Residential Property Review – March 2023

Spring Budget – ‘trailblazer’ deals announced

In the Spring Budget on 15 March, as part of the Levelling Up White Paper, Chancellor Jeremy Hunt announced ‘trailblazer’ deals giving new and deeper devolution powers to local leaders in the Greater Manchester and West Midlands Combined Authorities.

For the first time outside of London, local leaders will now be able to set the strategic direction over the Affordable Housing Programme (AHP) in their areas. These two combined authorities will receive powers in a two-staged approach, initially having partial powers which will ensure the current 2021-26 AHP, which is overseen by Homes England, can be delivered.

After 2026, for any new AHP funding, these combined authorities will gain more powers, including directing Homes England to identify and bring forward sites for housing and to partner with providers. Homes England will still play a role in administering the programme, unlike in London.

Cautious boost for buyer enquiries

A more stable picture is emerging for the rest of 2023, according to the latest UK Residential Survey from the Royal Institute of Chartered Surveyors (RICS), despite a generally downbeat overall trend last month.

The headline reading for new buyer enquiries rebounded to a net balance of -29% (on a seasonally adjusted basis), a significant leap from -45% in January. Although this is a tenth consecutive negative monthly reading, it is also the least negative result since July 2022.

The new sales indicator was also less negative in February (-26%) than it had been a month earlier (-36%). In contrast, the average time taken to complete sales rose again to almost 19 weeks.

Commenting on the latest survey, Tarrant Parsons, Senior Economist at RICS, said, “The housing market continues to adjust to the tighter lending climate, with stretched mortgage affordability still weighing heavily on activity. Going forward… the latest survey feedback shows tentative signs that the ongoing decline in buyer enquiries is now moderating.”

Soaring rents push people out of London

The flight of workers from London will cause businesses to suffer, industry bodies have warned, as soaring rents continue to drive people out of the capital.

Strong rental demand has pushed London rents 20% higher in the last year, according to Foxtons, with the lack of options in the capital now forcing renters to move further out of the city in order to find a suitable place to live. In the same period, average house prices have fallen by 0.9%, according to Halifax, highlighting the difficulties renters have faced.

In trying economic conditions, more than half of landlords still plan to raise rents further to absorb extra costs. Some 63% of renters expressed concern or strong concern about how rising interest rates could affect their monthly rental payments in a recent survey by Finbri.

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 Market Review – March 2023

Spring Budget – Investment Zones announced

On 15 March, Jeremy Hunt delivered his “Budget for Growth” focusing on four pillars ‘Everywhere, Enterprise, Employment and Education.’

Encompassed within the ‘Everywhere’ pillar, Mr Hunt spoke about the government’s plans for ‘Levelling Up,’ including the launch of 12 new Investment Zones or “potential Canary Wharfs”. For each of the eight zones in England, £80m of support over five years will be available for skills, infrastructure and tax reliefs.The locations identified in England are East Midlands, Greater Manchester, Liverpool City Region, the North East, South Yorkshire, Tees Valley, West Midlands, and West Yorkshire. 

The remaining four Investment Zones will be located across Wales, Northern Ireland and Scotland (at least one zone in each nation) with the incentives for these to be agreed with the relevant Devolved Administrations. 

The tax incentives correspond to those currently offered to Freeports, including:

  • Stamp Duty Land Tax relief for commercial property
  • Business rates relief
  • Enhanced capital allowances – deduction for certain qualifying expenditure on plant and machinery
  • Enhanced structures and buildings allowance
  • Relief against the cost of Employer’s National Insurance contributions for new employees.

Capital values decline in February

UK commercial property performance measured by the latest CBRE Monthly Index for February 2023, highlights that capital values fell by 0.5%in the month, with rental growth registering a very small gain of 0.2% and total returns flat at 0.0%.

All three sectors registered declines in capital values throughout the month, with industrial, office and retail falling 0.6%, 0.6% and 0.3% respectively. Focusing on the industrial sector, South East  located industrials experienced a higher decline than those in the rest of the UK. Capital value falls in the office sector were primarily driven by offices located outside of the capital, with values in central London falling 0.1% and those in the rest of the UK and outer London/M25 falling 1.2% and 1.4% respectively.

Industrial and logistics sector – a ‘significant amount of investment capital is sitting on the fence’

Take up of industrial and logistics space in 2023, according to Colliers recent UK Market Pulse, is predicted to fall to around 30m sq. ft, down from 36.9m sq. ft. in 2022. Colliers are attributing this predicted contraction to occupier cost pressures and depressed retail spending.

Other key findings from the report highlight an expectation that online spending will remain elevated when compared with pre-pandemic levels, positive news for the sector. With supply for industrial and logistics remaining low, predictions suggest an increase during the year, with a’ healthy pipeline under construction and some more space being returned to the market.’

A ‘significant amount of investment capital is sitting on the fence,’ according to the report. It is a possibility that values will be pushed higher in H2 2023 as commercial tension increases.

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.

Family Finances: get talking

New research1 suggests young adults and their parents are becoming increasingly comfortable talking about money matters, which should ensure future generations are much better equipped to tackle their financial affairs. 

Breaking the taboo 

Historically, intergenerational discussions about finances have too often been viewed as a no-go area, but the research suggests UK families are beginning to open up, with young adults significantly more likely to have talked to their parents about the issue than previous generations. In total, three out of four 18 to 24-year-olds said they spoke with their parents about money matters when they were growing up; this compares to just four in ten over-65s and half of 55 to 64-year-olds. 

Reaping the rewards 

Experts have long advocated the benefits of families talking openly about financial affairs. Parents who do so are more likely to ensure their children are better prepared to deal with money matters when they reach adulthood, whether in relation to day-to-day spending issues or the need to develop longer-term savings habits. 

Young wealth owners 

The need for young adults to be financially savvy has perhaps never been greater, with a growing proportion of this generation now owning a considerable amount of wealth. Indeed, estimates2 suggest the number of UK Millennial and Generation Z millionaires has doubled over the past year and now stands at a record high of 2,000. 

Keep talking 

An increasing desire for families to discuss financial affairs is definitely a positive trend which should help the next generation realise the value of money and establish good financial habits at a young age. So, keep the conversations going to help secure your children’s financial futures. 

1Royal London, 2022 

2Bowmore, 2022 

The value of investments and income from them may go down. You may not get back the original amount invested. 

Renters tune in – income protection

The number of households renting privately in the UK increased by 63% in the decade to 20171, reaching an estimated total of 4.5 million. As the rising cost of living continues to cause difficulties for many, the importance of protection becomes increasingly apparent. 

Safety net 

Tenants in the private rental sector generally have lower financial resilience than homeowners; recent research2 revealed that 14% of private renters have no savings at all, compared with 8% of mortgage holders. 

Despite this, almost three quarters of renters don’t hold any protection products3. Missing out on the crucial safety net that protection provides is part of the reason more than twice as many renters (29%) as mortgage holders (14%) would expect to apply for state benefits if they were unable to work. 

What can I do? 

More than two thirds of private renters are worried about losing their income if they could not work due to an illness or injury. Thankfully, there is a remedy for these fears. 

Income protection is a financial safety net that provides you with a tax-free income if you are unable to work. If accident or injury are keeping you away from your salary, income protection steps in at the end of your chosen deferred period to help make sure you and your loved ones don’t suffer undue financial hardship. 

Tough times 

In the current turbulent economic environment, the value of income protection is clearer than ever. As rising prices diminish savings pots, private renters become more vulnerable to financial shocks and missing rent payments. Having the right protection in place for your unique needs can help provide valuable peace of mind. 

1Office for National Statistics, 2022  

2FT Adviser, 2022  

3Financial Conduct Authority, 2022 

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments. 

News in Review

 “Today we build for the future”

Jeremy Hunt delivered his first Budget last Wednesday, billing it as “A Budget for Growth.” The Chancellor kicked off his statement with a commentary of the latest economic projections from the Office for Budget Responsibility (OBR).

Firstly, focusing on inflation, the OBR data suggests that inflation will fall from an average rate of 10.7% in Q4 2022 to 2.9% by the end of 2023. This fall can partly be attributed to a three-month extension of the Energy Price Guarantee (EPG), announced earlier on 15 March. The EPG caps typical energy bills at £2,500, and will be kept at this level throughout April, May and June. Rishi Sunak spoke of the decision to retain the EPG, “Continuing to hold down energy bills is part of our plan to help hardworking families with the cost of living and halve inflation this year.”

Turning to economic growth expectations, the Chancellor said the OBR believe the UK economy will avoid a technical recession in 2023. Estimates show a 0.2% contraction this year, followed by growth of 1.8% next year and 2.5% in 2025, before moderating towards its medium-term potential growth rate of 1.75% by 2028. The expected shrinkage of 0.2% this year represents a considerable upgrade from last autumn’s forecast of a 1.4% contraction.

The predicted improvement in economic prospects also results in a relatively brighter outlook for UK public finances. The Chancellor revealed that the government was on track to meet both of its self-imposed fiscal rules which state that underlying debt must be falling as a percentage of GDP by the fifth year of the forecast and that public sector borrowing must be below 3% of GDP over the same period. Mr Hunt said the forecast showed the first rule would be met with “a buffer of £6.5bn”, although the OBR did say this was the smallest amount of headroom any Chancellor has set aside against his primary fiscal target since the independent forecaster was established in 2010.

Mr Hunt added, “Today we build for the future with inflation down, debt falling and growth up. The declinists are wrong and the optimists are right. We stick to the plan because the plan is working.”

Four pillars

The strategy for growth, centres around four pillars, ‘Everywhere, Enterprise, Employment and Education.’ Key announcements included:

  • ‘Everywhere’ involves plans for ‘Levelling Up,’ including the launch of 12 new Investment Zones, with £80m of support per zone available for skills, infrastructure and tax reliefs
  • ‘Enterprise’ encompasses providing the right conditions for businesses to succeed. One key announcement is a ‘full expensing’ policy, applicable from 1 April 2023 until 31 March 2026 to allow investment in IT, plant or machinery to be deducted in full and immediately from taxable profits
  • ‘Employment’ refers to a suite of measures to “remove the barriers that stop people who want to from working”. One key focus is to entice mature people back to work, with the expansion of the DWP’s ‘midlife’ MOT scheme, a new ‘Returnerships’ scheme making existing skills programmes more accessible to older workers and a pension tax relief overhaul to encourage over-50s to extend their working lives
  • ‘Education’ involves reformation of the childcare system, with proposals offering 30 free hours of childcare each week to pre-school children aged nine months or above, in English households where both parents work. A phased approach and eligibility criteria apply. In addition, funding for schools and local authorities to increase availability of wraparound care is being made available.

Markets

Challenging market conditions continued this week, following the collapse and subsequent bail out of Silicon Valley Bank. Markets are processing the forced takeover of Credit Suisse by rival UBS for £2.6bn. An official spokesperson for Rishi Sunak sought to reassure investors following the emergency rescue of the Swiss banking giant, saying, “Obviously, it is good that a resolution has seen secured. As the Bank of England has said, we believe the UK banking system remains safe and well capitalised. We have a strong regulatory system and we have taken a number of steps over the past 15 years, together with the Bank of England, to strengthen that system.”

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 (22 March 2023)

Spring Budget 2023

“A Budget for Growth”

Chancellor of the Exchequer, Jeremy Hunt, delivered his first Spring Budget on 15 March declaring it was “A Budget for Growth.” The fiscal update included a range of new measures, some of which had been widely trailed prior to Budget day, in order to achieve growth “by removing obstacles that stop businesses investing; by tackling labour shortages that stop them recruiting; by breaking down barriers that stop people working; and by harnessing British ingenuity to make us a science and technology superpower.”

OBR forecasts

The Chancellor began his statement by unveiling the latest economic projections produced by the Office for Budget Responsibility (OBR) which he said showed the UK would meet the Prime Minister’s priorities to “halve inflation, reduce debt and get the economy growing.” In relation to the first priority, Mr Hunt said the latest OBR figures suggest inflation will fall from an average rate of 10.7% in the final quarter of last year to 2.9% by the end of 2023. This sharp decline is partly due to some of the Chancellor’s Budget measures, including the three-month extension to the household Energy Price Guarantee (EPG), which the government had confirmed earlier in the day.

Mr Hunt also said the OBR forecast suggests the UK economy will now avoid a technical recession this year (defined as two consecutive quarters of economic decline) and then expand in each of the remaining years of the five-year forecast period. According to the updated figures, the economy is expected to shrink by 0.2% this year, a significant upgrade from last autumn’s forecast of a 1.4% contraction, with growth then predicted to hit 1.8% in 2024 and 2.5% in 2025, before easing back towards its medium-term potential growth rate of 1.75% by 2028.

The Chancellor’s growth strategy focuses on the four pillars ‘Everywhere, Enterprise, Employment and Education,’ as previously outlined in his Bloomberg speech in January.

Everywhere

Mr Hunt spoke about the government’s plans for ‘Levelling Up,’ including the launch of 12 new Investment Zones. Across these “12 potential Canary Wharfs,” £80m of support per zone will be available for skills, infrastructure and tax reliefs.Mr Hunt also mentioned specific projects selected for local investment, including:

  • £200m for local regeneration projects and £400m for new Levelling Up Partnerships across England
  • £8.8bn over the next five-year funding period for the City Region Sustainable Transport Settlements
  • Up to £8.6m for the Edinburgh Festivals, as well as £1.5m for the repair of Cloddach Bridge, near Elgin, and £20m for the restoration of the Holyhead Breakwater in Anglesey
  • Up to £3m to extend the Tackling Paramilitarism Programme in Northern Ireland.

Enterprise

To provide the right conditions for businesses to succeed:

  • A ‘full expensing’ policy will apply from 1 April 2023 until 31 March 2026 to allow investment in IT, plant or machinery to be deducted in full and immediately from taxable profits
  • An increased rate of relief for loss-making Research and Development (R&D)-intensive small and medium size enterprises (SMEs) – eligible companies will receive a £27 credit from HMRC for every £100 of R&D investment
  • An extension of higher reliefs for theatres, orchestras, museums and galleries for two further years
  • The Medicines and Healthcare products Regulatory Agency (MHRA) will receive £10m extra funding over two years
  • All of the recommendations from Sir Patrick Vallance’s review of pro-innovation regulation of digital technologies are accepted
  • £900m of funding for AI Research Resource and an exascale computer as well as a commitment to £2.5bn ten-year quantum research and innovation programme through the government’s new Quantum Strategy
  • Innovation Accelerators programme – £100m funding for 26 transformative R&D projects
  • AI Challenge Prize – £1 million prize every year for the next ten years to researchers that drive progress in critical areas of AI.

Employment

The Chancellor turned next to Employment, with a suite of new measures to “remove the barriers that stop people who want to from working.” To achieve this, he announced:

Mature workers

  • The expansion of the DWP’s ‘midlife’ MOT scheme, aiming to reach up to 40,000 individuals per year (up from the current 8,000)
  • New ‘Returnerships’ scheme to make existing skills programmes more accessible to older workers and help them upskill and retrain
  • A pension tax relief overhaul; see details in Personal Taxation and Pensions section.

People with long-term illnesses and disabilities

  • A white paper on disability benefits reform
  • The abolition of the Work Capability Assessment for disability benefits claimants
  • A new voluntary employment scheme for people with disabilities
  • £406m to increase support for working adults with mental health, musculoskeletal and cardiovascular problems.

Welfare recipients

  • An increase to the Administrative Earnings Threshold
  • A stronger sanctions regime for Universal Credit claimants.

Care leavers

  • A 50% increase in funding for the Staying Close programme
  • An increase in the Qualifying Care Relief threshold to £18,140 per year plus £375 to £450 per person cared for per week for 2023/24 and these thresholds will then be index-linked, representing a tax cut worth approximately £450 per year on average.

Education

Mr Hunt then turned to Education, stating that he wants to reform the childcare system, currently “one of the most expensive systems in the world.”

His new proposal will offer 30 free hours of childcare each week to pre-school-age children aged nine months or above in English households where both parents work. It will be phased in on the following timeline:

  • April 2024 – eligible two-year-olds will receive 15 hours of free childcare per week
  • September 2024 – qualifying children aged nine months to two years will receive 15 hours
  • September 2025 – eligible children aged nine months to three years will receive 30 hours.

Also, schools and local authorities will be funded to increase availability of wraparound care, to enable parents of school-age children to drop them off between 8am and 6pm. 

To tackle the problem of unaffordable upfront costs, Mr Hunt also announced support for the 700,000 families on Universal Credit. Another major change involves each staff member in England being able to look after five two-year-olds instead of four, as is already the case in Scotland.

Personal Taxation and Pensions

To encourage over-50s to extend their working lives, the government is increasing tax relief limits on pension contributions and pots – the Annual Allowance will be raised from £40,000 to £60,000 from April 2023; the Lifetime Allowance (LTA) charge will be removed from April 2023, and the LTA will be abolished from April 2024. The maximum amount that can be accessed tax free (Pension Commencement Lump Sum) will be frozen at its current level of £268,275 (25% of current LTA). From April, the minimum Tapered Annual Allowance (TAA) and the Money Purchase Annual Allowance (MPAA) will increase from £4,000 to £10,000 and the adjusted income threshold for the TAA will also rise, from £240,000 to £260,000.

As a reminder, the following changes were previously announced in the Autumn Statement 2022:

  • The Income Tax additional rate threshold (ART) at which 45p becomes payable is lowered from £150,000 to £125,140 from April 2023. The ART for non-savings and non-dividend income will apply to taxpayers in England, Wales and Northern Ireland
  • The Dividend Allowance reduces from £2,000 to £1,000 from April 2023 and to £500 from April 2024
  • The annual Capital Gains Tax exemption reduces from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024
  • The Stamp Duty Land Tax nil-rate threshold for England and Northern Ireland is £250,000 for all purchasers and £425,000 for first-time buyers, remaining in place until 31 March 2025.

In addition:

  • 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)
  • The basic State Pension will increase in April 2023 from £141.85 per week to £156.20 per week, while the full new State Pension will rise from £185.15 to £203.85 per week. The standard minimum income guarantee in Pension Credit will also increase in line with inflation from April 2023 (rather than in line with average earnings growth)
  • Inheritance Tax (IHT) nil-rate bands remain at £325,000 nil-rate band, £175,000 residence nil-rate band, with taper starting at £2m – fixed at these levels until April 2028
  • National Insurance contributions (NICs) Upper Earnings Limit (UEL) and Upper Profits Limit (UPL) are frozen until April 2028
  • The ISA (Individual Savings Account) allowance remains at £20,000 and the JISA (Junior Individual Savings Account) allowance and Child Trust Fund annual subscription limits remain at £9,000.

Other key points

  • Potholes Fund – an extra £200m for local road maintenance in England in 2023/24
  • Alcohol Duty – rates frozen until August 2023 then uprated by RPI, Draught Relief increased to 9.2% for beer and cider and 23% for wine from 1 August 2023
  • Fuel duty rates – maintaining the rates of fuel duty at the current levels for an additional 12 months
  • Defence spending – an extra £4.95bn for defence over 2023/24 and 2024/25
  • Support for veterans – an additional £33m over the next three years
  • Swimming Pool Support Fund – over £60m for public swimming pools across England
  • Support for charities and community organisations – £100m (England)
  • Plastic Packaging Tax rate – uprated in line with CPI from 1 April 2023
  • Launching ‘Great British Nuclear’ – supporting new nuclear builds, £20bn available for Carbon Capture, Utilisation and Storage (CCUS), and extending the Climate Change Agreement scheme for a further two years
  • Devolved administrations – receiving an additional £630m through the Barnett formula over 2023/24 and 2024/25 (Scottish Government £320m, Welsh Government £180m and Northern Ireland Executive £130m).

Closing comments

Jeremy Hunt signed off his announcement saying, “Today we build for the future with inflation down, debt falling and growth up. The declinists are wrong and the optimists are right. We stick to the plan because the plan is working.”

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 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 individual circumstances.

All details are believed to be correct at the time of writing (15 March 2023)

‘Magic’ scam warning 

The Financial Conduct Authority (FCA) has warned pension holders to beware of scammers’ ‘magic tricks’ as research shows the economic squeeze is encouraging more people to withdraw pension savings. 

ScamSmart 

Britain’s financial watchdog recently launched its latest ScamSmart campaign aiming to give consumers the knowledge and tools to avoid scams. Over 700,000 pension plans were accessed for the first time in 2021-22 and FCA research suggests that number could increase this year, with a quarter of all pension holders considering an early raid due to cost-of-living pressures. This puts a significant number of people at risk of potential scams. 

Pension scam tactics 

Scammers typically prey on consumers’ misunderstanding of how pensions work and pension pots grow. To help people avoid falling victim, the FCA has compiled a list of common scam techniques which include: high-pressure sales tactics using ‘time-limited offers’; guaranteed higher returns; unusual unregulated investments; arrangements involving several parties; any offer to release pension funds for under-55s. 

Distraction techniques 

FCA research also highlights consumer vulnerability to some classic ‘distraction’ tactics scammers employ. Around 44% of pension holders, for instance, said they would take up the offer of a free pension review, while 46% could be swayed by a scammer providing details of a third party (falsely) vouching for their offer. 

Devastating consequences 

Mark Steward, FCA Executive Director of Enforcement, is urging consumers to check out the watchdog’s ScamSmart website in order to “avoid being tricked by scammers.” He added, “Pension scammers are tricking victims with false promises of a better lifestyle in retirement. Like the magician’s trick, thousands can disappear in seconds, but this time the consequences can be devastating.” 

Trust your instinct 

If you ever have any doubts when contacted in relation to your pension, trust your instinct and get in touch with us. 

The value of investments and income from them may go down. You may not get back the original amount invested. 

Estate planning – take control

Inheritance Tax (IHT) is once again in the spotlight following the Chancellor’s decision to freeze IHT thresholds for a further two years until April 2028. Extending the frozen thresholds, together with rising house prices and soaring inflation mean that more estates are likely to be affected. 

IHT receipts on an upwards trend  

The latest IHT figures released in October make interesting reading. Total HM Revenue and Customs (HMRC) receipts for April 2022 to September 2022 were £3.5bn, £0.4bn higher than in the same period last year. 

Not just a tax on the very wealthy  

IHT is a tax payable on all your assets when you die and potentially on some gifts you make during your lifetime. If the estate is liable for IHT, it is usually payable at 40%. These days, you don’t have to be hugely wealthy to be affected by IHT – the hated tax can cost your estate thousands of pounds when you die. 

A reminder of the thresholds 

An individual’s current threshold, or nil-rate band, is £325,000. A couple (married or civil partners) has £650,000. Any unused nil-rate band can be passed to the surviving spouse or civil partner on death. 

In 2017 the government introduced an additional nil-rate band when a residence is passed on death to a direct descendant. The main residence nil-rate band is £175,000 and when added to the existing threshold of £325,000 could potentially give an overall allowance for individuals of £500,000. 

To reduce the amount of IHT payable, many families consider giving assets away during their lifetime. Some gifts will be automatically free from IHT; for example, £3,000 each financial year, certain wedding gifts and gifts to charities. 

Getting the right balance between gifting money during your lifetime and ensuring you have enough for your future years requires careful planning. Expert planning can legitimately mitigate IHT, meaning you can pass on assets to your family as you’d intended. 

The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation. Inheritance Tax Planning is not regulated by the Financial Conduct Authority. 

News in Review

 “Confidence is returning”

UK gross domestic product (GDP) grew by 0.3% in January, according to the latest official figures released by the Office for National Statistics (ONS) on Friday.

Higher school attendance and the return of Premier League football helped growth return after a 0.5% contraction in December, though quarterly figures show that the economy stagnated between November and January compared with the previous three months.

The 0.3% growth exceeded City forecasts of 0.1%, which led KPMG to upgrade its outlook for the year ahead. The figures boosted hopes that the UK might avoid the shallow recession the Bank of England is forecasting.

Darren Morgan, Director of Economic Statistics at ONS, said the main factors behind the growth were “the return of children to classrooms, following unusually high absences in the run-up to Christmas, … Premier League clubs returned to a full schedule after the end of the World Cup and private health providers also had a strong month”.

Ahead of the Budget, the boost provides good news for Prime Minister Rishi Sunak. Commenting on the GDP data, he said, “If you look at some of the things that have been coming out in the last month, they’re all showing encouraging signs that things are better than people had feared, that sentiment is improving, confidence is returning. The underlying fundamentals of the economy are strong.”

Labour market latest

The latest labour market overview, released on Tuesday by ONS, revealed that job vacancies have fallen for the eighth time in a row, though there are still 328,000 more vacancies compared with Q1 2020.

The rate of economic inactivity likewise dipped in the three months from November 2022 to January 2023 to 21.3%, while the unemployment rate remained largely unchanged at 3.7%. The data also point to stalling pay growth, with the average weekly salary, excluding bonuses, £589 in January, up by £1 month-on-month.

Darren Morgan commented, “The number of people neither working nor looking for a job fell overall, driven by a drop in young people. However, a record number of people were completely outside the labour market due to long-term sickness. Although the inflation rate has come down a little, it’s still outstripping earnings growth, meaning real pay continues to fall.”

Budget build-up

On 15 March, Chancellor Jeremy Hunt will deliver his first Budget, outlining the government’s plans for tax and spending for the coming year.

In response to newly released jobs data, Mr Hunt reiterated the importance of tackling inflation. He said, “Tomorrow at the Budget, I will set out how we will go further to bear down on inflation, reduce debt and grow the economy, including by helping more people back into work.”

Several policies that will come into effect from April have already been announced, including the new £900 cost-of-living payment for the poorest households and the uprating of benefits and pensions in line with inflation. The Treasury has also confirmed that energy costs for those with prepayment meters will be brought in line with customers who pay by direct debit.

As a plan to keep people in work for longer, or encourage them to return to work, the Chancellor is expected to increase the pension Lifetime Allowance. The £40,000 Annual Allowance could also be increased.

Alongside the Chancellor’s speech, the Office for Budget Responsibility (OBR), will release a forecast.

SVB collapse shakes markets

Bank shares in Asia and Europe slumped on Monday after the collapse of the US-based Silicon Valley Bank (SVB), the largest failure of a US bank since 2008. Despite reassurances from Joe Biden that America’s financial system is safe, investors were concerned that other lenders could still be hit by the fallout.

After the UK arm of SVB was put into insolvency on Sunday evening, UK tech firms warned they could go bust without help. On Monday, HSBC bought the UK subsidiary following talks led by the government and Bank of England.

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 (15 March 2023)

Economic Review – February 2023

Interest rate peak may be approaching

Last month the Bank of England (BoE) announced another hike in its benchmark interest rate but hinted that rates may now be nearing a peak, as the tide in its battle with inflation begins to turn.

Following its latest meeting held at the beginning of February, the BoE’s nine-member Monetary Policy Committee (MPC) voted by a 7–2 majority to raise Bank Rate by 0.5 percentage points to 4.0%. This was the tenth consecutive increase sanctioned by the MPC and took rates to their highest level in over 14 years.

The minutes to the meeting noted that ‘considerable uncertainties’ around the outlook remain and that risks to inflation are ‘skewed significantly to the upside.’ However, they also stated that updated MPC projections show ‘inflation falling back sharply’ from current elevated levels, with the headline rate expected to dip to around 4% towards the end of the year.

Commenting after announcing the MPC decision, BoE Governor Andrew Bailey cautiously acknowledged that price rises have begun to edge back. Mr Bailey said, “We’ve seen the first signs that inflation has turned the corner. But it’s too soon to declare victory just yet –inflationary pressures are still there.”

The latest official inflation statistics also suggest the headline rate is now on a downward path. The Consumer Prices Index (CPI) annual rate – which compares prices in the current month with the same period a year earlier – fell to 10.1% in January. This represents the third successive monthly decline since CPI inflation hit a 41-year high of 11.1% in October.

Although analysts do still typically expect the MPC to sanction at least one more hike, there does seem to be a growing consensus that the high point in the current interest rate cycle is approaching. The next MPC meeting is due to conclude on 23 March.

BoE predicts shallower recession

Updated economic forecasts published last month by the BoE suggest the UK will enter recession this year but that the downturn will be less severe than previously feared.

According to the latest economic growth figures released by the Office for National Statistics (ONS), the UK narrowly avoided entering recession at the end of 2022. Despite monthly data showing the economy shrank by 0.5% in December, growth in the previous two months resulted in an overall growth rate of zero across the final quarter of last year.

While this figure is only a first estimate and may therefore be revised, either up or down, it does currently show the UK avoided a second successive quarterly contraction which would have met the technical definition of a recession. Analysts, however, still expect further economic weakness this year – CBI Lead Economist Ben Jones, for instance, commented, “We may have avoided a technical recession late last year, but we probably won’t avoid one this year.”

The BoE’s latest economic assessment also suggests the UK will enter recession during the coming months, although their revised projections imply any downturn will be ‘much shallower’ than previously envisaged. The Bank now expects the economy to shrink by 0.5% during 2023, significantly lower than the 1.5% contraction forecast in November, with the recession expected to last five quarters rather than eight as previously predicted.

Survey data released towards the end of last month has even raised hopes that the UK might actually avoid recession altogether during the first half of this year. The preliminary headline figure from the S&P Global/CIPS UK Purchasing Managers’ Index jumped to 53.0 in February, up from 48.5 the previous month. This is the first time since July that the reading has been above 50, the threshold which indicates growth in private sector output.

Markets (Data compiled by TOMD)

On 27 February, Prime Minister Rishi Sunak and European Commission President Ursula von der Leyen announced a new agreement had been reached on post-Brexit trading arrangements for Northern Ireland. At month end, investors were digesting the trade deal between the UK and the European Union. 

In the UK, the FTSE 100 hit the 8,000 milestone for the first time in mid-February, as concerns of a global recession began to ease. Shares were supported by the release of better-than-expected inflation data. The blue-chip index moderated to close the month on 7,876.28, a gain of 1.35% in February. The FTSE 250 ended the month up 0.25% on 19,903.28, while the FTSE AIM closed out the month on 859.37, a small monthly loss of 0.97%.

In the US, the NASDAQ closed February on 11,455.54, a loss of 1.11%. The Dow Jones index closed the month down 4.19% on 32,656.70. In Japan, the Nikkei 225 closed February up 0.43%, on 27,445.56. Japan equities were supported at month end by gains in the Machinery, Precision Instruments and Electrical / Machinery sectors. On the continent, the Euro Stoxx 50 closed the month on 4,238.38, registering a gain of 1.80%.

On the foreign exchanges, the euro closed the month at €1.14 against sterling. The US dollar closed at $1.20 against sterling and at $1.06 against the euro.

Brent crude closed the month trading at around $83 a barrel, a loss of 1.77% over the month. Gold closed the month trading at around $1,824 a troy ounce, a monthly loss of 5.16%. The gold price has been negatively impacted in the month following the release of strong economic data, fuelling expectations of more interest rate increases.

Retail sales rebound unexpectedly

Official data has revealed a surprise increase in sales volumes during January, although more recent survey evidence does suggest the retail outlook remains challenging.

According to the latest ONS data, total sales volumes in January rose by 0.5%, as shoppers sought to take advantage of New Year sales promotions. ONS said discounting helped lift sales at online retailers as well as jewellers, cosmetic stores and carpet and furnishing shops, although growth was also partly driven by an increase in fuel sales as prices at the pumps continued to decline.

Data revisions, however, saw December’s figure fall more sharply than previously reported, with updated data showing a drop of 1.2% from November rather than the originally estimated 1.0% decline. Darren Morgan, Director of Economic Statistics at ONS, commented, “After December’s steep fall, retail sales picked up slightly in January, although the general trend remains one of decline.”

This challenging environment was also highlighted in the CBI’s latest Distributive Trades Survey, with retailers reporting broadly unchanged sales volumes in February while expecting sales to fall this month. CBI Principal Economist Martin Sartorius said, “Whilst retail sales volumes were largely unchanged in the year to February, firms remain pessimistic about their business outlook.”

Chancellor receives pre-Budget boost

The latest public sector finance statistics revealed an unexpected budget surplus giving Chancellor Jeremy Hunt a little more leeway as he prepares to deliver his Spring Budget.

Figures released by ONS showed that UK public sector net borrowing (the gap between the country’s overall income and expenditure) returned to a surplus of £5.4bn in January. This figure, which was boosted by the highest self-assessed Income Tax receipts since records began in 1999, was significantly better than economists had been expecting.

As a result, total government borrowing across the first ten months of the current fiscal year now stands at £117bn. While this does still represent a large shortfall by historic standards, the figure is just over £30bn lower than the Office for Budget Responsibility had predicted when it produced forecasts for the Chancellor’s Autumn Statement in November.

This data does therefore appear to provide the Chancellor with a little more wiggle room as he sets out the tax and spending plans he will deliver in the Spring Budget on 15 March. Mr Hunt, however, has played down any suggestions of significant tax cuts recently saying, “It is vital we stick to our plan to reduce debt over the medium term.”

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All details are correct at the time of writing (01 Mar 2023).