10 steps to avoid being hit with 40% IHT in 2018

 

 

With inheritance tax payments hitting a record high at the end of 2017, the New Year is a good time for advisers to ensure that clients are being as tax efficient as possible when passing on wealth to future generations, law firm Collyer Bristow has advised.

 

According to HM Revenue & Customs, IHT receipts hit £5.3bn ($7.2bn, €6bn) in the year to November 2017, up from £4.7bn for the whole of 2016, as more estates than ever fall within its scope.

 

Collyer Bristow says that failure to take advantage of the tax breaks available when transferring wealth from one generation to the next can see families being hit by the maximum IHT rate of 40%. This can come as a big blow – especially for individuals who are asset rich but cash poor.

 

However, there are a number of easy steps individuals can take in 2018 to ensure they or their families do not pay IHT unnecessarily.

 

Take advantage of lifetime gifts and “potentially exempt transfers”

 

Consider gifting cash or assets during your lifetime to reduce or potentially exempt them from IHT.

The liability on such gifts reduces by 20% each year if you survive by more than three years after making the gift, down to zero after seven years.

 

 

Make gifts to friends and family out of excess income

 

Individuals are allowed to make the following gifts, exempt from IHT, each year:

 

  • £3,000 (one year’s unused allowance can be carried forward to the next, accruing a total allowance of £6,000)
  • Wedding gifts worth up to £5,000 for a child; £2,500 for a grandchild; or up to £1,000 for anyone else, can also be made free of IHT.
  • Multiple small gifts of up to £250 per person can be made each year, as long as they have not already benefitted from other gifts made.
  • Gifts made out of excess income as part of a regular pattern of giving are exempt – with no limit to the amount which can be gifted.

 

 

Check your will is up-to-date

 

Write a will and review it will periodically to ensure that your current wishes are reflected; that changing family circumstances are taken into account; and that IHT is minimised.

 

Monitor whether your estate’s value is likely to exceed the nil rate band

 

Keeping an eye on the approximate value of your estate means you will be able to take timely action to reduce the amount of IHT beneficiaries could have to pay, using the steps outlined below.

 

Estates worth £325,000 can be passed on free of IHT. For married couples and civil partners, this nil-rate band can now be transferred to a surviving spouse – effectively doubling the nil-rate band to £650,000.

 

Plus, there’s an additional nil-rate band where individuals wish to pass on a property to direct descendants, worth an extra £100,000 free of tax in 2017/18, rising to £175,000 by 2020/21.

 

 

Consider setting up a trust

 

Individuals whose estates are likely to exceed the nil-rate band may want to consider setting up a trust to shelter assets from IHT. Effectively this means handing over assets to trustees to look after for the benefit of beneficiaries, so they no longer form part of your estate for IHT purposes.

 

Identify assets to sell or give away free of CGT

 

Assets worth less than £6,000 can be sold or given away free of capital gains tax (CGT). This can be an easy and simple way of reducing the value of your estate.

 

 

Take out life insurance and ensure it is tax efficient

 

It is important to make sure that life insurance benefits are assigned into trust rather than being paid to the (taxable) estate of the insured.

 

Make a bequest to charity

 

Bequests to charity will be taken off the total value of your estate before IHT is calculated. If you leave more than 10% of the total value of your estate to charity, the IHT rate will be cut to 36%.

 

 

Make sure cash is accessible

 

Having an emergency pot of cash for families to fall back on after death is important. It can help in the short and medium term by, for example, enabling spouses or children to settle outstanding bills.

 

Investigate the possibilities of Business Property Relief

 

Business Property Relief (BPR) is available on family businesses as well as that company’s land, property or equipment. However, it is also available on unquoted shares generally – meaning that investments in many AIM or EIS (Enterprise Investment Scheme) shares may qualify for 100% relief.

 

Collyer Bristow points out that investments in AIM shares or EIS should only be made for sound investment reasons rather than for tax purposes.

 

However, for those with the right experience and risk appetite, this could be a way to drive investment portfolio returns as well as reducing IHT.

 

Louise Jones, associate at Collyer Bristow LLP, says: “A simple annual check-up can make a huge difference to how much wealth can be passed on to loved ones.

“The new year can be a good time to re-evaluate your position and identify any sensible tax planning steps that could be taken. A pro-active, forward-thinking approach is key.

 

“Identifying opportunities to trim your assets down is really important.

“A review also allows you to consider how much of your exemptions you have used up – and how much more you have to go before the end of the financial year in March.”

 

All the best

Stuart

CEO

Farringdon Group

+60 3 2026 0286

Courtesy of International Adviser

 

A Review of the US Markets 2017

 

 

 

 

 

 

 

 

  • US economic growth appears to be picking up but with the FED likely to tighten policy and inflation increasing, we appear to be in the latter stages of the cycle.
  • Global equity markets record an unprecedented year of performance and market conditions look supportive of further gains next year.

 

The year is in its last days and barring a bombshell in the last couple of weeks, 2017 will go down as one of the most remarkable on records. Few investors expected the S&P 500 to post gains of close to 20% with near-record low volatility while enduring geopolitical tensions, massive natural disasters, political infighting in Washington, and a tighter monetary policy.

This year has demonstrated why it can be detrimental to under-exposed investors to wait for a pullback. Another mark of the steadiness of the market in 2017 has been the attention the small pullback we’ve seen lately has seen —with some media pundits asking whether this marks the beginning of the end. We remain in the no camp, although we don’t expect growth to mirror what we have seen in 2017.
 

A Smooth Ride in 2017 (S&P 500)

 

 

 

 

 

 

 

 

 

 

But while we think the bull market still has room to run and investors should remain at their long-term strategic equity allocations, it can be easy to get complacent after a year like this.

 

The U.S. economy has picked up steam; with back-to-back quarters of 3%+ growth and the employment picture is healthy, with claims near record lows, unemployment at 4.1% and a solid 228,000 jobs being added in November, according to the Department of Labor. Further, business and consumer confidence is booming, both the manufacturing and services Institute for Supply Management’s indexes show robust growth, and the Index of Leading Economic Indicators continues to rise.

Housing is also picking up again, with housing starts rising nearly 14% last month (Census Bureau), and existing housing inventory is down over 10% year-over year (National Association of Realtors).

 

US Consumer Confidence is Booming

 

 

 

 

 

 

 

 

 

Source:  FactSet, Conference Board. As of Dec. 5, 2017

 

But there’s a downside to all the good news; expectations are becoming elevated and could morph into a bar set too high for actual data to hurdle in 2018.

In terms of corporate earnings growth, Thomson Reuters’ 2018 S&P 500 consensus earnings forecast is above 11%. Although a boost from tax reform is potentially in the cards, elevated valuations suggest that any disappointment relative to those expectations could bring heightened volatility and/or pullback risk.

 

Macro Factors

Tax reform is moving along, and odds are improved that it will cross the finish line; the final form is still in question, as is the ultimate impact on the economy. Judging by market movements on tax news, investors are optimistic about passage; while hopes for an infrastructure package seem to be falling as midterm election season heats up early next year.

Finally, there is the Robert Mueller investigation wild card, which could also wreak havoc with investor sentiment.

There doesn’t appear to be any waning in the desire by the Federal Reserve to continue normalizing policy, as evidenced by the near-certainty of a rate hike in December.  However, with Jerome Powell taking over the Fed chair position in 2018, and several new members set to be appointed, uncertainty is elevated.

Judging by the comments from Powell during his confirmation hearings, continuity and transparency are priorities; but if inflation should flare up, or growth start to lag, the Fed may be challenged early in the new regime.

 

S&P 500 – Overvalued/Undervalued?

 

With the rises in the US markets over the last year, how can investors see whether the rise is justified and not a bubble? A good indicator is to look at the Price to Book Value for the S&P 500 over the last 17 years. This provides a good historic indication on whether the US Market is becoming overvalued in comparison to the components’ assets.

Price-to-book value is the ratio of market price of a company’s shares (share price) over its book value of equity. This number is defined as the difference between the book value of assets and the book value of liabilities. Generally speaking, if the ratio is lower this is a positive indication because it suggests the price is low compared to the companies’ assets in the index.

Even with rises in the S&P 500 over the last year, we are not seeing a dramatic rise in the S&P P/B which suggests the rise is justified:

 

S&P 500 Historic Price to Book Value

 

 

 

 

 

 

 

 

 

 

After a year with uninterrupted monthly gains, it seems safe to say that 2018 may bring more volatility in global stocks. We may see some red next year, but like the U.S. market, it appears to us that a steep bear market is unlikely.

Our near-term outlook for global stocks in 2018 is therefore positive. We believe most markets are not too expensive to post further gains in the later stage of the economic cycle, as long as earnings continue to rise with economic growth next year.

 

All the best

Stuart

CEO

Farringdon Group

+60 3 2026 0286

Goodbye 2017, Hello 18′

 

 

 

 

 

 

 

 

 

 

 

 

 

This past year has seen for the first time since the Global Financial Crisis, Europe, North America and Asia growing strongly at the same time. We expect this trend to continue through 2018.

 

United Kingdom

 

UK assets have experienced a mixed bag of results this year. The FTSE 100 experienced rapid growth in the first 6 months of the year as equities recovered from the shock of Brexit however in the second half of the year a rapid increase in the value of the pound has stunted growth of the main London index. The UK has now completed preliminary discussions with the Commission on a Brexit deal and is now moving on to discuss its future trading relationship with the EU.

 

However, it seems highly unlikely that the UK can be given any kind of deal beyond the Free Trade Agreement given to Canada last year (not least because any terms given to the UK would also have to be given to South Korea, Japan, Canada and other countries with Free Trade Agreements with the EU). One wonders if British voters and MPs will be satisfied covering a £40 billion divorce bill for nothing more than a standard third country trade agreement.

 

Despite Brexit uncertainty, the UK economy continues to perform well, and the Pound has rebounded from its historic low levels. In 2018 we expect to see the pound level off against the Dollar and the Euro and we expect to see strong gains in the FTSE 100 by the end of the second quarter.

 

Europe

 

With the exclusion of Brexit, it has been relatively quiet in EU markets this year. The expected seismic shift in French politics with the election of Marie La Penn did not happen. While German elections have returned the CDU under Angela Merkel to power, they have also brought right wing extremists under the Alternative for Deutschland into the Bundestag for the first time since World War 2. However, this seems more likely to produce further cooperation between mainstream parties than any outright threat to the government from the extreme right.

 

All in all, Europe has witnessed its first quiet year since the financial crisis. Euro stocks 600 like the FTSE 100 had a strong start to 2017 but has failed to rise since the middle of the year on a rising Euro Dollar exchange rate. We expect moderate growth next year in both The Euro and European equity.

 

Asia

 

In 2017 we have seen Asia pull out of the slowdown that started in 2015. Growth is now becoming more focused on the ASEAN region and India with slower growth levels in China. Chinese equities experienced a major boost in 2017. While the Growth in Chinese stocks will slow in 2018 we expect to see strong growth in ASEAN and Indian equities in the coming year.

 

Bitcoin

 

The past year has seen the emergence of the Bitcoin bubble. While Blockchain Technology has a clear role to play in Fintech in the coming years the Bitcoin system is a highly flawed block chain set up that was never designed to deal with the kind of demands being placed on the technology currently. In the past two weeks, almost all major venders who accepted Bitcoin payments have now stopped given the extreme costs and delays associated with trading through the blockchain.

 

When the Dutch Tulip Bulb Bubble burst February 1637 it followed a second surge in pricing off the back of the first futures being swapped. With the Chicago Mercantile Exchange now opening futures trading in Bitcoin, we expect to see a second surge in prices. At some point in the next three to six months we expect to see the bubble burst. This will likely be caused by regulations in the USA or an outright ban in China.

 

Given the size of Bitcoin is now around $200 billion dollars any substantial growth will cause the crypto currency to begin to pose a systemic threat to financial systems not to mention the vast scale of tax avoidance currently going on in the USA with those with capital gains. This will prompt the Fed, SEC and IRS to intervene heavily. China will also have to intervene at some point as the value grows as it risks circumventing capital controls.

 

When China banned Bitcoin earlier this year prices fell by half almost overnight. That decision was quickly reversed leading to the current price run up to $17,000. In a severe downturn the time taken to update the bitcoin block chain and allow investors to exit might stretch to months causing panic selling as people try to preserve gains.

 

While better crypto-currencies do exist like Ethereum, it seems highly unlikely that any other coin will achieve the brand recognition of Bitcoin. The massive amount of fraudulent Initial Coin Offerings currently taking place are likely to poison the entire crypto currency market in the longer term and it is hard to see how much value can be retained following an inevitable crash.

 

At this stage almost no one doubts that Bitcoin is in an unsustainable bubble and all investors are playing a gigantic game of Chicken or the Greater Fool in economic terms with each other. Prices in Bitcoin may top $60,000 in 2018 however when the crash does come it will be very sudden and values are likely to be lost at a far quicker rate than any investor can pull money out.

 

All the best and I hope you all have a great 2018

Stuart

CEO

Farringdon Group

+60 3 2026 0286

Week 1 – 2018 – In Review – Happy New Year !

 

 

 

 

 

 

 

 

 

 

Stocks got off to a strong start in the first week of 2018, bringing all of the major indexes to new highs. The Dow Jones Industrial Average, although narrowly focused, garnered the most attention by passing the 25,000 threshold on Thursday—less than a year after breaking through 20,000 for the first time.

Less noticed but perhaps more telling was a new record low on Wednesday for the CBOE Volatility Index (the VIX), Wall Street’s so-called “fear index.” Energy stocks were particularly strong, helped by a climb in domestic oil prices to their best levels in three years.

Information technology and materials shares also performed especially well. Utilities and real estate stocks were weak, held back by a sharp rise in long-term bond yields, which makes their dividend yields less attractive in comparison.

 

 

European equity markets began 2018 on a subdued note, but momentum from strong regional and global economic data helped to fuel a rally by the end of the week.

The blue chip FTSE 100 Index hit yet another record high, while the STOXX Europe 600, Germany’s DAX, and other key indexes ended the week up. Some of the key drivers included automobile makers, buoyed by better-than-expected sales, and banks, which benefited from higher yields and steeper yield curves.

Earlier in the week, technology and retail stocks drove market gains amid favorable reports of increased sales and demand. On Wednesday, according to FactSet, the STOXX Europe 600 Technology Index recorded its biggest one-day gain in nearly six months. Investors were encouraged that German retail sales were strong in November, but a report that UK retail prices fell in December signaled that consumers were less willing to spend, weighing on the market.

 

 

ECB Governing Council member and rate-setter Ewald Nowotny told a German newspaper that the ECB may end its stimulus program this year if the eurozone economy continues to grow strongly, according to Reuters. One of the goals of the stimulus program is to revive the eurozone inflation rate, but data at the end of the week showed that the euro-area inflation rate had slowed to 1.4% in December from 1.5% in November.

In addition, the pace of inflation in Italy slowed in December to 1.0%, its lowest level in 2017. Some observers reflect that it might be difficult to end the stimulus program if the inflation rate remains weak. But other fresh economic data during the week showed that the eurozone recorded its strongest growth in nearly seven years. The eurozone core CPI (which excludes food and energy prices) came in at 0.9%, slightly below expectations of 1.0%.

 

 

The Week Ahead

Following a week that was dominated by macroeconomic news, featuring the release of the Federal Reserve’s December meeting minutes and December’s jobs report, investors will likely shift their attention to the start of the fourth quarter’s earnings season. Additionally, economic data to be released next week include inflation data and retail sales on Friday.

 

All the best and Happy New Year, I hope you all have a great 2018

Stuart

CEO

Farringdon Group

+60 3 2026 0286