Budget Comments – Follow Up

 Here are some more comments on the Chancellor’s Budget to follow on from my previous blog post.

Certainly one big issue for those trying to plan for their mortality is the statement that pensions will be brought into Inheritance Tax. AJ Bell have published a good summary of the current position which I reproduce here: “Under current rules, defined contribution pensions can be inherited tax-free if you die before age 75 and are taxed in the same way as income if you die after age 75. But Labour has announced plans that inherited pensions will count towards inheritance tax on death.

Applying any new tax on death will come with substantial challenges, which is why the changes aren’t being brought in until 2027, with a consultation period on how the rules will work having been opened. A major obstacle centres around how to treat people who have made decisions about their retirement pot based on the pensions death tax rules as they are today. Anyone who made larger contributions into their defined contribution pension to make the most of the existing rules will also now be wondering what could happen to their pot when they die. If all of a sudden that money became subject to a new pensions death tax, those people would, understandably, feel like the rug had been pulled from under them. We need to await more detail on this change”.

Certainly I plan to respond to any consultation on this issue when it appears (I can’t find it at present – where is it?). One problem I see is that SIPPs are usually written in trust, i.e. the owner on death of the pensioner is the trust and the nominated beneficiaries not the estate of the deceased. So how is this legally going to work?

There have been many criticisms of the Budget and interest rates have been rising as a result of the increases in Government expenditure. The Budget was worded so as not to scare many people immediately but the bad news is now sinking in now the detail has become more apparent. Farming families are particularly irate as only very small farms will be capable of being passed on without hefty IHT bills.

Well that’s some bad news and today’s other bad news is I have just been told one of our close neighbours has died. He was quite decrepit of late but even so this is a bit of a surprise. I hope he has taken good advice on IHT where clearly the position is getting ever more complex. I will certainly be taking expert advice on this when the details become clear.

P.S. The pension/IHT consultation is here:  https://www.gov.uk/government/consultations/inheritance-tax-on-pensions-liability-reporting-and-payment/technical-consultation-inheritance-tax-on-pensions-liability-reporting-and-payment

This will require some consideration but I will certainly be responding to it and I will ask ShareSoc and UKSA to get involved too. Whoever wrote this proposal up simply has not thought this through properly. The legal implications are a nightmare. Make sure you respond to the consultation if you are affected by this.

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

Budget Comments    

I shall just make a few comments on the Chancellor’s Budget announcements yesterday. There are many free analyses on the web from the national press and investment companies.

Many of the advance rumours turned out to be true although the worst predictions did not materialise. My stock market portfolio went up by 1.4% on budget day mainly from rises in small/mid cap shares although most of that disappeared this morning.

There was clearly some panicking about potential rises in capital gains tax before the budget causing people to crystalise gains. Yes there are rises – The main rates of CGT are currently charged at a lower rate of 10% and a higher rate of 20%, and these will be increased to 18% and 24% respectively from 30 October 2024. These new rates will match the residential property rates, which are not changing. So there will be some impacts on my personal tax bill as I pay capital gains tax on some share sales in some years. But I can always postpone selling shares to avoid the tax or move them over time into our ISAs where the generous £20,000 annual investment allowance remains in place.

But what about Business Property relief against IHT available on some AIM shares you ask? Removal of this was seen as likely to badly damage the AIM market. This is the key paragraph in the Chancellor’s statement: “The government will reform agricultural property relief and business property relief from April 2026. In addition to existing nil-rate bands and exemptions, the 100% rate of relief will continue for the first £1 million of combined agricultural and business assets to help protect family farms and businesses, and will be 50% thereafter. The government will also reduce the rate of business property relief to 50% in all circumstances for shares designated as “not listed” on the markets of a recognised stock exchange, such as AIM”. This will affect around 0.3% of estates each year including mine.

There is a new limit on Agricultural Property Relief and Business Property Relief – no Inheritance Tax will be payable on the first £1million of combined agricultural and business property, to help protect family businesses and farms. Thereafter, Inheritance Tax will be payable at half the standard rate (meaning 20%). For quoted shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM, this same rate will apply at all times. Carried interest will now be taxed within the Income Tax framework, but at 72.5% of an individual’s marginal rate. Furthermore, the rate for Business Asset Disposal Relief (Entrepreneurs Relief) and Investors’ Relief will increase from 14% to 18%.

I don’t own any farms, but Jeremy Clarkson is not happy. He said on Twitter (X): Farmers. I know that you have been shafted today. But please don’t despair. Just look after yourselves for five short years and this shower will be gone”.

Comment: clearly many wealthy individuals invest in farms as a tax avoidance wheeze. These are businesses that often lose money and are lifestyle choices to a large extent. I have little sympathy for encouraging such businesses. The money would be better invested in new high-tech productive companies.

The government is also removing the opportunity for individuals to use pensions as a vehicle for inheritance tax planning by bringing unspent pots into the scope of inheritance tax from April 2027, which will affect around 8% of estates each year. This is another change that will impact me – or to be more exact, my offspring.

Bearing in mind that the Chancellor chose to raise £40 billion in new taxes, the most damage has fallen on employers National Insurance and the freezing of allowances which will bring more individuals into the tax regime. However the promise is that the freezes in threshold rates for National Insurance and Income Tax set in the previous government will end. From April 2028, these personal tax thresholds will be uprated in line with inflation. Let us hope the Government remembers that promise.

The rise in employers National Insurance and the minimum wage will hit retail and hospitality businesses so watch out for the impact on such shares – generally you have to be very careful with those in modern times anyway.

There is of course still no indexation of capital gains so we will still be paying tax on illusory gains.

The Chancellor Rachel Reeves commenced her speech in Parliament with the usual political platitudes and rhetoric. She spent most of her time criticising the previous Conservative Government rather that outlining her plans for a brighter future. Higher taxes will clearly damage future economic growth. What is the extra money to be spent on? On defence is one thing and on the NHS but I am deeply sceptical that the NHS can benefit from more cash. The problem in the NHS is incompetent management. More cash might simply be wasted.

For full details of the Autumn 2024 budget see: https://www.gov.uk/government/publications/autumn-budget-2024

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

Am I a Working Person?

 Am I a working person? That is a question that has suddenly sprung into prominence because the Labour Government apparently believes that anyone who isn’t is fair game to be soaked by high taxes so as to reduce their wealth in the interest of social equality.

Already there are capital gains taxes which are likely to be increased in tomorrow’s Budget and Inheritance Tax is already at 40% if you want to pass wealth on to your offspring. Admittedly there are a number of ways to avoid or reduce these taxes if you take expensive legal advice. But it is simply wrong to characterise those with personal wealth as those who have not or do not work for it.

If you take my personal wealth I am a multimillionaire but I did not inherit anything from my parents or anyone else. I have gradually built up my wealth from judicious investment in the stock market out of earnings and after founding a small software company 40 years ago which was subsequently sold.

I have had to spend a lot of time keeping track of my stock market investments and managing my portfolios even though I had to retire from a proper job at the age of 50 on health grounds.

I object to being viewed as a capitalist who has not “earned” my wealth. That is a gross distortion of the facts. I have worked hard at growing and keeping my wealth and staying up to date on financial matters. A lot of my expenses to do so are not tax deductible and certainly not the many hours I spend most days in following the financial news.

I am also sure that many buy-to-let investors feel the same way (I am not one of them). They have to keep up with the ever-tougher regulation of that sector and it’s not even a very profitable investment of late. Similarly those who have tried to make a living out of farming, when few manage to do so, or running a small business which may no longer qualify for IHT relief. They are “workers” in my view.

The Labour Party is as usual pursuing the politics of envy to keep their supporters happy. They blame us capitalists for their own woes when in reality they could have done what I have done. They have been lazy or never learned the financial skills needed to make a success of their lives.

They think the world owes them a living when it does not!

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

You can “follow” this blog by entering your email address in the box below.  You will then receive an email alerting you to new posts as they are added.

A Fool and Their Money are soon Parted

 A fool and their money are soon parted – that ancient phrase came to mind on reading the latest newsletter from the Financial Conduct Authority (FCA). One item noted that “The FCA has brought charges against nine individuals in relation to an unauthorised foreign exchange trading scheme promoted on social media”.

The individuals concerned promoted trading in CFDs via Instagram accounts and had in total 4.5 million followers. The FCA has previously said that 80% of customers lose money when investing in CFDs because of the risks.

There are clearly a lot of fools in this world who follow “influencers” on social media. And this prosecution is probably just the tip of the iceberg with many other cases remaining to be uncovered. See https://www.fca.org.uk/news/press-releases/finfluencers-charged-promoting-unauthorised-trading-scheme

It’s worth following the FCA for the latest news on financial scams but I fear those who fall for these kinds of scheme are so uneducated or inexperienced that they will fall for any get rich quick scheme however it is dressed up. There are so many suckers in this world waiting to be parted from their money that the FCA has an impossible task to stop all the abuses.

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

How to Control the Book Mountain

 There was an interesting article in the FT yesterday by Nilanjana Roy on “To Keep, or not to keep books…….”.  The author says her and her husband “have a modest collection of 4,000 books” and “Every reader knows the moment when the paths of destiny fork. You must either become a Chucker, steel your nerves and give away old books before they march into the linen cupboards and storm the sofas, the dining table, the guest room, or become a Keeper, accept defeat and move to a larger home, just to accommodate the relentless tide of a personal library gone rogue”. This writer only has about 700 physical books spread around our house.

One problem is finding a book when I want to read it again but I solved that a long time ago by maintaining a spreadsheet of book titles and authors under 30 categories which also records where the books are located. As some of the books were purchased more than 50 years ago and my memory is getting worse, I can re-read some of them as if they were relatively new. The categories I use are:

Architecture
Automobilia & Transport
Biography
Business
Comedy
Computing & IT
Construction/Diy
Cookery (Food and Drink)
Design & Graphic Arts
Fiction (relatively few books in this category!)
Games & Pastimes
Gardening
Geographic & Maps/Guides
History
Investment
Legal
Literary/Drama
Medical/Vetinary/Physchology
Miscellaneous
Photography
Reference
Religious
Science & Technology
Travel

I also adopted a rule a few years ago to only keep the better books that might be worth re-reading and as there is no more room for additional paper books I can only keep a new one if another is thrown out.

It’s also now possible of course to buy and keep books in digital form so I have a Kindle account and use that for some books such as the one I am currently reading – “Money: A Story of Humanity” by David McWilliams. I only wrote a brief review of it on this blog but it is definitely one I shall be keeping in one form or another. The author shows how economic policy and money creation and management have driven all the main historical events in the last few thousand years. It reveals a lot of history that few people will be familiar with. A highly recommended book! I can read such books on a tablet while I am in a kidney dialysis session (4 hours long when I have to avoid much movement – holding and turning paper pages can be tricky but reading on a tablet solves that).

Over the years one interests change of course so some books do get thrown out for that reason and likewise some I inherited from my parents. Even some of the academic books acquired at university are now so out of date that they are not worth keeping. But nostalgia does affect the decisions so you have to be very firm on what to keep and what to throw.

The FT article is here: https://www.ft.com/content/0a761d6d-a428-4cdb-8757-3d0ba2b4deca

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

Thames Ventures VCT Mergers – A Number of Concerns

 Thames Ventures VCT 1 and 2, currently managed by Foresight, are proposing to merge and rename the merged company as Foresight Ventures VCT. I currently hold TV1 as a result of past holdings in Pennine AIM VCT, Pennine Downing AIM VCT, Downing One VCT, et al. These companies are a typical example of unsuccessful VCTs merging, renaming, and resetting performance fees when they failed to meet targets. It’s no different in this case.

Merging of small VCTs is usually justifiable so I won’t be voting against that. But I have voted against the proposed performance incentive agreement. Performance fees are rarely justifiable in any investment trust and certainly not in this case. The management fees are already too high and with a base fee of 2.0% of NAV per annum if the investments are made successfully then the manager gets a return from the increase in the base fee. I do of course object to resetting of the existing performance fees just because they are under-water.

There is very little evidence that performance fees actually improve the performance of trust management.

Another negative aspect of the proposals is that the Investment Services Agreement with Foresight is being changed to remove the ability of the board to interfere in investment decisions. In successful VCTs the management decisions on new investments are carefully reviewed by the board of directors and have the final say on them. Unfortunately we have not been given a vote on that issue.

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

Population Growth – the Real Problem

The Office of National Statistics (ONS) has reported that the UK population grew by 1% to 68.3 million last year. This is the fastest increase since the 1970s and was driven by net inward migration. If this continues we may need to provide for 20 million more houses by the mid 2040s.

This rate of growth puts an intolerable burden on public services such as the NHS which we are already seeing, on congested roads and railways and big demands on new infrastructure such as the electricity grid which we need just to meet demands for more electrification to drive carbon reduction by the Government.

See Telegraph report for more information: https://www.telegraph.co.uk/business/2024/10/08/migration-drives-fastest-population-increase-since-1970s/ or the ONS report: https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/bulletins/annualmidyearpopulationestimates/latest

I have written several articles in the past on this subject – see for example: https://roliscon.blog/2022/06/29/census-results-a-problem-the-government-is-ignoring/

But the current Government seems to have no clear plan to curb population growth. They may be attacking “illegal migration” but most of the inward migration is people on work visas or family relatives. There are also many “asylum” seekers who are really economic migrants.  There are no clear targets or plans for how to stop the population growth which we desperately need. It’s not just Labour politicians who are ignoring this issue but other party leaders. They are always focused on topical or what they perceive as popular issues such as the cost of living without realising that population growth damages the economy, requires more taxation and affects our standard of living. Migrants cost us a great deal to support and need to be discouraged by making the UK a much less attractive destination.

Robert Jenrick seems to have some useful ideas such as withdrawing from the ECHR to avoid frivolous legal challenges by migrants but there should be no financial support to lawyers to challenge decisions on asylum claims or expulsion decisions. Other European countries are making migration much more difficult and we should do the same.

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

Tesla Announces Robo Taxis – a Revolution is Coming

Elon Musk has promoted a new Tesla “Cybercab” model – basically an electric car with no pedals, steering wheel or other controls which he hopes to sell for $30,000. He also unveiled a prototype for a 20-person autonomous vehicle called a Robovan. They have yet to be approved by regulators and currently rely mainly on vision systems to avoid collisions unlike some of the self-driving competitors. He also demonstrated an Optimus humanoid robot for jobs around the house.

Production of the Cybercab is not scheduled until 2026 so this is more a statement of ambition than short-term reality but it does show that Tesla are committed to revolutionising personal transport. See https://www.telegraph.co.uk/us/news/2024/10/11/elon-musk-unveils-new-tesla-robotaxi-cybercab/

Meanwhile Tesla is facing stronger competition for electric cars from low-cost Chinese manufacturers. One can easily envisage that the world will be a very different place as regards automobiles in a few years’ time. Electric cars are achieving longer ranges and are getting relatively cheaper so are becoming more practical for most people who only do daily short journey commutes.

My next personal vehicle may well be an electric one, and being able to give up driving altogether would also be a distinct advantage as I get older.

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

You can obtain notifications of new posts in future by following me on Twitter (now “X”) – see https://x.com/RogerWLawson where new blog posts are usually mentioned.

Vaccines and Human Challenge Trials – hVIVO

Yesterday I had yet another Covid 19 booster vaccination. This must be my sixth or seventh. This was using the Moderna vaccine and no side effects noticed. I have yet to catch Covid which is somewhat surprising as I have a compromised immune system.

I have a flu vaccination lined up for next week, and one for RSV next month. The NHS now has a programme of vaccinating older people against RSV. I also have Denosumab injections every six months to prevent osteoporosis. It’s a good job I have no fear of needles.

These are all high-tech medical solutions which one hopes have been adequately tested. The company hVIVO (HVO) specialises in “human challenge trials” where they get volunteers who are happy to be infected and are treated with the chosen drugs as a prophylactic.

They have revenue of over £60 million and are profitable. They have a good return on capital and even pay a small dividend. The company does have some competitors but they do seem to be building a profitable niche.

I have purchased a very few shares so I can keep an eye on the progress of the business. But with new viruses constantly appearing it does seem likely that demand for such testing services will grow.

There is also on-going demand for effective influenza vaccines – a disease which still kills many people – particularly the young and old.

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

Book Review:  Money – A Story of Humanity

I am currently reading the recently published book entitled “Money: A Story of Humanity”by David McWilliams. It could be a very dry subject but this is an eminently readable tome on not just how money in the form of coin came into use but the way credit developed to finance commerce.

It is particularly good on how the Roman empire developed due to financial innovation but how it later proved to be one of the causes of its downfall. An eminently readable book and a subject worth understanding for anyone who has financial investments.

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

You can “follow” this blog by entering your email address in the box below.  You will then receive an email alerting you to new posts as they are added.