Kellands (Bristol) Limited
Financial Management Consultants
Quays Office Park
Conference Avenue
Portishead Bristol BS20 7LZ

Tel: 0117 900 4000

E-mail: bristol@kelland.co.uk

Latest news and updates

Some positive noises

Posted: 17/02/2012

This year so far we have heard some relatively positive noises and seen some reasonably encouraging statistics. In January, for instance, the UK's service sector, a significant part of our economy, grew at its fastest rate since March 2011, according to a major survey. The Markit/CIPS services purchasing managers' index (PMI) rose from 54 to 56. Any figure above 50 indicates growth.

According to Markit, the UK also experienced the biggest monthly rise in business optimism since the survey started 15 years ago.

There have also been encouraging figures for manufacturing output in economies throughout the world. In the US, the ISM manufacturing index rose to 54.1, the strongest reading for seven months. Again, any figure above 50 indicates expansion.

In the eurozone, Markit's PMI rose to 48.8, up from December's figure of 46.9. Manufacturing in the UK also saw manufacturing activity at its strongest for eight months.

Official figures reported by the BBC also show that the US economy created 243,000 jobs in January, the highest total for nine months. This rise was much better than expected.

All the above should reduce fears of a new recession, after the slight contraction in the economy at the end of 2011. That was sort of the message from the Bank of England’s quarterly inflation report earlier this week.

Presenting the report, the bank governor, Sir Mervyn King said that the UK economy will adopt a "zigzag" pattern this year, dipping in and out of growth, but will avoid going back into recession.

The report predicted that growth in 2012 would be about 1.2%, whilst inflation will continue to fall. Figures released on Tuesday showed that Consumer Prices Index (CPI) slowed to 3.6% in January, from September’s high of 5.2%. The bank predicts inflation will continue to fall, perhaps reaching 1.8% by 2014.

There were some serious caveats in there, though, with the bank report repeating that the eurozone crisis still represents a major risk factor.

So overall some relatively positive news. However, given the fragile nature of the economy, it was made clear that savers are likely to continue to suffer low returns on investments due to low interest rates. At least lower inflation will provide some respite.

To discuss the investment options available in a low interest environment, contact Kellands Bristol for a free without obligation discussion.

2012 begins – time for perspective

Posted: 13/01/2012

But what effect did all these problems have on the markets? Well, in Europe, most markets ended down for the year. The FTSE 100 lost 5.6 percent, whilst Germany's DAX lost 14.7 percent. Interestingly, Far East and Emerging Markets also suffered, roughly along the lines of Europe. However, as reported in the Guardian, in the US, the Standard & Poor's 500 index closed 2011 just a fraction of a point below where it started the year. The S&P closed at 1,257.60, compared to 1,257.64 at the end of 2010. So its loss for the year is just 0.04 point. The Dow was up 5.5 percent for the year, whilst the Nasdaq composite index lost 1.8 percent.

So the US is not looking in too bad a shape and there are encouraging trends there as well, with some improvements on the unemployment and housing market fronts. Obviously there is an election later this year so the issues of debt and deficit are likely to be put on hold until 2013, but there are glimmers of hope.

In addition, even though the FTSE may be down by 5 per cent or so, it is highly unlikely that an investor’s portfolio would have fallen by this amount. Most investors will have a diversified portfolio and other assets, for example long-term gilts and bonds, did well in 2011, so portfolio’s should be somewhat protected. As investors in equities know, it is a long-term game, and losses are only crystallised once the funds are eventually sold.

So the picture for 2012 may still look gloomy but it should be borne in mind that the markets have priced in a good deal of the problems already. Whilst the short-term could remain tough, particularly if something dramatic happens, like Greece defaulting for example, it should be remembered that on a historical price/earnings (P/E) basis, equities are now undervalued. So holding on for the medium to long term would seem to make a lot of sense.

Now if only inflation could be got under control, things would look a lot better!

Here’s to an improving 2012. Leap year – leap of faith!

If you would like a financial review of your portfolio, contact Kellands Bristol now.

Invest in innovation – and get 78% tax relief

Posted: 16/12/2011

The new Seed Enterprise Investment Scheme (SEIS) will offer income tax relief of 50%, regardless of the rate at which you pay tax, plus a capital gains tax (CGT) holiday of up to 28% for one year.

The scheme is available from April 2012 and will allow investors to benefit from 50% income tax relief if you put money in a qualifying company. This will be small firms with gross assets of less than £200,000. The maximum amount you will be able to invest is £100,000.

If you were to make a capital gain of £100,000 in the 2012-13 tax year, and you had already used up your £10,600 annual allowance, you would normally pay £28,000 in CGT. However, if this gain were invested in an SEIS, you would not have to pay any CGT on it and would get £50,000 income tax relief. In effect therefore, the total cost of investing £100,000 would be just £22,000.

Should the business you invest in fail, based on current EIS rules any losses could be offset against any other chargeable gains less the income tax relief. So if you lost your £100,000, you could offset this against up to £50,000 of gains in future years – saving 28% or £14,000.

In a worst case scenario, therefore, you would lose only £8,000 on a £100,000 investment. However, the upside could prove to be very attractive.

These schemes both exist to provide development finance to smaller companies, who may have found it hard to get funding from the bank in the wake of the credit crunch. They accept larger investments than the £50,000 a year maximum for pension tax relief and have other tax benefits too – VCT dividends are tax-free and EIS are not subject to inheritance tax after two years, and profits from both are free of CGT. They both involve minimum investment periods, however, and as they invest in smaller companies that may be in quite early stages of development, they may be too risky for some people.

So whilst 78% tax relief may appeal, you should be very clear about your risk tolerance before doing anything, so talk to your Kellands Bristol adviser before making any investment decisions.

Tax breaks for pensions unchanged

Posted: 08/12/2011

• You get tax relief at up to your highest rate. So if you put £50,000 into a pension, it could effectively cost a top rate taxpayer just £25,000, and a 40% rate taxpayer just £30,000.
• You can usually take up to 25% of your pension pot as a tax-free lump sum, usually from age 55. The rest of the fund is to be used to provide a taxable regular income.

There are several ways to boost the value of your pension. The first is to start young. The benefit of compound interest, the concept where you earn interest on top of interest, means the earlier you start saving, the harder each pound you invest works for you. Secondly, make sure you claim your tax relief. Whilst basic rate tax relief on private pension contributions is granted automatically, for many higher rate tax payers their marginal rate tax relief might only be granted if they claim it. This would be a further 20% for 40% taxpayers and up to 30% extra for 50% taxpayers. This can be done either by writing to the local inspector of taxes, or by including the pension contribution on your next tax return.

Thirdly, take advantage of employer contributions. Any contribution offered by your employer will normally be part of your remuneration package, so if you don't join the pension scheme your employer keeps the money and you lose out.

Fourthly, consider using the technique known as salary sacrifice. Salary sacrifice is an agreement between an employee and their employer. The employee agrees to exchange part or their contractual gross salary in return for the employer making a pension contribution. The amount ‘sacrificed’ is taken from your gross salary so no tax or National Insurance Contributions (NICs) are due on this amount. The sacrificed amount goes straight into your pension. As your gross salary is effectively reduced, your employer also saves on their NIC bill and this can potentially be reinvested into your pension plan as well. So with salary sacrifice your take home pay can stay the same but you receive higher pension contributions.

Finally, make sure you shop around at retirement. Many people are unaware that they have the right to shop around for a different annuity provider, to provide them with a pension income for their retirement. By shopping around, you could well get a better annuity rate for your pension fund. This is known as the open market option and it can make a significant difference to your retirement income.

For advice on any of the above issues or for help with your retirement planning, contact Kellands Bristol.

Controlling risk in volatile markets

Posted: 15/11/2011

Last Thursday, UK interest rates were held at the record low of 0.5% by the Bank of England's Monetary Policy Committee. They have been at this level since March 2009.

On the same day, the EU drastically cut its growth forecast for the eurozone in 2012, from 1.8% to just 0.5%. Low growth will make it more difficult for Europe to escape its debt crisis, with Greece still to be sorted out and Italy's position seen as unsustainable.

Some investors have been switching over to cash and gold to protect their wealth and gold prices have been soaring, reaching $1,767 an ounce. Whilst this can make sense in some circumstances, trying to time the market is a difficult exercise and can lead to investors locking in losses, as well as missing out on growth opportunities.

So what should investors do in the current financial climate? The key is to remember that investing is a long-term game. Over the long-term, equities have always produced the highest rates of return. In addition, the long-term effect of compounding returns at higher rates is by far the most powerful wealth generator.

Obviously, over shorter periods equities have often produced losses – remember the burst of the technology bubble in 2000? However, history shows that the decade after a ‘losing’ decade produces higher returns for investors than the long-term average. Many see this as an example of a widespread phenomenon in financial markets, known as ‘reversion to the mean’.  

For investors, one solution is to adopt a risk-controlled investment process, as applied in multi-manager investing. This seeks to smooth the volatility of investments by setting it a level you are comfortable with, by diversification into a mix of assets, including equities, fixed interest, property and cash and then by active management of the process.

Another option is to focus on income. With low interest rates, slow growth and high rates of inflation, investors should be considering investments offering a decent yield.

A further approach, as discussed previously, is pound-cost averaging. Investing in equities on a regular basis rather than in a lump sum can help protect your wealth during volatile market periods.

To discuss the current financial situation and ways to protect your wealth, contact your Kellands Bristol financial adviser.

A tried and tested way to smooth your investment returns

Posted: 9/9/2011

Making the right investment decisions is particularly difficult at the moment, with the stockmarkets relatively low and volatile. Obviously, your aim should be to buy at the bottom of the market and sell at the top, as Warren Buffet does, but getting the market timing right is not that easy. Indeed it takes a lot of research, analysis and hard work and even then beating the market is by no means assured.

However, there is one investment approach that does work in the market conditions we find ourselves in – it’s called pound-cost-averaging. The basic idea behind pound-cost averaging is straightforward - you invest money in equal amounts at regular intervals. This could be, say, £50 to £500 or even £5000 per month.

By adopting such an approach, when share prices are low you end up buying more shares - but obviously fewer when the price is high. So when the market is depressed, as it is now, you benefit by buying more shares, which will be good news when the stockmarkets rise again.

Pound-cost averaging is attractive because it forces you to invest no matter what the market is doing, thereby helping you avoid the poor decisions that most people make when trying to time the market. When the stockmarket is going down, many investors become fearful and reluctant to put money into shares. That may help you avoid losses in the short term, but when markets do eventually start going back up, you will have lost out on the gains.

For advice on your investment options, contact your Kellands Bristol adviser.

Don’t panic!

Posted: 12/8/2011

This week has seen rioters on the streets, volatile stockmarkets around the world, major debt problems in the US and Eurozone, and the short-term ban on short- selling of some stocks in Europe, making it an uncomfortable time for investors.

However, the advice to investors is to take heed of the message from Corporal Jones of Dad’s Army – “Don’t panic!”

Whilst the volatility on stockmarkets is likely to continue for a while, now is the time to remember that investing is a long-game. It is easy to panic and thus sell investments at exactly the wrong time. The aim for those able to accept fluctuations in their capital value should probably therefore be to ride out the current volatility, avoid making any rash decisions and wait for the rebound.

This makes sense, as taking a historical perspective, the biggest market falls are often followed by the biggest market rises. So should you decide to leave the market now, not only will you incur losses but also miss out on the potential following market increases.

For some, the current situation also presents an opportunity to re-evaluate your portfolio, as there are now some good buying opportunities. However, any adjustments you make to your investment portfolio should be done with the long- term view in mind.

Any adjustments should also depend on where you are in your investment timescale. If you are retired or approaching retirement, your approach will need to be different to those who are younger and have no need to access their capital for a while yet. For the latter, the current crisis could well be an opportunity.

Whatever your situation, it makes sense to get some professional advice, so talk to your Kellands Bristol adviser.

Base rate remains at record low – what hope for income investors?

Posted: 8/7/2011

In March 2009, the Bank of England’s Monetary Policy Committee (MPC) cut its Base Rate to a record low 0.5%. Little did we know that over two years later, Base Rate would still be at 0.5%.

Rates have been held at this level because the latest data shows that the UK economic recovery remains weak. However, inflation is running at 4.5%, well above the Bank's 2% target.

The last two years have therefore been a bonus for homeowners with mortgages, but a nightmare for savers. A pressure group, Save Our Savers, wrote to the MPC, pointing out the problems faced by savers and those on fixed income. It calculates that "inflation has reduced the real value of the nation's cash savings by more than £50 billion over the past 12 months”.

For those looking to invest for income, these are challenging times. The combination of extremely low interest rates and above target inflation has forced many to look at higher yielding but more risky alternatives in the equity and bond markets.

To help you come to terms with what you need to consider and to assess the potential risks and rewards associated with the range of investment options, check out our investing for income section, or contact Kellands Bristol to talk to one of our qualified financial advisers.

Check your cash Isa rates

Posted: 16/5/2011

A lot of people take out cash Isas based on the headline rate, which can be 3.0% or so. However, most of these interest rates are introductory rates that last for only a year. They then revert to around 0.5% per annum.

Most people don’t keep track of their Isas and so don’t switch to a new provider once the special introductory rate ends. This means you miss out significantly. As many investors take out cash Isas in February/March, before the end of the tax year, now is the moment that your interest rates will have fallen.

If this is the case, you should be looking to switch your Isa. It’s easy to do, doesn’t affect the tax-free status and can make a big difference.

Of course, your annual Isa allowance is £10,680 of which £5340 can be invested in a cash Isa. For the rest, you should be looking at a Stocks and Shares Isa. They are riskier than cash Isas, which are just tax-free savings accounts, but long-term can offer some good returns.

A Stocks and Shares Isa allows you to put money into a whole range of investments, such as unit trusts, open-ended investment companies (OEICs) and investment trusts, plus government and corporate bonds. If you wished, you could also buy individual shares on a self-select basis. With Stocks and Shares Isas, your investments can go down as well as up.

Unlike Cash Isas, Stocks and Shares Isas are not totally tax-free. Within a Stocks and Shares Isa, whilst the income on corporate and government bonds is paid gross, on everything else, including cash, the income is paid net of 20% but does not incur higher tax rates, (so benefits higher rate taxpayers). For optimum results, as with all equity and fixed interest investments, you need to be thinking of investing for the medium to long term.

For more information on the best Isa options for you, contact Kellands Bristol.

Retirement planning for higher rate taxpayers

Posted: 22/4/2011

There may not seem much to recommend the 50% rate of tax to super-rate taxpayers but one benefit is that your pension contributions attract tax relief at 50%.

However, the budget confirmed that the annual pension contribution allowance is reduced from £255,000 to £50,000.

Of course, this £50,000 contribution will cost super-rate taxpayers only £25,000. In addition, you can make use of any tax allowance not used for the previous two tax years, so potentially you could pay up to £150,000 into your pension this year at a cost of just £75,000.

However, the reduction in pension contribution allowance means many will now need to look at additional ways to save for retirement, particularly as from April 2012 the lifetime allowance will be reduced from £1.8m to £1.5m.

So, as well as doing your Isa this year, you need to ensure that you are maximising your tax-efficient contributions through pensions, and that your portfolio allows you to use your capital gains tax allowance. After that, you need to look at options such as investment bonds or one of the new breed of maximum investment plans (MIPs).

A MIP is a 10 year qualifying savings plan with no further tax liability for higher rate taxpayers, providing the MIP has been active for more than 75% of the minimum term. It is also possible to split a MIP into a series of individual policies. This provides greater flexibility when the proceeds are taken, as individual policies can be surrendered, providing a tax-free income.

This is a solution both to the problem of the £50,000 cap on pension contributions and for those likely to exceed the £1.5 million lifetime limit.

Alternatively, for the more adventurous, there are Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs).

Why not talk to one of our independent financial advisers to find out more.

IHT is still avoidable

Posted: 5/4/2011

As you probably know, the inheritance tax ‘nil rate band’ has been frozen until April 2015 at a level of £325,000. From then on, it will increase each year in line with inflation, based on the Consumer Prices Index (CPI). For many people, this means their estate will be caught by inheritance tax, and more people will be affected if investments and property prices increase faster than CPI over the period to 2015.

With a tax rate of 40% on any excess over this threshold, the tax bill can soon become significant, so tax planning is still important. The good news is that Inheritance Tax can in most cases be reduced or avoided through careful planning and by making the most of the range of tried and tested solutions. Talk to your independent financial adviser to discuss ways to mitigate your liability.

One interesting measure announced in the March 2011 budget is that, from 6 April 2012, if a person leaves 10% or more of his or her estate to charity, inheritance tax will be charged on the estate at a rate of 36%, a 10% reduction from the usual 40%.

This is an interesting concept, as it saves on inheritance tax payments. However, it also reduces the amount paid out to beneficiaries. It will therefore be a question of priorities and balance for the estate holder.

Budget 2011: changes to EIS and VCT schemes

Posted: 23/3/2011

The budget saw changes to the way Enterprise Investment Schemes (EISs) and Venture Capital Trusts (VCTs) are administered, to encourage individuals to invest more in higher risk enterprises. These schemes, which back British businesses, could become a frontline pension choice for some wealthy investors, with the new improved tax breaks that have been introduced.

From April 2012, investors will be able to shelter up to £1m in EIS schemes – an increase from the current £500,000. The tax relief on investments in these schemes also rises from 20% to 30% from April 2011.

The size of companies that qualify for EIS and VCT investments are being increased from £7m to £15m next April. This coincides with the reduction in annual limit for pension contributions, from £255,000 to £50,000.

Investments in an EIS must be held for at least three years or there will be a tax clawback. After two years, an EIS is also free from inheritance tax (IHT) and you can also defer paying capital gains tax (CGT).

Similarly, VCTs qualify for 30% income tax relief and also benefit from tax free growth and income, the latter of which could be useful in pension situations. Investments in VCTs must be held for at least five years.

EIS and VCT schemes are therefore good alternative ways to shelter money from the taxman and help small businesses at the same time. However, they are at the risky end of the investment spectrum and so the use of them in a diversified portfolio should depend on your attitude to risk.

Make the most of your Isa tax allowance

Posted: 10/3/2011

In the current high tax environment, it makes sense to ensure that you maximise your Isa tax allowance.

April 5th is the deadline for the 2010/11 allowance. For this current year, you can make contributions of up to £10,200 into your Isa. So if you have contributed less than £10,200 in this tax year, you have just a few weeks to take advantage of your tax allowance. Contact us now to discuss your options.

For the 2011/12 tax year, your Isa tax allowance will be increased to £10,680. For help planning to optimise on your investment options, again, contact us today.

Time to take a SIPP?

Posted: 5/3/2011

With the tax year end quickly approaching, it is time to look at making the most of your tax allowances.

SIPPs (Self Invested Personal Pensions) are a very tax efficient way to invest. You get up to 50% tax relief on your contributions and there is no Capital Gains Tax to pay, which means you enjoy tax free growth on your monies.

Not only that, compared to a basic personal pension, SIPPs provide you with the choice of thousands of investment funds to choose from. You also have more control, in terms of how much you invest, as well as where and when to invest.

To find out more about the benefits of SIPPs and how you can cut your tax bill now, contact us today.

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