H.J.Scott & Co

28/10/202428/12/2024

Investors in the Cross Hairs

If tax concessions are taken from one area they will seek others. Expect to see changes brought in concurrently to limit ISA contributions and increase the rates of Capital Gains Tax to investments outside of ISAs. The subject for next time.

So as promised here is my take on the increase in Capital Gains Tax and the decrease/capping of an individuals ISA allowance.

Currently there is no CGT on ISA or Pension investments, we expect that to remain the same. This blog is really only of interest if you hold excess investments in a General Account outside of your ISAs & Pensions. If you do not have a General Account there is no need to read on, unless you are interested. The rest of you can get back to what you were doing before this blog interrupted you.

Increase in Capital Gains Tax

We have left this blog quite late, with the Autumn Budget just 48 hours away now, but we have been waiting to see if any clearer information surrounding tax rates would be “leaked”.

Investment capital gains have always been taxed at a lower rate than earned and unearned income. That differential is about to become closer, or indeed fully closed, with maybe even a doubling of the rate of tax. Basic rate tax-payers currently are charged 10% on the gain achieved from holding investments (higher for property gains) Our worst expectations are that this could be increased to 20%. For higher rate tax-payers, their current 20% rate could be raised to 40%.

23/09/202405/01/2025

Pension Theft

With the first Labour budget a little over a month away we can now begin to see the public relations playbook hasn’t changed much with the new administration. Why would it? Much of the Socialist Civil Service remains in place. Ideas are leaked to assess the likely response of the middle class. The “painful” budget that Rachel ~~Thieves~~ Reeves is likely to deliver will undoubtedly affect the attractiveness of pensions as a tax efficient savings vehicle, both now and into the future.

Luxury Beliefs

A luxury belief is an idea or opinion that confers status on members of the upper class at little cost, while inflicting costs on persons in lower classes. The term is often applied to privileged individuals who are seen as disconnected from the lived experiences of impoverished and marginalised people. – Wikipedia

Ms Reeves was born in 1979, which means she is at least 12 years away from being able to access the sort of pension savings we all hold, even if she had some herself. This Labour administration is about to plunder a rich seam of savings that won’t affect them. Many “hard-working families” (sounding like a politician myself now) have spent decades building up this form of life savings and will rely on these savings for the rest of their lives. With a quick scan of Wikipedia I can also deduce that she can afford to make sweeping changes to defined-contribution pensions (the type we have) because she is unlikely to have anything but defined-benefit pensions herself. Neither is her Civil Service husband likely to be affected.

Sir Keir Starmer has also faced criticism for benefiting from a special pension scheme during his time as Director of Public Prosecutions (DPP) from 2008 to 2013. His pension is “tax-unregistered,” meaning that it is not subject to the Lifetime Allowance (LTA) cap, which normally limits the amount one can save in a pension without facing additional tax charges. This scheme was introduced by the government and mirrors arrangements available to judges, intended to prevent an exodus of senior public figures from the judiciary.

One rule for us, one rule for the elite. Luxury beliefs.

08/09/202405/01/2025

Long and Variable Lags

Milton Friedman, the conservative University of Chicago economist and Nobel Prize winner, started talking about long and variable lags in the late 1950s. He described that the process central banks follow to aid or retard economic activity by adjusting interest rates up or down is fraught with timing issues. When interest rates rise, they will eventually show their effect, but very little change occurs immediately.

Think of economic activity as a fully laden oil tanker, when the brakes are applied it takes miles and miles before the slow down to a standstill finally occurs. The knack therefore is not to brake too late or the tanker will run aground.

There is an emerging fear that central banks should have applied the brakes months ago.

We have watched valuations of our portfolios ebb and flow over summer in typical fashion. Veteran investors have experience of lower return summer months and higher return winter months. But suddenly September is back to haunt us once more as the month of the year which typically gives the lowest returns. This year it’s negative returns so far, taking our valuations down to the lowest point since April.

The US Federal Reserve has maintained the confidence of market participants so far as a delivery of a “Soft Landing” seemed to be achievable. In turn this soft landing was anticipated here in the UK and across Europe. Last October in “Have Interest Rates Peaked?” I said;

The real indicator for central banks is the level of unemployment. So far the rises have been low, but at some point the trickle picks up speed and then it positively floods higher if central banks send rates too high and put companies out of business. The level of un-employment itself is a lagging indicator. The numbers aren’t reported until it is too late and those individuals are placed on “the dole” or whatever it is called today.

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