Suitable Life Planning

Someone asked today if I had a wishlist for tax measures in the budget tomorrow, what would it be

Well…… here goes from Chancellor Rose

- A cut in corporation tax, keep it a simple flat 20% to encourage business and entrepreneurial spirit

- Re-adjust the tax bands for personal income tax and dividends to go some way to catching up with inflation - fiscal drag (and no that’s not a spin-off of a RuPaul show) is killing us man!!

- linked to above, give some real thought on when higher rate tax kicks in. I know so many people in business who keep their income artificially low as they have a real aversion of paying 40% tax.
I’m sure they’d pay themselves more and draw more if they felt they were paying a reasonable level of tax on those extra drawings - so the tax take would probably go up

- get rid of the ridiculous anomalies around marginal tax rates, such as the child benefit loss at £50k (just scrap the loss of child benefit full stop) or the loss of personal allowance should be at over £200k. And whatever else where these ridiculous marginal rates kick in - the law of unintended consequences

- Scrap the 45% additional rate income tax band. 40% income tax is enough!!

- Scrap the Residential Nil Rate Band (RNRB) and make the Nil Rate Band (NRB - the amount at which inheritance tax is payable on the value of an estate) £600k for an individual. Far simpler and fairer.

- Cut Inheritance Tax (IHT) to 20% for estates under £3m, make it 30% over this. We’ve been taxed already on the money we’ve saved through our lifetime…. 40% IHT….. Enough already!!

- The carry forward of unused pension contributions from previous years can be used whether you were previously a member of a reg pension scheme or not. If you are lucky enough to now have the monies to put in for your retirement, why should you be penalised for not having the ability previously.

- Make the amount anyone can pay into a pension that is not relevant earnings linked £6k pa - so everyone can save a reasonable (but still small in reality) amount into a pension each year no matter what they earn - currently is £3,600

- Make tax relief on pension contributions a flat 30% (so no higher or lower rate…. As the 20% tax payers probably need more help in their pensions than those who can claim 40% or 45% tax relief

- Leave Capital Gains Tax alone, it should not be aligned to income tax rates, but whilst you’re at it….. take the CGT allowance back up to £15k - the amount of gain in a year where no CGT is payable, as it was £12k-odd a couple of years ago and now due to drop to a paltry £3k

- Remove non-Dom status

- look at how Amazon, google, Meta can pay more tax on their profits

- look at lowering the VAT threshold to £25k, so most businesses pay VAT as current level artificially keeps some co’s from growing trying to keep under the £85k. Look at how most biz’s can reclaim vat. Most businesses are more worried about becoming uncompetitive against other small businesses if they go over the vat threshold….. so capture nearly everyone and level the playing field

- a windfall on oil and gas

- a re-look at how utility costs are calculated, as from what I can see the unit costs to the end user bear no reflection to the cost it took to generate

- scrap the triple lock

- change the way section 24 tax for property investors is calculated. I had no issue particularly with the restriction of mortgage tax relief to 20%. It is more the calculation that means your rental turnover is pretty much taken as your profit number and hence makes most property investors a higher rate tax payer for these calc. Purposes. NOT FAIR!!!
Rent - costs and interest = profit
Add that profit to my other earnings. If I am now a higher rate tax payer…. Then restrict the income tax reducer
That would be fairer….

Anyway, I’ll be canvassing for votes later

Feel sorry for those caught up in this

But this is why you should ignore the majority of those “great opportunities to save tax”
and “we’ll only charge you 20% of the saving made”

Those being paid a % of the saving are being incentivised to ensure that saving is as big as possible

And so many introducers feed off of these types of things - if you belong to a network or community where you are constantly having things thrown at you “so we can all learn” but there’s often a product to sell or an investment to go into……

Just think again about the intentions here….

I’ve seen it on too many occasions over the last 13 years since I’ve been involved in the property industry

I’ve lost money, and been dragged into situations that were uncomfortable

I have lived and learnt

Most of the time, these people DO NOT have your best interests at heart

Apostle Accounting: Why were hundreds left in debt over tax claims? https://www.bbc.co.uk/news/uk-england-suffolk-66982442

And do you know what happens when it all hits the fan?

They disappear….. busting the co….. sitting behind limited liability

And fraud has such a high benchmark of proof to be successful

So they’ll probably get away with it - and when I say it, I mean YOUR money

Keep it simple

I’m always advising clients to steer clear of stuff

If you want an independent view, then always happy to chat

https://www.bbc.com/news/uk-england-suffolk-67176315

Apostle Accounting: Why were hundreds left in debt over tax claims? People who claimed tax rebates through one accountancy firm have found HMRC wants its money back.

Some interesting thoughts on some progressive tax measures that Mr Hunt could make a reality tomorrow

Seven priorities for the Autumn statement If I were a Conservative Chancellor of the Exchequer, I'd want a tax system that delivers growth and doesn't hold back families and businesses from achieving success. These would be my seven priorities: 1. An end to marginal rates that punish work A marginal rate of 50% is unacceptable, bu

Amazing news…….

Well done Wendy Whittaker-Large and Daryn Brewer
And Alan Murdie……

Council tax valuation of Houses in Multiple Occupation (HMOs): summary of consultation responses and government response We’d like to set additional cookies to understand how you use GOV.UK, remember your settings and improve government services.

Great news for HMO owners and landlords

https://www.gov.uk/government/consultations/council-tax-valuation-of-houses-in-multiple-occupation-hmos/outcome/council-tax-valuation-of-houses-in-multiple-occupation-hmos-summary-of-consultation-responses-and-government-response

Excellent news in the world of pensions today

The Lifetime Allowance (the max. you could save into your pension without incurring tax charges) had been introduced in 2006.

It had grown to £1.8m, but had then been reduced down to £1,073,100 - a tidy sum you'd think, but please bear in mind for many these funds would have to finance a 30-40 year retirement.

It was scrapped today.

https://inews.co.uk/news/budget-2023-what-mean-pensioners-scarpping-pension-lifetime-annual-allowance-2209850?fbclid=IwAR1CIpe068xSbRVm6Yfg0rgZu7gt3fEhTyctRlsmcgON7KJz5JtINzBslLw

Alongside an increase in the annual allowance - the most you can save in your pension pot in a tax year and still receive tax relief - from £40,000 to £60,000

Positive changes ......

***** However, these things always worry me *****

As it stands today, pensions are outside of an individual's estate and can be passed on Inheritance Tax (IHT) free (in the majority of circumstances).

I have been banging on about this to my clients for a long time - so now they become an even bigger IHT planning vehicle.

However, it was only a couple of months ago that the IFS (Institute of Fiscal Studies) produced a report on the treatment of pensions upon death saying that they SHOULD be included in someone's estate upon death and taxed accordingly.

The move to now allow up to £60k to be paid in annually, together with no limit on how large the pension can become surely makes them being incl. in your estate a real risk from future political meddling.

https://ifs.org.uk/publications/death-and-taxes-and-pensions

Should those who prudently save over a lifetime, probably already pay a fair slug of tax on their earnings during that lifetime (& in retirement), also have those monies taxed again upon death at the nasty rate of 40% ......... ?? Discuss .....

(Personally, I don't think so)

So let's hope that there is no meddling (yeah right Jon), and that people's long-term pension planning and legacy planning can continue with some certainty.

The continued chop and changing makes it very difficult to plan for the future, however this doesn't mean you shouldn't do it.

We just need to stay flexible and react to changes as they happen.

If you'd like to know more about how Suitable Life can help you plan your financial life and for your financial future, then please get in touch - https://suitablelife.co.uk/

Death and taxes and pensions | Institute for Fiscal Studies The tax system treats funds that remain in a pension at death extremely favourably.

Some interesting thoughts on the 2023 inflation and interest rate picture in the UK….. by Adam Lawrence

Partners in Property “Notice I didn’t specify what kind of doom, so no matter what happens, I predicted it. How very wise of me.” – Christopher Paolini (author), Eldest

An interesting read about the US inflation picture…..

They seem to be a little ahead of us, but this talks about how long it can actually take inflation to come down

If you read the UK press, it’s a lot about “it’ll be down next year, it’s soon to peak, etc”

This says that if history is anything to go by…… it takes much longer for it to drop

I expect it transfers across the pond

https://www.researchaffiliates.com/publications/articles/965-history-lessons?__s=3pezio83ksyvzmq6h2qw&utm_source=drip&utm_medium=email&utm_campaign=Todd%27s+Picks+%7C++Investment+Strategy+for+Inflation&fbclid=IwAR2snlPJZteQJ2ydKCE-SnyB9bCMb2gvEREqDkuTA5Gxa4X6p8RE6vF1K1o

History Lessons: How “Transitory” Is Inflation? | Research Affiliates Across 14 developed-economy countries over the last half-century, we analyze the behavior of inflation once a country’s inflation rate surges past various thresholds and study how long a burst of inflation typically lingers. If history is a guide, inflation can take far longer to return to normal ...

Some great insight…… a must read for investors who want a view on the next few years outlook

Supplement - The Oncoming Anticlimax - Partners in Property “Because this is how the world ends: not in the falling incendiaries of an aerial attack, not in a storm of toy soldiers laying waste to the gods who brought them into being, but in the banal letters of a bank. Where once was magic: now only economics.” – Robert Dinsdale, The Toymakers Welc....

Some really interesting commentary from Adam Lawrence as always ......

If you're sitting there wondering what to do around mortgage rates, fixing, etc ... have a read, as may help you in your deliberations

Sunday Supplement - Is the Smoke Clearing? - Partners in Property “Having been forced into being the only game in town, they (Central banks) now find that their destiny is no longer entirely or even mostly theirs to control. The legacy of their exceptional period of hyper policy experimentation is now in the hands of governments and their political bosses” –...

If you are in business or property, if you read one thing this weekend .... I urge it to be this blog by Adam Lawrence

If you are in property for the medium to long term, then fixing your interest is the current name of the game, it just depends on what rate you can get - and there are some pretty eye watering %'s around

Margins are high, and to keep the lending machine moving some lenders will probably have to buy a little business ..... so be prepared, be nimble

As there may be a small window that opens to grab a decent rate

Now remember, if you're thinking

- these higher interest rates (& higher energy costs in all incl. HMOs) are making my returns look a lot skinnier even with rent rises (& how high can these go?)

- I'm fed up with the work, and the cost of outsourcing makes those returns look skinnier still

- or I've had enough of this ****

Then fixing (or at least 5-year fixing) may not be the right route

How do you know what to do?

Well, it's all in the plan! (if you have one)

Long-term fixing may keep you in the game for longer than you intended.

Perhaps you want to release some of that pent-up gain and invest elsewhere?

The key number for me currently is your RETURN ON EQUITY (ROE)

What is your return from the cash tied up in the portfolio?

So take your rents, take off all the costs, get your profit number and divide by the amount of equity tied in the portfolio

If this number is high - 15-20%, then you'll probably struggle to find a better investment giving those sorts of returns

Remember, I am talking about CURRENT return on equity .... and NOT the initial return on investment when you built the portfolio

As many people have re-mortgaged most or all of their cash out and that % can be large or even at an infinite level. It becomes irrelevant over time for me

If you've a ROE of 6-12%, then maybe .... just maybe ..... you could be getting a similar or greater return elsewhere

And that return may take less work to generate it

Or might ber assets easier to pass onto the kids if legacy is important

I'm not saying finding investments giving good returns is easy ..... far from it, but I am just saying keep an open mind and keep re-visiting

As I meet people who have hit the point of selling, and are frustrated and want out, but should have probably starting the process of selling 18 months to 2 years previously

That's where the planning comes in .....

Suitable Life help you plan the life you want, and then mould your money around that life

I meet many people where it is money, where to invest, what % return can I make that mainly drives their thoughts .... rather than money just being the fuel of their rich life

(& when I say rich ..... I don't mean big cars and flashy nights out)

Helping you understand what's important to you and then helping you KNOW what enough looks like for you

'Cos if you don't know what enough looks like, you'll always live the life of someone who doesn't have enough

One final thing, when working out your equity in the portfolio, you'll have to factor in any CGT payable

So, for those that have been ignoring or dismissed incorporation of their personally owned portfolio, now might be the time to explore things a little deeper

As incorporation can really help kicking the CGT can down the road and meaning you have higher net proceeds to invest post-sale

This is REALLY important (but not right for everyone)

And it can take 3 years to get into a Ltd co. - so planning is vital

Or, for those already in a Limited Co., are you a member of a registered pension scheme? Is your spouse?

As catching up on 3-4 years worth of pension contributions each upon sale of the portfolio could bring a massive tax saving and give you higher net proceeds to invest (via your pension)

LOTS of things to think about in the current environment

PROPER Planning has never been so important .....

Adam - a great read this week

Banks, Rates, Risk and Survival - Partners in Property “Shock is when language and emotion get overwritten by trauma’s numbing code.” – Stewart Stafford, actor. Welcome to the supplement. I make no apology that this week will be a long one – get the second pot of coffee on the go in preparation. There’s a quick roundup of one more incredible...

Some really good commentary on the "mini-budget" from Adam Lawrence

Worth a read .....

https://partners-property.com/kamikwasi1/?fbclid=IwAR2dd9UKSp6VIfuY7GMdJoyW-GlBlx4iTWRqJqw2500i-JK8oJ0pS3bkjo8

KamiKwasi? Will UK PLC fly or die? - Partners in Property “The UK is behaving a bit like an emerging market turning itself into a submerging market” – Larry Summers (former US Treasury Secretary)   Welcome to the supplement in “back to earth” week (following hiatus week last week). Oh wow. Stop the ride I want to get off. The roundabout, the whi...

A great read this week from Adam Lawrence

https://partners-property.com/a-week-that-changed-the-world/?fbclid=IwAR2ss2G5A6_QUKiVxZvbrQTJJ319gZlaRxkSHuc47mqxppKofJoM8dFQA-U

A Week That Changed The World - Partners in Property A sombre Sunday Supplement this week as we mark the incredible changes that are happening in the UK with the passing of our glorious Queen.

HMOs hit The Times…….

Interesting article talking about Top end House shares and helping to dispel the myth that HMOs are all nasty rentals, or that BTL is dead…..

Many of our client’s already know this 😬

https://www.thetimes.co.uk/article/cc0f68ae-1e32-11ed-add4-d333562d46fb?shareToken=e64fd288a68b0c4a92c15cad786fe8e4&fs=e&s=cl&fbclid=IwAR2vESheLJxv_FwfQs1QaEvDOb3L29D_h6P_3M95VNr8LJcZqBPlHXp2KrU&fs=e&s=cl

Why landlords are banking on posh houseshares Glam not grim: landlords are upping their game to boost their returns, and tenants are opting for high-end design and inclusive bills

Now whilst this is a US-focussed article, I think a lot of it transfers to the UK

Visualizing Housing Prices and Inflation Is there a correlation between housing prices and inflation? In this graphic, we chart their relationship over three decades.

An interesting article about the squeeze on renters, and talking about the supply and demand dynamics in the Private Rented Sector currently - I doubt rents can continue to rise at this rate

Landlord costs are on the up - those who are bills inclusive really feeling the pain ref. utility bills, and I doubt we've seen the full effect of interest rate rises yet

So margin squeeze for landlords looks likely over time

Renters squeezed by higher housing costs and utility bills Owner-occupiers have more elbow room to reduce their spending to cope with rising inflation, analysis suggests

An interesting article around the case where the barrister who gave opinion on a tax scheme, has successfully defeated a claim by those who have lost money in the scheme

Still want to consider that scheme you’re being sold with ‘Barrister’s Opinion’?

https://www.dacbeachcroft.com/en/gb/articles/2022/march/eminent-tax-barrister-defeats-claims-brought-by-scheme-investors/

Eminent tax barrister defeats claims brought by scheme investors.

Marketed tax avoidance schemes have been around for a long time, but it was only in the early 2010’s that there was a sea change in the approach taken by HMRC to challenge such schemes. The increased scrutiny means that investors nowadays may end up repaying most of the tax benefits (with interest) that the avoidance schemes were intended to realise. Investors have invariably sought to recover losses from the professional advisers involved in the schemes which, in turn, has had a huge impact on professional indemnity insurers for some time.

In the latest claim concerning tax schemes David McClean and Others v Andrew Thornhill QC [2022] EWHC 457, the High Court has held that an eminent barrister who provided advice in the early 2000’s to the scheme promoters did not owe a duty of care to the investors to whom his advice had been made available by the promoters. This decision will be welcomed by professionals (particularly barristers and solicitors) and their insurers.

Facts

The case involved some 110 claimants who had invested in tax schemes in 2003 and/or 2004. The schemes were promoted to potential investors, via information memoranda, as tax-efficient investment vehicles formed for the purpose of participation in film distribution. The defendant was Andrew Thornhill QC. He was (and remains) an eminent and experienced barrister specialising in tax. He was engaged to provide advice on the tax consequences of the schemes to the promotors and (in some cases) the limited liability partnerships which the claimants joined. Mr Thornhill was not engaged to advise any of the claimants, and none of the claimants were clients. He consented, however, to being named as tax adviser to the promotors in the information memoranda and to his Opinions being made available to potential investors, if they requested them.

Ultimately HMRC refused the tax reliefs claimed by the investors, which led to the investors entering into settlements with HMRC.
The claimants brought proceedings claiming that Mr Thornhill owed them a duty of care in respect of the advice he gave to the promotors and consented to being made available to potential investors, and that they relied on his advice in entering into the schemes. It was alleged Mr Thornhill had breached that duty by failing to exercise reasonable care and skill when he advised that the schemes would achieve the intended tax benefits. It was asserted that, absent negligence, the schemes would not have been promoted, or if they had, none of the claimants would have invested if the information memoranda had warned of the significant risk that the schemes would fail.

The case involved common issues and the trial involved ten sample claimants only.

Decision

In a lengthy and detailed judgment, Mr Justice Zacaroli found in favour of Mr Thornhill and concluded that he owed no duty of care to the claimants in respect of the advice he gave in relation to the schemes. An assumption of responsibility is the foundation of liability for negligent misrepresentation, and a representor is not to be held to have assumed responsibility towards the representee unless (i) it was reasonable for the representee to have relied on what the representor said and (ii) the representor should reasonably have foreseen that he would do so.

Applying those established legal principles to the facts, the claimants could not reasonably rely on Mr Thornhill’s advice without making their own independent inquiry, and Mr Thornhill could not reasonably foresee that they would do so. Critical to the judge’s conclusion were the facts that the information memoranda promoting the schemes clearly advised potential investors to consult their own tax advisers, and that the terms of the subscription agreement were such that no investor could subscribe to the schemes without warranting that they had relied only on the advice of, or had only consulted, with their own professional adviser.

The Judge went on to conclude that had Mr Thornhill owed a duty of care to the claimants, he would not have breached that duty in providing his opinion that the schemes would achieve the intended tax benefits. Further, Mr Thornhill owed no duty to warn the claimants of the risk that his advice may be wrong, but if he did, he would have breached it in failing to include a risk warning.
On reliance and causation, the Judge concluded that if a duty to include a risk warning was owed, and was breached, none of the sample claimants had established that the loss suffered by them was caused by any breach of duty by Mr Thornhill. The claimants were unable to claim on the basis that the schemes would not have been promoted at all if Mr Thornhill had given advice which they contend would have been competent, both as a matter of law and because the claimants had not established that there would have been no schemes as a matter of fact.

On limitation, the claimants’ causes of action accrued on the day they invested in the relevant scheme, such that the claims were time-barred subject to the possible application of section 14A of the Limitation Act 1980 (which extends the limitation period where facts relevant to the cause of action are not known at the date the cause of action accrues). For two schemes, section 14A was applicable in most cases, but the claims in respect of a third scheme were time-barred by reason of section 14B (which provides a long-stop date of 15 years from the date of the alleged negligent act or omission).

Comment

This decision will be welcomed by professionals and their insurers. HMRC’s clampdown of marketed tax avoidance schemes in the early 2010’s inevitably coincided with the courts having to grapple with a significant number of claims against professionals involved in tax avoidance schemes. This latest decision in favour of the defendant barrister, together with the recent case of Knights v Townsend Harrison Ltd [2021] EWHC 2563 (24 September 2021) which was decided in favour of the defendant accountants (who introduced the claimant to an investment opportunity in tax avoidance schemes), demonstrates that professionals are not an easy target for disgruntled investors.

Eminent tax barrister defeats claims brought by scheme investors Marketed tax avoidance schemes have been around for a long time, but it was only in the early 2010’s that there was a sea change in the approach taken by HMRC to challenge such schemes. The increased scrutiny means that investors nowadays may end up repaying most of the tax benefits (with interest...

An interesting read ……

https://unchartedterritories.tomaspueyo.com/p/network-wars?s=r&fbclid=IwAR0YGkT_IwFywSo6uSICH6bsGJJHN_12f1s2SbLSloccv9sYJLtArBKXi9o

Network Wars Uploading Violence into the 21st Century

We often have clients who ask our view on whether they should hand over their HMO to a "guaranteed rent" provider, as they're starting to get fed up with dealing with "tenants & toilets" on a daily basis

Pretty much, our answer is the same ...... don't do it. In our view, it is generally not worth the risk and is fraught with danger. We're sure that there are some decent guaranteed rent / rent-to-rent operators out there, but we haven't come across many.

If you are starting to feel a little jaded, it might be worth a chat, as we help clients understand what enough looks like for them - how much money / assets / income. And a recurring theme amongst many of our clients is when should / can I sell the portfolio.

Our financial life planning process helps clients understand what enough looks like, and answers these types of question around property portfolios, etc.

So should you answer any of the flood of letters you get on a weekly basis as an HMO landlord / investor from the latest people to have gone on a Rent-to-rent course ....... This article, and the episode of "Nightmare Tenants Slum Landlords" tonight shows you what can happen

https://propertyindustryeye.com/btl-landlord-attempts-to-confront-letting-agent-at-their-office/

BTL landlord attempts to confront letting agent at their office Landlord Gulam Sumar handed over two six-bedroom HMO properties to RHP Services, a guaranteed rent provider in London, four years ago.