahead when applying for a mortgage

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Applying for a mortgage can be a daunting prospect, but with the help of a professional mortgage adviser it doesn’t need to be.

Why is it more difficult than it used to be?

In the past, some people were allowed to take out a mortgage they could not afford. This led to some of them falling behind with their payments or losing their home. A mortgage lender must therefore check that you can afford your repayments now and in the future. To do this they will need information about your income and outgoings. So before you launch into the application process there are a number of small things you can do that could greatly increase your chances of getting your dream home.

Your credit rating is important

Your credit score enables lenders to see that you have the financial means and discipline that will be required to pay back your mortgage. Key things lenders will check include your history of repayments, so if you have any missed payments on credit cards, catalogues or any other existing debts within the last three months, this may hinder your chances. Make sure you have applied for your credit report and disclose anything that may affect a mortgage application to your mortgage adviser, with their industry knowledge they will be able to look at the most appropriate lenders for your situation.

Are you linked financially to someone else?

If you’ve got financial links to someone else, for example, a joint bank account from a previous relationship, you will need to ensure that that link is removed as soon as possible. If that person makes a late payment or has any other issue that affects their credit, it will reflect on your own report and hinder your chances of getting the best deal. As before, if you do think this may be a possibility let your mortgage adviser know as soon as possible, forewarned is forearmed.

Take a good look at how you are managing your credit

When applying for a mortgage, your last three months’ account statements will come under scrutiny so it’s a good idea to prepare ahead of time. When we talk about credit, we don’t just mean your credit card, it is also your debit balances on your bank accounts and overdraft limits. You should avoid things such as applying for credit in the run-up to a mortgage application as this would not look favourable.

The important thing to remember is that every lender is different in what they view as the ‘perfect candidate’ to lend to. Just because you don’t fit one lenders’ criteria, it doesn’t mean you won’t fit another’s. A mortgage adviser will be able to guide you through the process and advise you on all your available options, helping you to get a product that suits your personal needs and circumstances.

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Protecting your pension from the Lifetime Allowance Reduction

 

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From 6 April 2016, the lifetime allowance (LTA) for pensions will reduce from £1.25m to £1m and this could potentially affect a significant number of savers according to a recent article in the Financial Times. Figures suggest that if you earn £80,000 or more, or have saved funds of £600,000 or more into your pension, you should consider action to protect your self from the LTA danger zone. Any savings in excess of the LTA will incur a tax charge of up to 55% when LTA is triggered on the withdrawal of funds.

 

If you think that you may breach the £1m limit during your working lifetime, e.g., you are a high earner or have a defined benefit (final salary) pension, it is a good idea to check the value of your pension to date and request projections to see how your selected retirement age and investment growth will affect that value. If you have only money purchase pensions (as opposed to a defined benefit pension), it is simply a matter of determining whether your pension fund is likely to be valued in excess of £1m by the time you draw benefits (you also need to consider any pension benefits you have previously begun to draw). You will need to take into account the likely fund growth and future level of pension contributions, but an adviser can do that for you. However, if you have benefits within a defined benefit pension scheme (deferred entitlement or benefits still accruing) it can be more complicated because these types of pension benefits are calculated on a percentage of your salary at retirement. If you are entitled to a lump sum in addition to the pension, you will also need to add this.

 

The government does have arrangements in place to offer some protection to savers and it may be possible for you to apply to HM Revenue and Customs for either Fixed Protection or Individual Protection, both of which can both help to reduce or eliminate an LTA tax liability. However, these protections come with conditions and the best course of action for you will depend on various individual factors and should be considered very carefully.

 

The LTA is a complex area, and the right solution for you will depend on your personal circumstances. Seeking independent advice will ensure that you make the right decisions in good time. If you would like more information on the LTA reduction you can read more in the Gov.uk LTA policy paper or ask your financial adviser.

 

 

 

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The New Help to Buy ISA

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The new help to buy ISA will be available from 1st December 2015. This ISA will allow people aged 16 and over to save up to £200 per month, on top of an initial investment (up to £1,000), towards a deposit on a first property purchase.

Where an individual saves £12,000 into the help to buy ISA, the government will boost those savings by 25% to £15,000 when used for a deposit on the purchase of a first property. The tax free bonus will be limited to a minimum of £400 (maximum of £3,000) and will be available on UK properties up to a value of £450,000 in London and up to £250,000 in other parts of the country.

Because the help to buy ISA is per individual and not per property, if a couple save a deposit of £24,000 equally between them, they would receive an additional £6,000 from the government. Each first time buyer can only open one help to buy ISA during the lifetime of the scheme.

Payments made to a help to buy ISA count against the individuals annual limit and because it is effectively a cash ISA it means that another cash ISA cannot be opened. However, a stocks and shares ISA could still be opened, into which you could invest into cash following recent ISA reforms.

The new account will be available for 4 years from 1st December 2015, but there is no limit on how long the account can remain open.


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Fidelity - Outstanding Investment House 2015

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We are happy to announce that Morningstar, a leading provider of independent investment research in North America, Europe, Australia, and Asia, has named Fidelity as the Outstanding Investment House for 2015. 

The annual Morningstar awards recognise individual fund managers and fund groups that have made a substantial contribution to the retail investment management industry.

Jeremy Beckwith, director of UK manager research for Morningstar, said, “The awards draw on our extensive qualitative manager research to celebrate those in the UK investment industry who have achieved impressive returns and have been excellent stewards of fund shareholders’ capital over the long term.”

All of us here at GDA Financial Partners are delighted to know that the close relationship that we have forged with Fidelity help us to benefit our clients. Their extensive global network allows them to provide outstanding products and services that many of our clients have been able to take advantage of.

You can find out more about Fidelity by visiting their website: https://www.fidelity.co.uk/investor/default.page.

You can also find out more about the Morningstar awards and the other winners at: http://corporate.morningstar.com/us/asp/subject.aspx?xmlfile=174.xml&filter=PR5483.

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Sticking to your Guns during an Economic Downturn

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Declines in markets are normal when it comes to investing and it is a testing time at the moment for investors, particularly in international markets. Falls in the price of oil, slowed growth in China, renewed uncertainty in Greece and the potential for a rate increase in the US are all factors that make reviewing your portfolio a difficult task. While it is tempting to make changes when markets are weak, you should make an effort to resist the temptation. Why? Because your best decisions regarding investments should be based on savings you are getting and the investment plan you have in place. While it is important that you stay up-to-date with what is happening in investment markets, you should always understand headlines within contexts.

Now more than ever it is important to remember that your investments are for the longer term and that a fund cannot be expected to outperform all of the time in a global economy. With most of the main markets participants on holiday you can be assured that they will be thinking about how best to put their cash back to work when they  return and there are plenty of examples of funds that have moved from the bottom quartile to the top in a short space of time, explained by positive changes in the markets or fund managers overhauling the portfolio strategy.

This is a good opportunity recognise the expertise of your financial adviser and look to them for guidance. Your financial adviser will be in the best possible position to offer advice on the markets and valuable industry insights. The volatility of the markets and its effects on the funds in your portfolio have been carefully balanced based on your attitude to risk, therefore with higher risk portfolios more volatility is to be expected and will be particularly highlighted of late. However, you should also have a portfolio that is sufficiently diversified to help weather these periods of uncertainty. It will be difficult to stick to an investment plan unless you understand exactly what you will get out of sticking with your invested funds, regularly reviewing your investment plan and knowing what sorts of options are available to you will ensure that your goals are always realised.

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Key Announcements from the Summer Budget 2015

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This is a Budget that puts security first. It ensures economic security for working people by putting the public finances in order and setting out a bold plan for a more productive, balanced economy. It supports national security by investment in defence. It sets out bold reforms on tax and welfare, and introduces a National Living Wage so we move Britain from a low wage, high tax, high welfare economy to a higher wage, lower tax, lower welfare economy. It delivers on the promises on which the government was elected.
 

This Budget sets out the action the government will take to:

• Eliminate the deficit and run an overall surplus to start paying down debt, while increasing spending on defence and the NHS.
• Reward work and back aspiration, by introducing a new National Living Wage, cutting taxes so people can keep more of what they earn, and reforming the welfare system to make it more affordable and fair to the taxpayers who pay for it.
• Back business and make the economy more productive, by cutting corporation tax and increasing the permanent level of the Annual Investment Allowance, and by undertaking major reform of funding for skills and infrastructure to ensure higher standards of living for everyone in the UK .
• Secure a truly national recovery, by devolving powers and budgets to build a Northern Powerhouse, and create the right conditions for strong growth throughout the UK.

 

Here are the key announcements made by George Osborne in the summer Budget (8 July):

 

1) New national living wage

From April 2016, a new national living wage of £7.20 an hour for those over 25 will be introduced. This will increase to more than £9 an hour by 2020.

 

2) Tax-free personal allowance increased

The tax-free personal allowance – the amount people earn before they have to start paying income tax – will increase to £11,000 in 2016 to 2017.

The government has an ambition to increase the personal allowance to £12,500 by 2020, and a law will be introduced so that once it reaches this level, people working 30 hours a week on the national minimum wage won’t pay income tax at all.

 

3) Welfare system cuts

Working-age benefits, including tax credits and local housing allowance, will be frozen for four years from 2016 to 2017, however this excludes maternity allowance, maternity pay, paternity pay and sick pay.

As speculated, the household benefit cap will be reduced to £20,000 across the country and £23,000 in London.

Support through the child tax credit will be limited to two children for children born from April 2017.

Those aged 18 to 21 who are on universal credit will have to apply for an apprenticeship or traineeship, gain work-based skills, or go on a work placement six months after the start of their claim.

Rents for social housing will also be reduced by 1 per cent a year for four years.

 

4) Reforming dividend tax

The dividend tax credit (which reduces the amount of tax paid on income from shares) will be replaced by a new £5,000 tax-free dividend allowance for all taxpayers from April 2016.

Tax rates on dividend income will be increased.

 

5) Family home taken out of inheritance tax

Currently, inheritance tax is charged at 40 per cent on estates over the tax-free allowance of £325,000 per person. From April 2017, couples will be offered a £1m family home allowance so they can pass their home on to their children or grandchildren tax-free after their death. This will be phased in from 2017 to 2018.

The allowance will be gradually withdrawn for estates worth more than £2m.

 

6) Limits to paying into pensions

The amount people with an income of more than £150,000 can pay tax-free into a pension will be reduced so that for every £2 of income they have in excess of £150,000, then their annual allowance is reduced by £1. Most people can contribute up to £40,000 a year to their pension tax-free.

 

7) Higher rate threshold will increase

The amount people will have to earn before they pay tax at 40 per cent will increase from £42,385 in 2015 to 2016 to £43,000 in 2016 to 2017.

 

8) Corporation tax will be cut

The main rate of corporation tax has already been cut from 28 per cent in 2010 to 20 per cent, in order to boost UK competitiveness but will fall further to 19 per cent in 2017, and then to 18 per cent in 2020.

 

9) Annual investment allowance will be increased

The annual investment allowance, which has previously been increased temporarily, will be set permanently at £200,000 from January 2016.

 

10) Employment allowance will increase

Businesses will have their employer national insurance bill cut by another £1,000 from April 2016, as the employment allowance rises from £2,000 to £3,000.

 

11) Insurance premium tax will increase

From November 2015 the standard rate of insurance premium tax will be increased from 6 per cent to 9.5 per cent.

 

12) Clamping down on claims management companies

The amount that can be charged by claims management companies – such as those that encourage claims for payment protection insurance or personal injury insurance – will be capped.

 

13) Restricting tax relief for wealthier landlords

Currently, individual landlords can deduct their costs – including mortgage interest – from their profits before they pay tax.

Wealthier landlords receive tax relief at 40 per cent and 45 per cent. This tax relief will be restricted to 20 per cent for all individuals by April 2020.

 

14) Ending permanent non-dom status

Non-domiciled individuals live in the UK but consider their permanent home to be elsewhere.

The UK rules allow non-doms to pay UK tax on their offshore income only when they bring it into the UK. However, permanent non-dom status will be abolished from April 2017.

From that date, anyone who has been resident in the UK for 15 of the past 20 years will be considered UK-domiciled for tax purposes.

 

15) Changing the way banks are taxed

Following increasing bank profits, and to reflect changes in bank regulation, the government is introducing a new 8 per cent tax on banking sector profits from January 2016.

The government is also introducing a phased reduction in the rate of the bank levy (which is charged on banks’ balance sheets) from 0.21 per cent to 0.1 per cent between 2016 and 2021.

 

16) Student maintenance grants will be replaced with loans

From the 2016 to2 017 academic year, cash support for new students will increase by £766 to £8,200 a year, the highest level ever for students from low-income households.

New maintenance loan support will replace student grants.

 

17) Road tax reform

The road tax system will be revised to make it fairer and sustainable.

From 2017, there will be a flat rate road tax of £140 for most cars, except in the first year when tax will remain linked to the CO2 emissions that cars produce. Electric cars won't pay any road tax at all and the most expensive cars will pay more.

 

 

References:

 

1. HM Treasury 2015, Summer Budget 2015, accessed 9 July 2015: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/443232/50325_Summer_Budget_15_Web_Accessible.pdf

 

2. FT Adviser 2015, Summer Budget 2015: All the key announcements, accessed 9 July 2015: http://www.ftadviser.com/2015/07/08/pensions/personal-pensions/summer-budget-all-the-key-announcements-Kav7rhGXQS2fZ9psvrFVnI/article-2.html?ftar=true

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