2010 Budget Update


Stamp Duty

The finance bill 2010, will introduce a temporary relief from Stamp Duty for first time buyers up to the value of £250,000. To clarify: all parties to the purchase must be first time buyers, and it must be as a main residence. A first time buyer has also been defined as someone who has never purchased a property before anywhere in the world. The finance bill also introduces a new rate band of stamp duty on properties over £1 Million these will now have to pay 5%. New Anti-avoidance legislation will also be introduced to target those who currently exploit the partnership rules to artificially reduce the duty payable on land transactions.

  • First time buyers no stamp duty on purchase of main residence up to a value of £250,000
  • 5% Stamp duty on property over £1 Million

Income tax & National Insurance Confirmation of the incoming 1% increase in NI from April 2011. Also confirmed those earning over £150,000 will pay additional 10% from 6th April 2010, this increase will also apply to many trustees, personal allowances will be restricted for individuals earning over £100,000 from 6th April 2010.

  • Increase in higher rate tax to 42.5% for dividends and 50% for other income from 6th April 2010 for those earning more than £150,000 and certain trusts.
  • Those earning over £100,000 will lose part or all of there allowance in 2010/2011, a reduction of £1 for every £2 of income over the £100,000.
  • Lower limit on NI will increase by £570 in April 2011.
  • NI to increase by 1% from 2011/2012

Corporation Tax Rate remains 21% from 1st April 2010 to 31st March 2011; the increase for companies with chargeable profits below £300,000 has been deferred again!

Inheritance Tax

Frozen at £325,00 (each or £650,00 for married couples) for 2010/2011 and the next 4 years – overriding planned increase to £350,000 as in the budget in 2006.

Pensions

  • Tax relief for those earning over £150,000 will have their tax relief restricted.
  • Those earning over £180,000 will be restricted to 20% tax relief
  • The relief will be based on 1% withdrawn for every £1,000 of gross income above £150,000
  • Life-time allowance of £1.8 Million and the annual allowance of £255,000 are frozen up to 2015/2016 tax years.

Life Assurance Policies

Deficiency relief. A complex system whereby if you have in effect overpaid tax on any gain made by a life assurance contract, you are entitled to relief.

  • New Anti-avoidance provision

Essentially, in certain circumstances you could over claim, this little loophole has been closed.

Investments

Venture Capital Trust Schemes and Enterprise Investment Schemes The geographical scope of the schemes will be expanded from UK to include shares listed on any EU regulated market. In addition, the minimum holding of “eligible shares” within the VCT will increase from 30% to 70%, however, the definition will be expanded to allow VCT’s to include shares with preferential rights to dividends.

  • May now comprise shares listed within the EEA
  • Minimum Eligible shares up to 70%, and definition widened
  • Qualifying trade relaxed to company must simply have a permanent establishment in UK

ISA’s

  • Annual Allowance will increase with RPI from 6th April 2011 (based on RPI for the September before the start of the tax year) the limit will be rounded to the nearest £120.
  • The Cash allowance will remain at half the value of the Equity ISA limit after indexation.

Stock Picking Funds V’s Other Funds

Stock Picking Funds V’s Other funds Ok so we hear about how a fund is a stock picking fund, and that this is somehow better than other “non” stock picking funds, whatever they are. So what is a stock picking fund and why is it better? The answer is both straightforward and complex: A stock-picking fund is where the fund manager is allowed to choose which stocks he wants to hold, usually he has a broad remit and can therefore be relatively free to choose what he wants. Conversely a “non” stock picking fund is usually tied to some index, the managers job is to out perform the index that he is tied to, however, he will have to hold a large amount of that index, often this can be as much as 75% of the index itself. With this type of fund the manager will be rewarded for having outperformed the index. This is particularly important when you consider the resent market turmoil, if the index is down by say 30% and the mangers fund is only down by 28% – he has still achieved his goal, as he has still outperformed the index. With a stock picking fund there is no tie to an index, therefore the fund manager is targeted on pure performance, if his fund is down against an index it is of no relevance, if he does not perform he will not receive his bonus. Most stock picking funds have a theme, and most of them are in fact very similar “value”. There are often stock picking funds within special sectors with specific sector driven themes, such as the Jupiter ecology fund, which searches for value, but within an ethical setting. I feel the best way to explain this is to give an example. We might see in the news that a company has done something wrong and will be heavily fined (BA for example) and that this will affect its year end profits, their shares fall in value overnight, and then to compound the issue, some other bad news about the company is published, sending the shares even further down. Now due to the resources available to the fund managers, they carry out a great deal of research on the company in the back ground and establish that the company is fundamentally sound, pays a good dividend and will still report good profits, although maybe a little later than planned or often in a couple of years. With this in mind the fund manager buys into the company heavily, while the share price is depressed, feeling confident that some time later these shares will be back in vogue. He keeps them within the portfolio until they increase again in value, and then sells them. This is in a nutshell what all good stock picking funds do. A real example of this is the M&G recovery fund, some time ago Rolls Royce, were laying off large numbers of their work force, they had been struggling for some time and the news of the lay offs heavily affected their share value. However, Tom Dobell decided that there was something about RR and got involved with them, he established that they had a super new aero engine that should take the company forward, the new engine was suited to the new super airbus the A380. At that time there was one other competitor, but it looked more and more likely that RR would power the aircraft. As is often the case with Tom Dobell, he got his hands dirty and became closely involved with the management team and the restructuring of the company to help maximise the companies potential, during this time RR’s competitor dropped out of the running, which left RR with the only engine capable of powering the A380. A little later the A380 was launched with RR’s new engine, the shares in RR inevitably went up, and M&G recovery made a tidy profit for its investors. (While this synopsis lacks detail, and does not give any real sense of the work involved it gives a general overview of the situation) Even now if you look at the holdings of M&G recovery fund you will still find RR as a holding, Tom Dobell particularly is a long term investor, usually shares or prospects are considered as a 3 or 5 years holding. This in essence is what stock picking is all about; the general idea is to pick good stocks that are currently under valued. Sometimes the funds are referred to as “value” funds, in the case of M&G they refer to them as Recovery funds, in others they could be special situations or any number of designations, but each one is designed to wheedle out the good quality stocks that are undervalued. The market as it stands today, is a place full of value with large companies who’s shares are very undervalued, but how on earth would we pick which company is undervalued and which is valued correctly. Take the banks; we all have heard, all to often over the last 12 months how terrible they are, and that they won’t make any money. However, there is value in this market, but which banks are overburdened with toxic debt or massive debts to the government with repayments that will eat into the companies profits and ability to pay dividends for years? Which share prices have been pushed down not because that bank is in trouble, but because the sector is so depressed? If you asked the average man on the street if he would buy banking shares he’d probably laugh at you. If we look at Barclays, who have had no intervention from the UK government (no matter how often they were mentioned on the News as being in trouble), on March the 6th their share price was 61.4 pence, now 5 months on their share price is 344.6 pence (17/08/09 at 11:00) this represents an increase of 461%. What this means is that if you had invested £10,000 in Barclays shares on the 6th March and sold them at 11:00 today you would now have £56,100. I am not for a moment suggesting that you have £10,000 or that you ever consider direct investment in a single companies’ shares or indeed that you consider investing in Barclays, I am only aiming to highlight that there is value in a market that has fallen so significantly even in the “toxic” area of Banks. Now is the time to review your portfolio with an Independent Financial Advisor, to maximise your opportunities and ensure that you have the right balance of investments within your portfolio, and make sure that you benefit from what value there is. To arrange an appointment or for more information on these or other types of investment please contact Philip P Dales – ppd@pndales.co.uk or tel: 01636 706171. Or view our website, www.pndales.co.uk . IMPORTANT NOTE: The views expressed are the authors own and reflect the authors experience and the research undertaken in this area. Your own decisions should take into consideration your attitude to risk, the time span you are investing for and your personal objectives. PNDales Ltd recommends that you should always seek advice from a suitably qualified individual, such as an Independent Financial Adviser (IFA) before making any decision regarding investments’. PNDales Ltd is a firm of Independent Financial Advisors and would be happy to provide tailored advice in this area. All Information Correct as at the 26th August 2009. Warning: Investments may fall as well as rise, and past performance is no guarantee of future returns. This article does not represent advice, each persons circumstance are different and the funds mentioned may not be suited to your circumstance. PNDales Ltd will not advise direct investment in shares. PNDales Ltd is authorised and regulated by the Financial Services Authority 496107.

Beware the “free” valuation

We are all taught to be wary of people offering us a free lunch, and why would this not be the case with a mortgage and the valuation.

Currently there are a number of lenders who are trying to tempt us with a “free” valuation service. However, we should be careful, these free valuations are often only for the lender, in most cases you would not even receive a copy of the report.

What this means is that you have no comeback against the valuer or surveyor who did the work.

Traditionally, when you purchased a house the lender would make you obtain a valuation, you could always buy a basic valuation or upgrade to a full homebuyers report or a structural survey. The surveyor would view the property, check for damp, movement and any problems such as wiring issues etc. You could then decided whether you wanted to continue with the sale, may be you could negotiate with the vender, but at least if you did go ahead you knew or had some sense of surety that you knew what was wrong with the house, even if you picked the basic valuation.

If something was found to be wrong with the house that the valuation should have picked up, you would be able to take the surveyor to task.

Not so with a free valuation: the free valuation is not instructed on your behalf, they are instructed on behalf of the lender and as such you would have no come back at all.

All the lenders do offer an enhanced valuation package, that is those that offer a “free” valuation, and therefore it would be wise to select that option. However, these cost about the same as a standard valuation offered by other non free valuation lenders. What this really shows is that the lender who says “free” valuation, is not really offering a cheeper deal, because when you add in the cost of a real survey there is little difference in cost.

Another cheeky thing these same “free” valuation lenders, will do is add a little to their arrangement fees. They can get away with this if the valuation is free, and still appear cheeper than the non free valuation deals, but when you add back in the cost of a real survey you now notice that they are in fact more expensive.

All this said, we live in a world of cheapest is best, and not many people scratch the surface to look a little deeper, so its unlikely that free valuations will disappear and its even more unlikely that people will not be attracted to them.

Philip Dales

www.pndales.co.uk

Your home may be at risk if you fail to maintain repayments on any debt or mortgage secured against it.
PN Dales is authorized and regulated by the Financial services authority 496107.

For more advice on mortgages or other areas of your financial planing why not have a look at our web site www.pndales.co.uk or email advice@pndales.co.uk

PNDales Ltd
Northgate Business Centre
38 Northgate Newark
Nottingham
Tel: 01636 642 844
www.pndales.co.uk