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Pension v ISA

December 14, 2018 in News & Events

Pension v ISA

Since the introduction of the new pension flexibilities, saving into a pension has become a much more attractive option to many people. But how does it stack up against another popular savings vehicle – the individual savings account (ISA)?
The simple answer is that both have their merits. A particular advantage of pensions is that contributions are eligible for income tax relief at the plan holder’s highest marginal rate of income tax whereas no such relief is available for the ISA investor.

However, when the benefits of the pension plan are taken, the pension commencement lump sum aside, these are taxable, whereas all withdrawals from an ISA, be these income or lump sums, are tax free. Moreover, an ISA can be drawn upon at any time while benefits cannot be taken from a pension until the plan holder reaches age 55. Nonetheless the tax relief on contributions make pensions particularly attractive to a higher rate taxpayer, especially if in retirement, when the benefits are taken, the plan holder is a basic rate only income taxpayer.

Upon death, an ISA can be passed on to the investor’s spouse and retain its ISA status. However, this facility is not available to any other beneficiary and the ISA will form part of the deceased’s estate for inheritance tax (IHT) purposes.
Conversely, the fund within a pension plan will not form part of the plan holder’s estate for IHT purposes. It can be passed on to anyone and if the pension plan holder should die before attaining age 75 the fund will be tax free in the beneficiary’s hands. If the plan holder should die having reached the age of 75, the beneficiary will be subject to income tax on the fund – it can, though, be retained within a pension plan in the beneficiary’s name, and drawn upon at any time, so that the impact of any income tax due can be moderated.

So the pension plan has some attractive features, but this does not mitigate the value of the ISA, and both have their part to play in effective financial planning.

The value of an investment and the income from it could go down as well as up. You may not get back what you invest.

If you have any queries concerning these or any other financial issues please get in touch on 01892 664141 or by e-mail to

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Please note that we will be closing the office at 5pm on Friday 21st December and re-opening again at 9am on Wednesday 2nd January. E-mails to the office,, will be looked at sporadically during that time.

This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at December 2018. You are recommended to seek competent professional advice before taking any action.

Budget 2018 – what it means for you

With no significant tax or pension changes in the recent Budget, you can now plan for the tax year ahead with confidence. The key points from the Budget, and from measures already announced, are:

Income tax
• The personal allowance and higher rate threshold will increase earlier than expected to £12,500 and £50,000 respectively from April 2019. The income tax rates and bands for Scottish taxpayers were announced in Scottish Budget on 12 December.
• There are no other changes to income tax bands or allowances.

• The pension lifetime allowance (LTA) will rise to £1,055,000 from April 2019.
• Reassuringly, there are no changes to pension annual allowances (AA). The standard AA remains at £40,000, the money purchase AA (applicable where pension benefits have already been taken on a flexible access basis) stays at £4,000 (with no carry forward) and there are no changes to the high income AA taper rules.
• Pensions cold calling: the government intends to implement legislation to make pension cold calling illegal.
• Self-employed: the Department of Work & Pensions (DWP) is during the winter to publish a paper setting out the government’s approach to increasing pension participation for the self-employed.

Capital gains tax
• The capital gains tax (CGT) allowance will increase by £300 to £12,000 from April 2019.
• Private residence relief; changes from April 2020 will restrict the reliefs currently available to people who have not lived in their home for the full period of ownership and also to people who let out their homes. There is to be a consultation on the detail of these changes.
• CGT entrepreneurs’ relief: this is the relief that fixes the CGT rate at 10% for individuals selling interests in their businesses and personal companies, for which new qualifying conditions were announced. From 29 October 2019 the relief is being restricted so that it is only available where the individual has an interest of 5% or more in both the business’s distributable profits and its net assets. In effect, this means it is only available to people with a material interest in the business. The qualifying ownership period is also to change for most disposals form 6 April 2019 onwards, increasing from one to two years.

Inheritance tax
• As expected, the IHT nil rate band will remain frozen at £325,000 until April 2021.
• The residence nil rate band will increase from £125,000 to £150,000 from April 2019, allowing some couples to leave up to £950,000 to future generations free of IHT.
ISAs • Annual ISA limits stay at £20,000 per person, with no reduction in the range of ISA options available to meet different needs.

National Savings
• From May 2019, existing holders of Index Linked National Savings Certificates who renew for a further term will receive index-linking based on the Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI). This change will mean that savers will still have protection from inflation but with the cost to the taxpayer being forecast to reduce by £610 million over the next five years.
• Premium Bonds: from the end of March 2019 the minimum investment is to be reduced from £100 to £25. Another development is that people other than parents or grandparents will be able to purchase Premium Bonds for children under the age of 16,with the date when this will be effective to be announced in due course


October 22, 2018 in News & Events

Autumn Outlook


September revealed contrasting monetary policy announcements. The Bank of Japan avoided tightening its interest rate and bond-buying policies, maintaining both with a long-term view of meeting the 2 per cent inflation target. In contrast, the Bank of England hiked rates and the US Federal Reserve is expected to announce another round of rises. In addition, Turkey’s Central Bank moved to raise interest rates, increasing them to 24 per cent to deal with ramping inflation rates and currency depreciation.

Meanwhile, the US equity market continued its extended bull run this quarter. The run has largely been driven by tech stocks, with the FAANG (Facebook, Amazon, Apple, Netflix and Google) stocks all helping drive performance. Apple broke the trillion-US dollar market capitalisation barrier, becoming Americas first trillion-US dollar company in August; Amazon joined the exclusive shortly after. Another factor for the S&P 500 rally was the corporate tax break authorised in the first quarter, which subsequently helped companies post better earnings growth.

The emerging markets have continued generate negative headlines this quarter. The Turkish lira has been one of the worst performing currencies against the US dollar this year alongside the Argentine peso. South Africa entered its first technical recession since 2009, with GDP declining by 0.7 per cent in the second quarter, causing the rand to decline. Even an increase in the oil price wasn’t enough to prevent the emerging markets sell-off, with the effects spreading to the rest of the developing markets.


Emerging Markets
Corporate Bond


The most significant change to asset allocation has been the complete removal of index-linked bonds from the short-term portfolios. This is less driven by a change in markets, but instead can be attributed to a revision in the model. Low bond yields are no longer being viewed as exceptional; this means less upward pressure on rates in the short term, which in turn reduces short-term inflation expectations. The result of this is that lower returns are forecast from the asset class, making them look much higher-risk than previously.

Prospects for the UK market have improved, with the gains being based on improved fundamentals rather than just sentiment. It is worth emphasising, however, that the UK market is very different from the UK economy, which still faces significant Brexit headwinds. In contrast, European equities have not had a good run recently, which conversely slightly improves their prospects, helped by euro weakness. Following a strong quarter for Japan and America, the outlooks for those two asset classes are reduced. Finally, the prospects for emerging markets are down – not only have they had a poor recent quarter but, also, the possibility of increasing trade barriers remains a real concern.


  • UK: Monetary Policy Committee (MPC) announcements and minutes are scheduled for 1 November. The Bank of England is set to announce Consumer Credit data on 1 October. The Conservative Party Conference takes place 30 September-3 October.
  • US: There will be interest rate decisions from the Federal Open Market Committee on 18-19 December. Minutes will be published three weeks after each decision. US mid-term elections are set to take place on 6 November.
  • Eurozone: The unemployment rate for the August period is set to be released on 1 October. The trade balance figures for the August period are expected on 16 October.
  • Other Data: Brazil’s general election is set to take place on 7 October. The Irish presidential election is scheduled for 26 October.


Most Likely: With little more clarity on Brexit, a continuation of uncertainty into Q4 2018 is likely. Though political ambiguity is largely priced in, deadlines for the final agreement are now looming, which will increase the impact and magnitude of volatility. Added pressure on UK sterling and switching between the internationally focussed larger companies and domestic-orientated smaller caps will heighten, with a preference for the former. Further rate increases

Worst Case: No agreement is reached and Prime Minister Theresa May’s government collapses, necessitating a general election and a new PM. A repeat of June 2016 would ensue: UK sterling depreciation and a UK equity sell-off, particularly of domestic-orientated, small caps. Trade tensions dampen returns from large cap stocks, adding to general downward pressure on UK equities.

Best Case: A Brexit settlement favourable for the UK is finalised coupled with reduced trade tensions. UK sterling would rally, paving the way for higher returns from domestic-orientated smaller cap and cyclical stocks. Large cap stocks would suffer on the margin from UK sterling appreciation but benefit to a greater extent from reduced trade tensions.


Most Likely: The US market is supported by healthy macroeconomic conditions and tax cuts continue to boost company profits, making the region attractive. The European Central Bank plans to reduce the ultra- loose monetary policy as it stops quantitative easing by the end of the year. However, rates remain low for the foreseeable future, supporting growth. Despite these positives the escalating trade tensions between the US and China continue to increase uncertainty in the market.

Worst Case: The trade spat between China and the US keeps equities on the defensive and stands to slow global growth. This uncertainty over trade could hurt Japan and Europe, as their stockmarkets are relatively cyclical versus the US. If the world’s largest oil producers maintain their current approach of not increasing production, this will push the price of oil up and hold back real consumer spending.

Best Case: A broad economic expansion and relatively attractive valuations are supportive for corporate profits in Europe. On top of this, the slow and steady approach towards tighter monetary policy should reduce uncertainty. Monetary policy and fiscal stimulus in Japan are helped by improving corporate governance, share buybacks and business investment, in turn supporting Japanese equities.


Most Likely: Emerging markets are likely to be volatile over the quarter as they continue to be impacted by tariff tensions. Recently, the market has been reacting more to ‘tweets’ rather than to actual macroeconomic data, and this could continue until the dispute is resolved. In the short term, currency moves may have a negative impact on returns.

Worst Case: Should the issues surrounding Turkey and Argentina persist, it is likely that risk-off sentiment could lead to further capital flights away from emerging markets. Tighter financial and fiscal conditions could lead to slowing Chinese growth. The uncertain nature of Brazil’s upcoming election has begun to hurt both equity and currency markets. The road could get even bumpier as the Brazilian election draws near with no clear-cut favourite to win.

Best Case: Easing tensions or a US-China trade deal would allow the market to steer away from macroeconomic noise and focus on fundamentals. A weaker US dollar would be a much-needed tailwind for emerging markets. While part of the risk-off sentiment has been driven by Turkey and Argentina, we do not foresee any spill-over impact to other emerging market countries.


Most Likely: Following the Bank of England’s decision to hike rates, the return from cash has slightly improved. Core inflation should remain within the 2 per cent-2.5 per cent range, which means returns from cash remain negative. Headline inflation is unlikely to come down significantly over the coming quarter due to cost pressures from a range-bound oil price.

Worst Case: The worst-case scenario for cash savers is that inflation continues to rise with cost-push pressures at the fore. Another likely headwind is UK sterling weakness as Brexit negotiations turn sour and imported inflation compounds woes, with the Bank of England refraining from further tightening for the already weakened consumer.

Best Case: In the likely event that OPEC successfully negotiates to curb supply cuts to arrest oil price increases and geo-political tensions subside, any progress in Brexit negotiations could well be taken by the Bank of England as a signal to continue tightening, especially if wage growth also picks up. In such a scenario, returns to cash would improve.


Most Likely: We expect to see further dispersion in returns between regional bond markets. While it is expected that the US Federal Reserve will look to increase its base rate and to bring its domestic bond markets into negative territory, other central banks are limited by political noise. The same macro noises might negatively impact credit markets, espe- cially UK European financial companies.

Worst Case: After several years of monetary stimulus, we might have reverted to a normal situation where any positive economic news is bad news for bond markets. If a Brexit deal is quickly reached, the Bank of England might follow in the footsteps of the US Federal Reserve and trigger an unexpected rate hike. The cost of financing for companies should increase, pushing bond investors to reconsider their investments in debt instruments.

Best Case: Bond markets might have already priced-in negative news – as such the downside is now limited. Political uncertainty will continue to act as a drag on bond yields, anchoring the investors’ expectations to lower levels from current ones. Companies might further delay their capital expenditure decisions and decrease their leverage, providing a catalyst for credit markets to re-rate.


Most Likely: In the US, where the cycle is more advanced, economic expansion should see rental growth come through. Higher interest rates are not a problem at this stage and property companies can still generate healthy margins. European REITS remain attractive, with an ultra-low interest rate environment supporting prices and favourable to corporate activity. The UK is still the least attractive region given the noise around Brexit.

Worst Case: In the UK, Brexit talks dominate investor sentiment and drive prices. The continued strong performance of the industrial sector could also be at risk of profit taking. Elsewhere, the US property market is probably the most sensitive to an interest rate rise, as we have seen in Q1. While the Fed’s decision would reflect a stronger economic environment, this means property yields are less attractive given their riskier nature.

Best Case: Continental Europe could still surprise on the upside as some peripheral countries have prices below their pre-financial crisis level. The region could also benefit from corporate activity thanks to cheap financing. Any outcome favourable to UK businesses in the Brexit negotiations are likely to support prices despite unchanged fundamentals. In the US like other overseas regions, a weak pound would boost performance.


This document has been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit Data Sourced from FE Analytics and Bloomberg Finance LP



Mrs B

April 16, 2018 in Testimonials

I felt for the first time, since we first asked for Toni’s help, that someone knew what they were talking about!

Mrs B