Monthly Newsletter – September 2024

1 September 2024

What taxes could Labour change in the October Budget?

With a purported £20bn hole in the current budget and commitment not to borrow, Labour need to consider how they plan to raise these funds. Since they committed in their manifesto not to increase VAT, income tax or national insurance there are two main areas that could be under consideration for them. These are as follows:

Inheritance Tax (IHT)

Many people wrongly assume that inheritance tax is only paid by the super-rich. Frozen allowances that have remained in place since 2009 and rapid increases in house prices however have meant that more and more people are paying IHT and this raked in £7.5bn in the financial year to the end of March 2024 for the government. These receipts are only expected to increase further. To increase revenue even more, Labour could up the tax rate from the current 40% or lower the value you start paying IHT. See graph below for UK IHT receipts:

Capital Gains Tax (CGT)

This is already a good source of revenue for the government and receipts for 2022/23 were £14.4bn. Receipts have been increasing as the annual exempt amount has decreased from £12,300 in 2022/23 to only £3,000 in 2024/25. Keir Starmer has ruled out raising CGT on the sale of main homes. Further revenue could be raised in the following ways:

The £3,000 annual exempt allowance could be removed completely.
Assets that don’t currently fall under the CGT regime could be included.
There has also been speculation that rates could be raised in line with income tax rates.

Please see graph below for UK CGT receipts:

Conclusion

At the moment we can only speculate as to what actions will be taken. This does however highlight the importance of financial advice. At Clear we will always ensure that your investments are structured in the most tax-efficient manner. With careful planning and ensuring that your individual circumstances are taken into account, we can help you achieve your needs and objectives by being flexible and adapting to changing circumstances.

Darren Fuller – Clear Senior Paraplanner

Investing in elections

One of the stories that always comes out of the U.S. in an election year is the idea that a Republican president is better than a Democrat for stocks. Let’s explore this idea.

The following chart shows two ways to invest around US politics since the Second World War, starting with $100.

Only invest in the S&P(Standard & Poor’s) 500 when the President is a Republican.
Only invest in the S&P 500 when the President is a Democrat.

Source: Factset/7IM/Robert Shiller, S&P 500 Price index. Portfolios are either invested in the S&P 500 or return 0%.

There you have it…..Democrats win $2,500 vs $1,500!

BUT look at number 3 strategy:

Stay invested, regardless of who’s in the Oval Office.

Source: Factset/7IM/Robert Shiller, S&P 500 Price index. Portfolios are either invested in the S&P 500, or return 0%

So, $34,000 from $100, without having to do anything! The lesson here is don’t stress about politics.

What happens if you can’t look after the pennies?

In July the Treasury announced that the Royal Mint will not be getting any business this year.

This is the first time ever that zero coins have been ordered, and the economic logic stacks up.

Source: UK Payment Markets Summary 2024, UK Finance

12% of all transactions in 2023 were made in cash, so cash is not going away, but it isn’t growing and there are already 27 billion coins of various types in circulation. There are rumours that 1p’s and 2p’s could be scrapped leaving 5p as the smallest denomination, all prices then in multiples of 5 – nice and neat.
Of course, there are always unintended consequences to thigs like this:

What will everyone at the Royal Mint do this year?
Think of the cliches! What will we give for someone’s thoughts? What will we spend in the loo?
Poor King Charles, finally on the throne and no coins with his head on!
What about future archaeologists? You can still find 2000-year-old Roman coins in British soil today. It won’t be so glamorous finding a 2024 Mastercard in a few centuries time!
Children won’t be taught about the unfairness of life if we don’t have the 2p pusher machines in arcades anymore.

But there is something more serious about moving away from cash…the psychology of it.

When we hand over cash, we experience a psychological effect called “pain of paying”. We get a real, biological increase in our pain receptors from handing over something physical. It actually HURTS.
And that pain isn’t there with a credit or debit card – because we don’t see or feel the money leave our account.
Quite simply, paying on card makes us more likely to spend more – various studies** have found that people using a card spend nearly twice as much as people paying cash for the same shop. So, to go back to clichés, if we remove pennies from the system, there really is a chance that the pounds won’t look after themselves.

**Greene, C & Schuh, S. The 2016 Diary of Consumer Payment Choice, 2017/ Prelec, D Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay, 2001

Construction activity increases at fastest pace in 26 months

· Activity rises amid much faster increase in new orders.

· Employment increases for third month running.

· Emerging pressure on supply chains signalled.

As the second half of the year got underway growth accelerated in the UK construction sector. In turn, purchasing activity increased and raising staffing levels for the third month running. Greater demand for inputs put pressure on supply chains, and input costs increased at a faster pace. The headline Standard & Poor’s Global UK Construction Purchasing Managers’ Index™ (PMI®) – a seasonally adjusted index tracking changes in total industry activity – rose sharply to 55.3 in July from 52.2 in June.

All three categories of construction saw activity increase in July as work on housing projects returned to growth. Commercial activity increased solidly, but the fastest expansion was seen in civil engineering activity, where the rate of growth quickened to the sharpest in almost two-and-a-half years.

Source: PMI by S&P Global

Market Falls vs. Annual Returns

The “dog days” of summer were blamed on the appearance of Sirius (the dog star) returning to the night sky each year. The Ancient Greeks associate this period with heat, fever, mad dogs, and bad luck. In 600BC, the poet Alcaeus suggested that you “steep your lungs in wine” to cope with it all!
We’re right in the middle of the dog days now, and things are moving quickly, but here is a chart to remind us that market shocks happen as regularly as Sirius appears, they are a part of life.

Source: Factset, Past performance is not a guide to future returns, chart(s)/data for illustration purposes only.

The pink dots show the peak to troughs in the Standard & Poor’s 500 each year.
And then the blue bars show the return over that year. The money you’d have made from staying invested, start to finish.

Two things:

This year, the S&P’s 500 is only down 9%. Most years (+60%) see falls of more than that.
There will be some years where the overall return is negative (although never as bad as the worst point). In fact, these periods are the RISK that equity investors must bear to get rewarded for

The thing is with market sell offs, there’s always a different thing to last time, and it’s usually something you hadn’t heard of a few months ago! But trading the headlines isn’t a sensible way to live your life – high stress for very little reward.