Cash Held by Brokers, and Low Traffic Neighbourhoods

The Daily Telegraph ran an interesting article today on the amount of client cash held by stockbrokers and what they earn from it. Most brokers pay no interest on cash held in broking accounts, but get significant interest on it that they retain for themselves. They singled out Hargreaves Lansdown who apparently received £91 million in the last 12 months (to June) for some criticism. They obtained a margin of 0.75% on the cash held.

Many investors moved out of the stock market during the March epidemic rout but left the cash in their broking accounts rather than move it out, mainly because it’s takes effort and can be tricky to do so with ISAs and even more so with SIPPs.

But you can take cash out of an ISA and put it back in later, just so long as you put it back in within the same tax year. In fact I took quite a lot of cash out of our ISAs and with the market recovering strongly I am moving some back in. I did not expect the recovery to take place until much later in the calendar year. It’s quite difficult to understand why the market is recovering so quickly. Perhaps investors are looking further ahead than the short term poor economic numbers, or are betting on a vaccine working and soon (the FT reported on Russia going into production with one). But I never try to figure out the rationality of the market – I just follow the market trend but selectively about which shares I am buying and selling.

There is a great deal of irrationality in the world at present. A good example was a webinar I attended this morning run by Landor Links on Low Traffic Neighbourhoods (LTNs). These are being promoted by the Government and frequently consist of road closures using the euphemistically named “modal filters” Several of the speakers promoted the wonders of such schemes typically using slides showing the joy of cycling in sunny weather. They failed to cover how the residents of boroughs such as Waltham Forest got to vote on the proposals, before or after implementation. I know there is a very large amount of opposition in Waltham Forest, in Lewisham in the Oval area, in Islington and several other parts of London. But the Covid-19 epidemic is being used to justify emergency measures without any public consultation.

It’s all quite disgraceful as democracy is being undermined and the road network is being destroyed. Traffic congestion in Lewisham for example has been made a lot worse to my personal knowledge and that’s even before the schools return. Labour controlled Councils are frequently a particular problem as they tend to like to decide what is good for you rather than listening to their electorate or taking into account any rational arguments.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Taking Cash From ISAs and IHT Reclaims

If like me you have been selling shares in your ISA during the market crash, you may now have a lot of cash sitting idle in your ISA. Most brokers pay no interest to you on it but prefer to collect it themselves. But now we are into the new tax year, there is a solution to this. Take the cash out and put it on deposit into a high interest current account. You will get over 1% interest.

You can put the cash back into your ISA without losing the tax reliefs so long as you do it within the same tax year (i.e. before April 2021). It is worth checking with your broker or platform provider that their systems support this though – mine certainly does.

If you expect the market to rebound quickly, you may not consider it worth bothering to do this, but the economic news and company results are surely going to be depressing for the next few months. Or as an article in the Financial Times said today: “The UK economy is heading for a recession that is forecast to be deeper than the 2009 financial crisis and one of the most severe since 1900; the coronavirus pandemic has seen consumer demand collapse and many businesses forced to close or significantly reduce operations”. Government moves to stimulate the economy may help but it still uncertain when business will get back to normal so holding cash in an interest paying account makes a lot of sense until the picture is clearer.

There was another interesting point raised in an article in the FT today under the headline “Wealthy seek inheritance tax rebates”. There may have been a number of deaths of elderly and wealthy relatives when stock markets were much higher. Inheritance Tax applies to the value of assets at the date of death, but it can take many months to obtain probate and for an executor to realise the assets. Shares may now be at a lower value so the tax is excessive. But for listed shares you can claim a rebate from HMRC. There is a similar provision for property.

Readers who are exposed to this problem should read the FT article and take professional advice on the subject.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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