With summer well and truly here, it’s been lovely to hear of holidays and plans that our clients have coming up. We hope you enjoy this newsletter and it provides a reassuring update in a time of uncertainty.
As we hear every day, costs for everybody are still high and we are taking this into account with the advice we are providing in our meetings. The stock markets are also erratic, moving back and forth as much as the tennis balls at Wimbledon this week.
A return to calmer waters for lower risk clients?
Over the last year, clients with lower risk portfolios have often experienced more volatility than those with higher risk investments. It is important to remember that lower risk strategies generally fall less than higher risk funds, but there is no guarantee of this.
The explanation for the fall in these lower risk portfolios can be traced back to the rapid rise in interest rates. With interest rates at record lows for the last 15 years or so, investors have looked at the rates offered by government securities and large companies to invest into for lower risk strategies, as the risk of them collapsing are small. When interest rates have been around 0.5% in the UK for over 10 years and government securities are offering 2.5%, say, investments have been fairly safe in government securities.
Since the spring of 2022 though, interest rates in the UK (and around the world) have shot up to help combat inflation. Investors now see those government securities at 2.5% and bank interest rates at much higher than 2.5%. So the money moves away from the government securities and into the banks. The ‘price’ therefore of the government securities falls as demand lessens and hence clients with these investments in their portfolios see their plan values fall. This explains a lot of the fall over the last year in the lower risk portfolios.
However, it appears inflation is slowly coming under control around the world, although still higher than many want and the rates are not guaranteed to continue reducing towards targets. At some point interest rates will begin to fall again, having done their job of reducing the inflation rate, as people save rather than spend. Interest rates are unlikely to fall to the levels they have been at, but they will be lower than they are now. As the interest rates come down, investors will begin moving back into large companies and government securities with their money. As the demand for those increases again, the price will also increase, re-inflating the value of the portfolios, especially in lower risk portfolios where there is a higher weighting.
So although there may be some more issues ahead and values may fall further before they recover, holding steady and leaving the investments untouched for the time being is our general advice. To reduce risk further now or to encash plans at the low point will crystallise the losses to date. The fall and recovery of stock markets in 2020 during the Covid pandemic is a good example of why holding steady in the short term is sensible, providing you have enough to live on. Selling these types of investments now in a panic can have longer term repercussions on your cashflow. Selling at the bottom and getting back into investments after markets have recovered can mean really important upward gains are missed.
Each client’s situation is different though and we are discussing this in detail in our meetings with you. The general rule to remember is that “time in” the markets is more important than “timing” the markets.
State pension top-up deadline extended to April 2025
The government is giving people more time to pay National Insurance contributions towards their State Pension. Taxpayers now have until 5 April 2025 to fill gaps in their National Insurance (NI) record from April 2006 that may increase their State Pension – an extension of nearly two years.
Extending the voluntary National Insurance (NI) contributions deadline means that people have more time to properly consider whether paying voluntary contributions is right for them and ensures no-one need miss out on the possibility of boosting their State Pension entitlements.
The original deadline was extended from 5 April 2023 to 31 July 2023 and tens of thousands of people have taken advantage to pay voluntary contributions to HMRC since then. The revised deadline is expected to enable tens of thousands more to do the same. From feedback we’ve had at Headley, the HMRC phonelines have been jammed over the last couple of months and so this is a welcome extension for many of our clients.
All relevant voluntary NI contributions payments will be accepted at the rates applicable in 2022/23 until 5 April 2025.
Paying voluntary contributions does not always increase a person’s State Pension. Before starting the process, eligible individuals with gaps in their NI record from April 2006 onwards should check whether they would benefit from filling those gaps. Individuals can usually only pay voluntary NI contributions for the previous six tax years and after 5 April 2025, the usual six year deadline will resume.
The government news bulletin has further details and a number of useful links.
HMRC to trial seasonal Self-Assessment helpline
HMRC is to pilot a new seasonal model for the Self Assessment (SA) helpline direct to HMRC’s digital services, to enable them to prioritise helping those with urgent queries.
For three months from 12 June 2023 to 4 September 2023, HMRC’s trial helpline will target SA queries from the department’s digital services, including its online guidance, digital assistant and webchat. According to HMRC, this will free up 350 advisers (full-time equivalent) to take urgent calls on other lines and answer customer correspondence. If focused on urgent calls, these advisers will answer around 6,600 each day, ensuring more customers who really need to speak to an adviser can do so. The vast majority of SA customers use HMRC’s online services, with 97% filing online.
The helpline will re-open on 4 September 2023 so customers can receive expert support in the five months running up to the SA deadline on 31 January 2024. The SA helpline receives far fewer calls over the summer, with calls around 50% higher between January and April compared with June to August.
The Low Incomes Tax Reform Group (LITRG) commented that:
‘The sudden closure of the self assessment helpline is extremely disappointing and ill-thought-out and will have a disproportionate effect on low income taxpayers who cannot afford professional advice and rely on HMRC to help them get their tax right.
Just last month, HMRC were actively encouraging taxpayers to file their tax returns early. Now, they are making the process even more difficult by cutting off a vital source of support for unrepresented taxpayers.
Actions like this are not the answer, they simply store up problems for the future. What HMRC really need are the resources they require to do their job adequately and effectively. This is another example that shows this is not the case at present.’
Employee share scheme shake-up
Employee share schemes are set for a shake-up as the government explores changes that will help boost business growth.
In a call for evidence launched in June, the government wants to hear views on Save As You Earn (SAYE) and the Share Incentive Plan (SIP), in the hope of improving the schemes and increasing their use by making them easier to set up and offer to staff.
This comes as a HMRC evaluation report shows that 81% of businesses say these schemes help boost their business, with almost three quarters of these saying they have helped them retain and recruit staff. 31% of businesses which are unaware of these schemes say they are too complicated to set up.
The two schemes up for review are:
This allows employees to buy discounted shares in their company if they save money each month for three to five years.
This allows companies to help their employees to purchase shares directly in their company or offer them as awards, tax free.
The HMRC news article has additional information, which may be useful to our clients who own businesses or are part of one where employee share schemes are in place.
Help to Save extended to April 2025
Help to Save, the government savings scheme for low-income earners, which offers a 50% bonus payment worth up to £1,200 over 4 years, has been extended to April 2025.
More than 359,200 customers have opened savings accounts since its launch in September 2018 and an additional 3 million individuals could still benefit from the savings scheme as a result of the extension.
Savers can deposit between £1 and £50 a month into their account and will receive a government bonus– even if money has been withdrawn. Savers earn a 50 pence bonus for every £1 saved and the bonus payments are paid in the second and fourth years. This means that someone saving £2,400 – the maximum amount they could deposit over four years – would receive a £1,200 bonus from the government, paid directly into their bank account.
Setting up a Help to Save account online is quick and easy to do and takes less than 5 minutes to sign up. Eligible individuals can find out more and how to apply on GOV.UK or via the HMRC app.
Individuals can open a Help to Save account if, when they apply, they are receiving:
- Working Tax Credit
- Child Tax Credit and are entitled to Working Tax Credit
- Universal Credit and they (with their partner if it is a joint claim) had take-home pay of £722.45 or more in their last monthly assessment period.
Headley Financial Services charity of 2023
This year we are raising funds for The Tantum Trust, a charity that supports local families who are in financial hardship, established 30 years ago by Carl Tantum, the original founder of Headley Financial Services. The charity has used some of our funds to deliver cooking courses to families at a family centre in Alton. Our Managing Director, Jane Slater, attended the first session. The theme ‘cooking on a budget’ was well received and many of the young people had never cooked from fresh before and were amazed at the flavours that could be created from a budget of less than £1 a head. The charity is keen to use funds raised for education as well as support and are now planning more sessions.
If you’d like to donate here is a link www.thetantumtrust.co.uk
Alton college – work experience
In June, the Alton college student who won the Headley Financial Services scholarship this year came to work with us for their ‘Work Experience’ week. Victor spent the week sitting alongside along all members of staff – administrators, paraplanners and advisers – to get a good understanding of how we work and to experience working in an office.
He worked very hard for the week and even managed to research a project on derivatives which he may use as part of his college work. We enjoyed having him as part of the team and wish him all the best for his future studies.
Headley’s Janet Wood and Rebecca Barnes both passed the industry’s LP2 exam – “Financial Services products and solutions” over the last month, to deepen their understanding and knowledge of financial planning. They both passed on the first attempt so really well done to them both.
Rebecca will be using her many years of experience alongside her recent exam success to help Phil’s clients at Headley, following Donna’s departure to concentrate on her love of becoming a swimming instructor. Rebecca will continue to look after Stuart’s clients alongside Phil’s.
Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax relief depends upon individual circumstances and tax rules may change. This newsletter is provided strictly for general consideration only and is based on our understanding of current law and HM Revenue & Customs practice. No action must be taken, or refrained from, based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.
The Financial Conduct Authority does not regulate taxation advice, estate planning, inheritance tax planning, wills or trusts.
Sources for some articles in this newsletter – Threesixty