When thinking about how to minimise Inheritance Tax (IHT) your family will have to pay when you’re gone, don’t overlook opportunities such as gift exemptions.

 

IHT-free gifts

Each financial year you can make gifts of up £3,000 (in total, not per recipient). If you don’t use this in one tax year, you can carry over any leftover allowance to the next year. If you do this, you must use up all your allowance in that tax year; you can’t accumulate several years’ worth of allowance and use it up in a single gift.

 

In addition:

  • Gifts of up to £250 per person per financial year to any number of people
  • Each parent of a bride or groom can give up to £5,000; grandparents or other relatives can give up to £2,500 and any well-wisher can give £1,000
  • Gifts to registered charities and political parties are also exempt from IHT.

 

Gifting from surplus income

If you have enough income to maintain your usual standard of living, you can make gifts from your surplus income – this could include paying a regular amount into your child’s savings account. You’ll need to keep good records. The gift will only qualify for exemption if it is part of a regular pattern of giving and you can demonstrate that your normal standard of living hasn’t been affected.

 

During your lifetime

Many families consider giving assets away during their lifetime, these are called ‘potentially exempt transfers.’ You must outlive the gift by seven years for it not to be counted as part of your estate. If you die within seven years and the gifts are worth more than the nil-rate band, taper relief applies.

Gifts must be outright and you can’t get any benefit from them. For example, if you were to gift your home, but continue to live there without paying a commercial rent, HMRC would consider this to be a ‘gift with reservation’ and include the value as part of your estate.

 

Take sensible steps

Sensible tax planning can help to reduce the amount of tax you pay and safeguard your wealth for the future. We can help – please get in touch.

 

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change. The Financial Conduct Authority does not regulate tax planning. The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

We have turned a corner after the shocks of the past few years

Inflation has fallen to its lowest level in almost two and a half years, according to data released by the Office for National Statistics (ONS) last week. The Consumer Prices Index (CPI) increased by 3.4% in the 12 month period to February 2024, reducing from the 4.0% figure recorded in January.

Food prices were cited as one of the largest downward contributors to the monthly change, with the annual rates for most types of food products easing between January and February. The largest effect came from price reductions in bread and cereals.

Following the data release, Prime Minister Rishi Sunak commented, “We have turned a corner after the shocks of the past few years,” before adding that “we are in a new economic moment.” Mr Sunak believes that this year will “prove to be the year that the economy bounces back.”

The reduction to 3.4% was slightly lower than economists’ expectations of a 3.5% in the year to February. The better-than-forecast data has led to predictions that the Bank of England (BoE) will begin reducing interest rates in the coming few months.

MPC hold firm

Last week, during their second meeting of the year, the BoE’s Monetary Policy Committee (MPC) voted to retain Bank Rate at 5.25%by a majority of eight to one. One member of the committee preferred to reduce the rate by 0.25 percentage points to 5%.

Interestingly, this was the first meeting since September 2021, that no one on the nine-person committee voted for an increase and two members who voted to raise rates at the last meeting in February, shifted to a ‘hold’ vote this time.

The decision to retain Bank Rate was widely expected, BoE Governor Andrew Bailey commented on the outcome, saying the economy is “not yet at the point” where rates can be lowered, but that things are “moving in the right direction.”

One area of concern seems to be that despite the slowdown in inflation, ‘key indicators of inflation persistence remained elevated,’ according to the BoE, adding that inflation in the services sector ‘remains elevated at 6.1%.’ Something they’ll no doubt keep a close eye on over the next month or so before the next MPC meeting which will conclude on 9 May.

Meanwhile, across the pond…

Last week, the US Federal Reserve held its key interest rate steady, with the Federal Open Market Committee voting to retain the benchmark borrowing rate in a targeted range between 5.25% – 5.5%, as widely anticipated.

The current federal funds rate level is the highest in over 23 years. Officials have implied three quarter-percentage point cuts by the end of 2024, the first reductions since the beginning of the pandemic. The likelihood of these three cuts in 2024 has been derived from the banks ‘dot plot,’ which is essentially a matrix of anonymous projections from the 19 officials who comprise the Federal Open Market Committee (FOMC).

Although choosing not to elaborate on the timing of any reductions, Fed Chairman Jerome Powell said he expects the cuts to come, as long as the data complies, “We believe that our policy rate is likely at its peak for this type of cycle, and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialling back policy restraint at some point this year.”

Global equity markets rallied on the prospect of interest rate cuts in the coming months by the UK, US and Europe.

Consumer confidence…

On Friday, the latest data from GfK showed that overall consumer confidence remained flat in March at -21, mirroring the February reading. The index measuring consumers’ confidence in their personal financial situation over the last year was up one point to -13, while the same measure looking ahead to the next 12 months, increased to a reading of 2, which is 23 points higher than this time last year. This personal finance measure is the first positive reading and the highest score since December 2021. Client Strategy Director at GfK, Joe Staton, commented on the recent data set, “This is welcome news given the challenges faced by Britons of fiscal drag, higher costs for fuel, rising council taxes and utilities eroding any increases in wages or other income. But is there a note of worry this month? Look back to last year and it’s clear the improvements in consumer confidence seen most months since January 2023 have vanished.”

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

All details are correct at time of writing (27 March 2024)

RICS responds to the Spring Budget  

The Royal Institution of Chartered Surveyors (RICS) has released a statement in response to the Spring Budget.  

On 6 March, the Chancellor announced that twenty more towns will join the Long-Term Plan for Towns, each receiving £20m. RICS was supportive of this investment, as well as the government’s deeper devolution deal with the North East Combined Authority. 

However, from RICS’ perspective there was still room for improvement. The leading professional body expressed that, with housing still an issue in the UK, they had hoped for a more detailed plan regarding the delivery of new and better homes.  

Justin Young, Chief Executive Officer at RICS, commented, “We look forward to hearing more on specifics such as placemaking and supply side measures, alongside supporting our high streets and net zero targets, ahead of any election.” 

Majority of sellers made a profit in 2023 

Data from Zoopla has found that, despite house prices falling last year, 93% of UK house sellers made a profit in 2023.   

While the average profit on a UK home was £74,000, the specific amount of capital gains made varied depending on location. The average sold price was highest in London (£517,000), with the average seller in the capital making £15,100 per year of home ownership. Meanwhile, those in the North East gained £4,250 each year as they sold their home for a lower average price of £151,000. 

The time spent in the property also dictates the amount of profit made. The general expectation is the longer you have owned the home, the more you are likely to make. However, as Izabella Lubowiecka, Senior Property Researcher at Zoopla explained, “those who bought when property prices last peaked, just before the 2007 financial crisis, saw more modest gains compared to those who bought after, when house prices dipped.” 

Improved market activity expected to boost property transactions in 2024 

Buyer and seller activity showed signs of improvement in February as the residential property market appears to be slowly bouncing back.  

Last month, buyer demand was up 11% year-on-year according to Zoopla. This is likely due to the lower cost of borrowing since there has been no increase to Bank Rate since August 2023.  

The number of sales agreed also saw a boost of 15% when compared with February 2023, with the North East of England and London experiencing the most noticeable rise in sales. 

Richard Donnell, Executive Director of Research at Zoopla, reflected, “Momentum in the sales market has been building over the last five months. I believe the housing market is on track for 10% more sales in 2024 than in 2023, totalling 1.1 million, as greater supply boosts the potential for more sales.” 

All details are correct at the time of writing (20/03/24) 

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission. 

Commercial property industry largely disappointed by the Spring Budget 

The Chancellor’s Spring Budget has been mostly met with disappointment from the commercial property industry, with many experts left wanting a stronger financial commitment to the sector’s development.   

Jeremy Hunt announced that Multiple Dwellings Relief (MDR) on Stamp Duty Land Tax in England and Northern Ireland will end on 1 June. Melanie Leech, Chief Executive of the British Property Federation, expressed concern for the build-to-rent sector in light of this, stating that “the government should be doing everything in its power to encourage more long-term investment into professionally managed rental homes.” 

Head of Commercial Research at Knight Frank, Will Matthews, did find some aspects of the Budget “helpful”, in particular investment into growth sectors such as innovation, life sciences, and film studios. However, Matthews determined that “the sums and measures involved were not game-changing.” 

Dr Walter Boettcher of Colliers is hopeful that the commercial property industry will feel long-term benefits of government investment, concluding that “ongoing reforms to pension and other savings platforms that encourages a larger and wider range of domestic investment sounds encouraging.” 

Chinese developers are net sellers of UK commercial property 

In the last three years, Chinese property developers have sold £1.4bn worth of UK real estate, data from MSCI has found. 

Developers in China have been struggling since 2021, when the country’s property market started to crash after property giant, the Evergrande Group was declared to be in default. China’s biggest developers are therefore continuing to make money where they can by selling up in Britain, despite having spent £12.8bn on British commercial property between 2014 to 2020.  

With Britain now ‘the top European investment location’ according to INREV, Chinese developers may be capitalising on buyers returning their attention here in hope of an investment opportunity. Despite this, it is still not a prime time to be selling real estate, according to Chris Gore, a Principal at Avison Young, who cautioned that, “Right now you wouldn’t be selling unless you really had to.” 

Investment outlook for commercial property 

The latest Investment Outlook from Carter Jonas predicts that 2024 will see more investment transactions than last year but that it will still register lower than the long-term averages. 

The property consultants do not foresee a major market correction as a result of the UK General Election which will take place by January 2025 at the latest. However, from analysis of historic data, Carter Jonas envisage that market activity will slow in the months before and after the vote. 

When it comes to the office sector, the report anticipates that those with correct green credentials and in prime locations ‘should benefit from rental growth in the short to medium term’. However, offices which do not have these ‘will likely continue to fall in value until a point is reached where it becomes economically viable to either refurbish them or change the use.’ 

All details are correct at the time of writing (20/03/24) 

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission. 

Chancellor Jeremy Hunt delivered his Spring Budget last week, during which he provided an economic update from the Office for Budget Responsibility (OBR). The latest projections showed the rate of inflation is expected to fall below the Bank of England’s 2% target level in “a few months’ time.”  The OBR expects economic growth of 0.8% this year, with growth of 1.9% in 2025, higher than the 1.4% figure previously predicted.

The Chancellor said his Budget was “A plan to grow the economy, a plan for better public services, a plan to make work pay… Growth up, jobs up and taxes down.”Headline Budget announcements included:

National Insurance Contributions (NICs)

  • A reduction in the main rate of employee NICs by 2p in the pound from 10% to 8%, following the 2p cut that took effect in January
  • A cut to the main rate of self-employed NICs, meaning the main rate of Class 4 NICs will reduce from 9% to 6%.

Child Benefit

  • The threshold for the High Income Child Benefit Charge will be increased to £60,000 in April
  • The rate of the charge will be halved, so that Child Benefit is not lost in full until an individual earns £80,000 per annum
  • By April 2026, the Child Benefit system will be based on household rather than individual incomes.

New savings products

  • A new UK ISA with a £5,000 annual allowance in addition to the existing ISA allowance. It will be a new tax-free savings product for people to invest in UK-focused assets (consultation re implementation to run to 6 June 2024)
  • British Savings Bonds to be delivered through National Savings & Investments (NS&I) in April 2024, offering a guaranteed interest rate, fixed for three years.

Business taxation

  • From April 2024 the threshold at which small businesses must register to pay VAT will be raised from £85,000 to £90,000.

Non-dom tax regime

  • This regime is set to be abolished
  • From April 2025, new arrivals to the UK will not have to pay tax on foreign income and gains for the first four years of their UK residency
  • After that, they will pay the same tax as other UK residents.

Property taxation

  • From 1 June 2024 Stamp Duty Land Tax Multiple Dwellings Relief will be abolished
  • The higher rate of Capital Gains Tax (CGT) on residential properties will be reduced from 28% to 24%.

Public Sector Productivity Plan

The Chancellor announced a new Public Sector Productivity Plan to restart public sector reform and change the Treasury’s traditional approach to public spending. This includes a £2.5bn funding boost for the NHS in 2024/25, allowing the service to continue its focus on reducing waiting times for patients and £3.4bn to modernise NHS IT systems. The plan also includes £800m of additional investment to boost productivity across other public services, including £230m for drones and new technology to free up police officers’ time for frontline work and £75m to roll out the Violence Reduction Unit model across England and Wales.

Budget reaction

Director of the Institute for Fiscal Studies (IFS), Paul Johnson, commented on the Budget, “The OBR marginally increased its forecasts for economic growth, but the overall public finance picture remains largely unchanged from the autumn. The Chancellor is still on track to stabilise debt as a fraction of national income in five years’ time… While his ambition to improve public sector efficiency and productivity is the right one, and his injection of capital funding into the NHS is a sensible way of doing so, delivering on such plans and securing cash savings will be very tough indeed.”

In other news

Last week new data showed that India’s economy grew by 8.4% in the final quarter of 2023, supported by strong construction and manufacturing activity. Retaining its title as the world’s fastest growing major economy, India is forecast to leapfrog Germany and Japan as the world’s third largest economy in the coming years. The Indian government estimate growth of 7.3% for the 2024 fiscal year to 31 March.

In China, Premier Li Qiang outlined a series of measures last week aimed at boosting its flagging economy, whilst revealing an ambitious 5% growth target for 2024.

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

All details are correct at time of writing (13 March 2024)

Research1 has shone a spotlight on the financial challenges that prevent women from accumulating the same wealth as their male counterparts. 

The report found that having children continues to have a disproportionately large impact on women’s finances, as do other life events such as the menopause. 

The findings 

Amongst the report’s findings were the following statistics: 

  • A quarter of women continue paying into their pension at the same rate during parental leave, vs 70% of men 
  • Caring responsibilities (outside of childcare) have financially impacted nearly half of women 
  • One in 20 menopausal women have quit work due to their symptoms 
  • Only 55% of women return to work full time after their first child, compared to 90% of men. 

Of course, no two women are the same and each will face different challenges on her journey to financial wellbeing. However, these statistics show that there are common threads here. Women continue to take the lion’s share of caring responsibilities, taking them out of the workplace and reducing their financial security not only in the present, but as they approach retirement as well. 

Let’s do something about it – together  

Despite the financial challenges women face, they remain less likely than men to seek professional financial advice2. As we move into 2024, make a New Year’s resolution – let this be the year that you empower yourself to succeed and get your finances on track for a prosperous future. 

1AJ Bell, 2023 

2Canada Life, 2022 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

According to a study from NatWest1, seven in 10 people have been targeted by scams over the last 12 months. Vulnerabilities brought on by cost-of-living challenges have likely contributed to the high numbers. 

Sadly, 13% of people have fallen prey to such scams, which are growing in both number and sophistication – targeting young and old – no one is immune. 

Avoid, avoid, avoid 

To avoid a scam, you’ve first got to know what you’re looking for. So, here’s a list of the most common scams used over the past year and the proportion of people who were targeted: 

  1. Phishing scams (37%) 

Fake emails or calls from organisations purporting to be from legitimate companies, asking you to provide personal or private data. 

  1. Trusted organisation scams (21%)  

Criminals contact their victims pretending to be trusted organisations such as HMRC, the police or their bank, saying there’s something wrong with their account, they need to pay a fine, or similar. 

  1. Refund scams (13%) 

Similar to the above, but the criminals instead use a potential refund or rebate to tempt victims into sharing personal or banking information. 

Other scams include messages purporting to be from friends/family asking for money (12%), get rich quick scams (12%) and purchase scams (9%). 

Keep yourself (and your money) safe  

Staying vigilant and keeping your guard up around unsolicited calls and messages is key to protecting yourself from scams. Remember: 

• If something seems too good to be true, it probably is 

• Your bank will never ask you to disclose your full PIN or password 

• Don’t respond to unsolicited calls, emails or texts, or open links if you feel suspicious 

• We’re always here to help if you’re ever unsure about something. 

Always be alert to the risk of fraud – double check any details to ensure people or organisations are who you think they are. 

Stay vigilant, protect yourself – knowledge is power. 

1NatWest, 2023 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.  

On 6 March, Chancellor of the Exchequer Jeremy Hunt delivered his Spring Budget to the House of Commons declaring it was “a Budget for long-term growth.” The fiscal update included a number of new policy measures, such as a widely-anticipated reduction in National Insurance, abolition of the non-dom tax status and new savings products designed to encourage more people to invest in UK assets. The Chancellor said his policies would help build a “high wage, high skill economy” and deliver “more investment, more jobs, better public services and lower taxes.”

OBR forecasts

During his speech, the Chancellor declared that the economy had “turned the corner on inflation” and “will soon turn the corner on growth” as he unveiled the latest economic projections produced by the Office for Budget Responsibility (OBR). He started by saying that they showed the rate of inflation falling below the Bank of England’s 2% target level in “a few months’ time.” He noted that this was nearly a year earlier than the OBR had forecast in the autumn and said this had not happened “by accident” but was due to “sound money” policies.

The Chancellor also noted that the OBR forecast shows the government is on track to meet both its self-imposed fiscal rules which state that underlying debt must be falling as a percentage of gross domestic product (GDP) by the fifth year of the forecast and that public sector borrowing must be below 3% of GDP over the same time period. Indeed, in relation to the second rule, Mr Hunt pointed out that borrowing looks set to fall below 3% of GDP by 2025/26 and that by the end of the forecast period it represents the lowest level of annual borrowing since 2001.

In terms of growth, Mr Hunt revealed that the updated OBR projections suggest the UK economy will expand by 0.8% this year, marginally higher than the fiscal watchdog’s autumn forecast. Next year’s growth rate was also revised upwards to 1.9% compared to the 1.4% figure previously predicted.

Cost-of-living measures

The Chancellor also announced a series of measures designed to help families deal with cost-of-living pressures. These included: an extension to the Household Support Fund at current levels for a further six months; maintaining the ‘temporary’ 5p cut on fuel duty and freezing it for another 12 months; an extension of the freeze in alcohol duty until February 2025; an extension in the repayment period for new budgeting advance loans from 12 months to 24 months, and abolition of the £90 charge for a debt relief order.

Personal taxation, savings and pensions

Following previous changes to National Insurance Contributions (NICs) from January 2024, the government announced further changes to take effect this April:

  • The main rate of employee NICs will be cut by 2p in the pound from 10% to 8%, which, when combined with the 2p cut that took effect in January, is estimated to save the average salaried worker over £900 a year
  • There will be a further 2p cut from the main rate of self-employed NICs on top of the 1p cut announced at the Autumn Statement
  • This means that from 6 April 2024 the main rate of Class 4 NICs for the self-employed will reduce from 9% to 6%. Combined with the abolition of the requirement to pay Class 2 NICs, this will save an average self-employed person around £650 a year.

To remove unfairness in the system, changes to Child Benefit were announced:

  • The Child Benefit system will be based on household rather than individual incomes by April 2026
  • From April 2024 the threshold for the High Income Child Benefit Charge will be raised to £60,000 from £50,000, taking 170,000 families out of paying this charge
  • The rate of the charge will also be halved, so that Child Benefit is not lost in full until an individual earns £80,000 per annum
  • The government estimates that nearly half a million families will gain an average of £1,260 in 2024/25 as a result.

The government announced two savings products to encourage UK savings – a new UK Individual Savings Account (ISA) and British Savings Bonds:

  • The new ISA will have a £5,000 annual allowance in addition to the existing ISA allowance and will be a new tax-free product for people to invest in UK-focused assets
  • British Savings Bonds will be delivered through National Savings & Investments (NS&I) in April 2024, offering a guaranteed interest rate, fixed for three years.

Expressing concern that, across the pensions industry, investment into UK equities is only around 6%, the Chancellor announced plans to bring forward requirements for Defined Contribution pension funds to publicly disclose the breakdown of their asset allocations, including UK equities, working closely with the Financial Conduct Authority (FCA) to achieve this.

The non-dom tax regime, available to some UK residents with permanent domicile overseas, is to be abolished. From April 2025, new arrivals to the UK will not have to pay tax on foreign income and gains for the first four years of their UK residency. After that, they will pay the same tax as other UK residents. Transition arrangements will be allowed for current non-doms.

In addition:

  • As previously announced in the Autumn Statement, the government is working to bring forward legislation by the end of the summer to allow people to invest in a diverse range of investment types through their ISAs
  • The existing ISA allowance remains at £20,000 and the JISA (Junior ISA) allowance and Child Trust Fund annual subscription limits remain at £9,000
  • The Dividend Allowance reduces to £500 from April 2024
  • The annual Capital Gains Tax (CGT) exemption reduces to £3,000 from April 2024
  • The standard nil rate Stamp Duty Land Tax threshold for England and Northern Ireland is £250,000 and £425,000 for first-time buyers, remaining in place until 31 March 2025
  • The Income Tax Personal Allowance and higher rate threshold remain at £12,570 and £50,270 respectively until April 2028 (rates and thresholds may differ for taxpayers in parts of the UK where Income Tax is devolved)
  • There will be a consultation on moving to a residence-based regime for Inheritance Tax (IHT). No changes to IHT will take effect before 6 April 2025 – £325,000 nil-rate band, £175,000 main residence nil-rate band, with taper starting at £2m estate value
  • From 1 April 2024, personal representatives of estates will no longer need to take out commercial loans to pay IHT before applying to obtain a grant on credit from HMRC
  • The State Pension, as previously announced, will go up by 8.5% in April, which means £221.20 a week for the full, new flat-rate State Pension (for those who reached State Pension age after April 2016) and £169.50 a week for the full, old basic State Pension (for those who reached State Pension age before April 2016)
  • The removal of the Lifetime Allowance (LTA) from pensions tax legislation from April
  • As previously announced, the National Living Wage for over-23s – paid by employers – will rise from £10.42 an hour to £11.44 an hour in April.

Business measures

Various business measures announced included the raising of the threshold at which small businesses must register to pay VAT from £85,000 to £90,000 from April 2024. In addition, the Recovery Loan Scheme for small businesses will be extended until March 2026.

Property taxation

The Chancellor also announced the government’s plans to make the property tax system fairer, by:

  • Abolishing the Furnished Holiday Lettings tax regime
  • Abolishing Multiple Dwellings Relief from 1 June 2024
  • Reducing the higher rate of CGT on residential properties from 28% to 24%.

Public services

“Good public services need a strong economy to pay for them, but a strong economy also needs good public services.” This is how the Chancellor introduced the government’s “landmark” Public Sector Productivity Plan which, it says, will restart public sector reform and change the Treasury’s traditional approach to public spending.

Our National Health Service is, said Mr Hunt, “rightly the biggest reason most of us are proud to be British.” He announced £3.4bn to modernise NHS IT systems, which is forecast to unlock £35bn of savings by 2030 and boost NHS productivity by almost 2% per year between 2025/26 and 2029/30. 

This includes:

  • Modernising NHS IT systems
  • Improvements to the NHS app to allow patients to confirm and modify appointments
  • Piloting the use of AI to automate back-office functions
  • Moving all NHS Trusts to electronic patient records
  • Over 100 upgraded AI-fitted MRI scanners to speed up results for 130,000 patients per year.

The Chancellor announced a £2.5bn funding boost for the NHS in 2024/25, allowing the service to continue its focus on reducing waiting times for patients.

Mr Hunt also announced £800m of additional investment to boost productivity across other public services, including:

  • £230m for drones and new technology to free up police officers’ time for frontline work
  • £75m to roll out the Violence Reduction Unit model across England and Wales
  • £170m for the justice system, including £55m for family courts, £100m for prisons and £15m to reduce administrative burdens in the courts
  • £165m to fund additional children’s social care placements
  • An initial commitment of £105m to build new special free schools.

Other key points

  • New duty on vaping products to be introduced from October 2026
  • Tobacco duty will be increased from October 2026
  • Air Passenger Duty adjustments to non-economy class rates from 2025/26
  • Energy Profits Levy one year extension from 1 April 2028 to 2029
  • Boosting local growth through a continuation of the Investment Zones programme
  • £1bn in additional tax relief over the next five years for creative industries
  • Housing investment including £124m at Barking Riverside and £118m to accelerate delivery of the Canary Wharf scheme (including up to 750 homes)
  • £120m for the Green Industries Growth Accelerator (GIGA)
  • £7.4m upskilling fund pilot to help SMEs develop AI skills of the future
  • Extension to Freeport tax reliefs to September 2031
  • Extension to and deepening of devolution in England, including the North East Trailblazer Devolution Deal
  • HMRC to establish an advisory panel to support the administration of the R&D tax reliefs.

Closing comments

Jeremy Hunt signed off his Budget saying he was delivering, “A plan to grow the economy, a plan for better public services, a plan to make work pay… Growth up, jobs up and taxes down. I commend this Statement to the House.”

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding of taxation and HMRC rules and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor.

All details are believed to be correct at the time of writing (6 March 2024)

“The housing market has proved very resilient to higher mortgage rates and cost of living pressures”

House price data released last week from Zoopla highlighted that the number of homes on the market has increased by 21% year-on-year, as pent-up demand provides a boost. Buyer demand has also picked up, with an 11% increase on the year, while sales agreed are 15% higher than this time last year.

The average house price across the UK was noted at £263,600, a reduction of 0.5% year-on-year. The average price in London is now £534,600, more than double the national average. Five English regions are registering annual price falls of up to -2.1%, with the East of England leading the way with the most negative change.

Higher sales in February, with an uptick in buyers and sellers evident, indicates a rebound, despite ongoing cost pressures and elevated rates. Executive Director at Zoopla, Richard Donnell, commented on the findings, “The housing market has proved very resilient to higher mortgage rates and cost of living pressures. More sales and more sellers show growing confidence amongst households and evidence that 4-5% mortgage rates are not a barrier to improving market conditions.”

He continued, “The momentum in new sales being agreed has been building for the last five months and the sales market is on track for 1.1 million sales over 2024 supported by new sellers coming to the market.”

The latest Bank of England (BoE) Money and Credit report has outlined that UK mortgage approvals have reached their highest level in over a year, with 55,227 mortgages in January, up from 51,506 in December. This is the highest reading since October 2022.

Spring Budget speculation

Chancellor Jeremy Hunt presents his Spring Budget on 6 March. He will stand up in the House of Commons following Prime Minister’s Questions and alongside the latest economic forecasts from the Office for Budget Responsibility (OBR) to announce key tax measures and outline the government’s spending commitments for health, schools, police and other public services, for the year ahead. Prime areas of speculation in advance of the day have included a further National Insurance reduction and possible changes to Inheritance Tax.

The case for tax cuts has been described by the Institute for Fiscal Studies (IFS) as ‘weak,’ with the think tank adding that any tax cuts ‘should wait’ until the Chancellor is able to do a detailed spending review. Carl Emmerson, Deputy Director at IFS commented, “We don’t think we should be implementing certain tax cuts now, essentially that are paid for by uncertain spending cuts that might never be delivered.”

The International Monetary Fund (IMF) have also advised the government about making further tax cuts, suggesting the Treasury’s pencilled-in spending cuts were unrealistic.

New FCA campaign

Last week, the Financial Conduct Authority (FCA) launched a new campaign focused on the benefits of switching savings accounts, encouraging consumers to shop around for a better savings rate and how fast and easy this can be. Running across radio, digital audio and social media, Sheldon Mills, FCA Executive Director of Consumers and Competition commented, “We know that people can be put off switching for a variety of reasons, but they could be making their money work harder. There are some great rates out there and it could take as little as five minutes to find a better deal.”

Rainy day funds raided in 2023

Data released last week showed that a record £100bn was withdrawn from easy access accounts last year, as people struggled with their finances as cost-of-living issues intensified. This resulted in the most substantial fall in total balances since the global financial crisis in 2008. The stats from Coventry Building Society, based on analysis of BoE data showed that year-on-year, household savings increased by just 2% (£36bn), the lowest level in annual growth in 15 years.

Head of Strategy at Coventry Building Society, Jeremy Cox, commented on the findings, “The UK lost its savings habit in 2023 after building up a substantial safety net during the pandemic. Money in easy access accounts took a drastic downturn as households drew on their day-to-day funds to support spending and higher price rises.”

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

All details are correct at time of writing (6 March 2024)

Research1 has revealed that the ultimate retirement dream is actually very simple – financial security for the rest of your life. 

This is according to a survey1, which questioned 2,000 respondents aged 50 and over on their aspirations for later life. 

Hopes and dreams 

Nearly all the respondents to the survey (94%) said that financial security was one of their biggest retirement wishes. Other retirement aspirations included: 

  • Being able to maintain one’s desired lifestyle (94%) 
  • Spending time with family (90%) 
  • Being able to afford care if required (81%) 
  • Being able to afford big family events, such as weddings (73%) 
  • Travelling (72%) 
  • Being able to support family financially (69%). 

However, 41% of retired respondents admitted that they’ve ended up needing more money than anticipated. 

Avoiding the shortfall 

Due to rising life expectancies, many people can expect to spend several decades in retirement. You therefore need to give careful consideration to the below: 

How much do you need? – what level of income will you need for your preferred lifestyle? 

What do you have? – let’s take stock of your pension(s), savings and investments, and any other assets you currently have. 

When do you want to retire? – this will give you an idea of how long you have to save before entering retirement. 

Think about tax – there are serious benefits to properly utilising the tax allowances available to you. 

Take advice – research2 has revealed that people who take financial advice can expect to retire three years earlier on average. Advised consumers also believe they can fund their desired lifestyle for six years longer than their non-advised counterparts. 

Achieve the dream in 2024 

Make 2024 the year you make your retirement dreams come true. We can help you work towards enjoying the retirement you’ve always dreamed of. 

1Legal & General, 2023 

2Standard Life, 2023 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

Survey suggests recession already over

Official statistics released last month showed the UK economy fell into recession during the second half of last year, although more recent survey data does suggest the recession could already be over.

The latest gross domestic product (GDP) figures published by the Office for National Statistics (ONS) showed the economy shrank by a larger than expected 0.3% during the final quarter of last year. This follows a 0.1% contraction between July and September, thereby pushing the UK into a technical recession – defined as two consecutive quarterly falls in GDP.

ONS data also revealed the economy experienced little growth across the whole of last year. In total, it grew by just 0.1% over the course of 2023 which, excluding the pandemic years, represents the weakest annual rate of growth since 2009.

The start of this year, however, has seen clear signs of a rebound in growth prompting suggestions that the recession may prove short-lived. Bank of England (BoE) Governor Andrew Bailey, for instance, recently told MPs on the Treasury Committee that the economy is showing “distinct signs of an upturn” and that the recession looks like being the weakest of modern times “by a long way.”

Data from the latest S&P Global/CIPS UK Purchasing Managers’ Index (PMI) also paints a more positive picture reporting strong service sector growth and business optimism at a two-year high. The preliminary headline growth indicator also rose, up from 52.9 in January to 53.3 in February, beating analysts’ expectations and pointing to an upturn in economic growth.

S&P Global Market Intelligence’s Chief Business Economist Chris Williamson said, “The survey data points to the economy growing at a quarterly rate of 0.2-0.3% in the first quarter of 2024, allaying fears that last year’s downturn will have spilled over into 2024 and suggesting that the UK’s ‘recession’ is already over.”

 

High interest rates ‘under review’

Last month, the Bank of England (BoE) once again kept interest rates at a 16-year high, although policymakers did signal they were open to the possibility of lowering rates for the first time since the pandemic. 

On 1 February, the BoE’s Monetary Policy Committee (MPC) announced it had voted to maintain Bank Rate at 5.25% following its latest deliberations. This decision, however, was not unanimous, with a three-way split emerging on the nine-member panel, two voting to raise rates by 0.25%, one preferring a similar-sized reduction and six opting to leave rates unchanged.

This meant the meeting was the first since 2020 when any policymaker had voted to reduce borrowing costs and the minutes also signalled a potential change of course – previous guidance stating that rates could rise again was withdrawn while a concluding sentence stated the MPC ‘will keep under review for how long Bank Rate should be maintained at its current level.’

Last month’s release of inflation data also raised hopes that the Bank may begin cutting rates soon. The headline annual CPI rate unexpectedly held firm at 4.0% in January, defying economists’ predictions that it would rise to 4.2%. Indeed, after release of the consumer prices data, investors put a 72% chance of a first interest rate reduction in June, with a 0.25% cut fully priced in for August.

While the past few weeks have seen several MPC members suggest there needs to be more evidence of weaker price pressures before rates can be cut, the BoE’s Governor did recently describe market expectations that the Bank would start reducing rates this year as “not unreasonable.” The latest poll conducted by Reuters suggests economists now expect the BoE to begin cutting rates in the third quarter, with a slim majority predicting the first cut will be delivered in August.

 

Markets (Data compiled by TOMD)

At the end of February, markets closed in mixed territory as investors processed a raft of data including US inflation, jobless claims and UK earnings. 

Across the pond, data released at month end showed US prices increased at the slowest rate in nearly three years, keeping a June interest rate cut from the Federal Reserve on the table, while jobless claims rose. The Dow closed February up 2.22% on 38,996.39, with the tech-orientated NASDAQ closing the month up 6.12% on 16,091.92.

On home shores, the blue chip FTSE 100 index closed February on 7,630.02, a small loss of 0.01%, meanwhile the FTSE 250 ended the month 1.57% lower on 19,054.87. The FTSE AIM closed on 736.50, a loss of 2.42% in the month.

On the continent, the Euro Stoxx 50 ended February on 4,877.77, 4.93% higher. In Japan, the Nikkei 225 continued its bull run, concluding the month on 39,166.19, a gain of 7.94%. The index ended lower on the last trading day of the month ahead of the release of key US inflation data.

On the foreign exchanges, the euro closed the month at €1.16 against sterling. The US dollar closed at $1.26 against sterling and at $1.08 against the euro.

Brent crude ended the month trading at around $82 a barrel, a gain of 1.61%. The price per barrel has remained relatively stable within a narrow range over the last few weeks. Gold closed February trading around $2,048 a troy ounce, a small loss in the month of 0.25%. The price was supported by a softening in the US core price index at month end.

 

 

Wage growth slows again

Earnings statistics published last month showed that nominal pay is now rising at the weakest pace for more than a year with survey data suggesting this decline looks set to continue.

According to the latest ONS figures, average weekly earnings excluding bonuses rose at an annual rate of 6.2% across the final three months of 2023. Although this figure was slightly ahead of analysts’ expectations, it was notably lower than the 6.7% figure recorded in the three months to November 2023 and represents the slowest rate of increase since the August to October 2022 period.

Survey evidence also points to an expected further slowdown in levels of pay growth. Data recently released by XpertHR, for instance, showed that the median basic pay settlement fell to 5.1% in the three months to the end of January; this represents a significant drop from the 6.0% rate recorded during the previous three-month period.

In addition, research from the Chartered Institute of Personnel and Development (CIPD) suggests employers expect to raise basic pay by an average of 4% over the coming year. This is well below the 5% figure reported across 2023 and signals the first drop in this measure for nearly four years.

 

Retail sales rebound in January

The latest batch of retail sales statistics suggest consumers have recovered some of their appetite for spending, with much stronger than expected growth in sales volumes recorded at the start of the new year.

According to ONS figures published last month, total retail sales volumes rose by 3.4% in January compared to the previous month. ONS said this growth, which was significantly above the 1.5% consensus forecast predicted in a Reuters poll of economists, was driven by strong supermarket sales and shoppers taking advantage of new year bargains.

Commenting on the day the figures were released, British Retail Consortium Director of Insight Kris Hamer called the news “promising.” He also suggested the growth reflected “rising levels of consumer confidence, as well as a boost from the January sales.”

The latest CBI Distributive Trades Survey also painted a more positive picture of the retail sector, with its headline measure of sales volumes in the year to February rising to -7% from -50% in January. This marked the slowest rate of decline in year-on-year sales for ten months. Looking further ahead, however, the survey did strike a note of caution with retailers expecting sales to contract at a slightly faster pace in March.

 

All details are correct at the time of writing (01 March 2024)

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

“If you look at recessions going back to the 1970s, this is the weakest by a long way”

Last week, Bank of England (BoE) Governor, Andrew Bailey, indicated that the UK recession may already be over, citing “distinct signs of an upturn.

Comparing current conditions to historical downturns, Mr Bailey commented, “If you look at recessions going back to the 1970s, this is the weakest by a long way.”  He added his opinion that this recession is notably mild, with two successive quarters of negative growth recorded in the second half of 2023 – the standard by which the UK measures a recession – adding up cumulatively to a 0.5% reduction in the country’s annual gross domestic product (GDP).

Despite this, the Bank hinted that an interest rate cut isn’t likely in the immediate future as it is awaiting additional evidence, particularly in areas like wage growth and job vacancies, to confirm whether inflation has indeed shifted decisively.

The BoE Governor also highlighted the potential for inflation to benefit from a decrease in energy prices. And on Friday, Ofgem, the energy regulator, announced a reduction in the price cap on UK electricity and gas bills. From 1 April until 30 June 2024 the price for electricity and gas for a typical household will reduce to £1,690 per year. This is equal to a reduction of £238 a year, or around £20 a month, for a household using a typical amount of energy. The price cap set between 1 January to 31 March 2024 was £1,928. Ofgem’s price cap affects 29 million households in England, Wales and Scotland, while rules differ in Northern Ireland.

Mr Bailey cautioned that while this could temporarily bring overall inflation closer to the BoE’s 2% target in the spring, it might escalate over the year. “We’re observing positive trends emerging,” he remarked. “However, we require further substantiation of these trends… and that will guide my decision-making moving forward.”

Consumer confidence

On Friday, the latest UK consumer confidence data from GfK recorded a two-point decrease in February, to a reading of -21 (down from -19 in January), as households continued to be cautious with their spending.

GfK’s financial situation indicator year-on-year was down two points to -14 and remains unchanged with a value of 0 for the next 12 months, which is 18 points higher than this time last year.

The general economic situation sentiment over the last 12 months fell two points to -43 (22 points higher than last month), and for the next 12 months is down three points to -24, this is 19 points better than the level recorded in February 2023.

Client Strategy Director at GfK, Joe Staton, commented on the recent data set, “There’s a mixture of bad news and good news for February. The bad news is that the improvement in the Overall Index Score seen over recent months stalled slightly in February because of a fall across most measures. However, the good news is that optimism for our personal financial situation for the next 12 months has not slipped back.”

He continued, “Although registering again at zero, this is a significant improvement on the -18 score from February last year. This metric is key to understanding the financial mood of the nation because confident householders are more likely to spend, despite the cost-of-living crisis.”

King Charles banknotes to enter circulation in June

The BoE has announced that new banknotes featuring King Charles will enter circulation on 5 June. The King’s image will be on the front and also in the see-through security windows, with other design and security features remaining the same – the reverse side of existing polymer banknotes features Winston Churchill, Jane Austen, JMW Turner and Alan Turing. Shoppers can continue using Queen Elizabeth II notes without interruption and collectors can buy low-numbered notes from the new issues, via auction and a public ballot, with proceeds benefiting charity. The BoE will also allow limited exchanges of old notes for the new King Charles ones starting on 5 June.

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

All details are correct at time of writing (28 February 2024)