It’s a little disappointing that the main news arising from the G20 finance ministers’ meeting at St Andrew’s is the story of Gordon Brown’s calls for a tax on the activity of the capital markets. Mr Brown had suggested the tax but almost immediately US Treasury secretary, Timothy Geithner, dismissed the notion as unworkable. Needless to say the City was none too impressed either. The bottom line is that this so called Tobin tax would only work if it were applied worldwide. To do otherwise would simply drive business to a low or non-tax financial centre. Anyway the prime minister senses the opposition and has somewhat back tracked suggesting he merely wanted to open the tax-on-banks debate.

Foreign exchange markets open the week with the Dollar lower across the board. It has lost about two cents against both the Euro and Sterling. The pound has picked up the lions share of those exiting the Greenback and starts the day at over 1.12 versus the single currency.

The start of the week is a little light on economic data so, barring unscheduled news, we don’t expect much price movement today.

Commentary kindly supplied by Anglo Irish Bank

Market Round-Up

Around The World (%)	Close	1 Week	1 Month	3 Months	12 Months
FTSE* All-Share	2520.66	1.3	9.21	12.67	-11.51
FTSE* 100	4908.9	1.2	8.39	11.88	-12.36
S&P 500 (US)	1028.93	0.27	5.03	13.46	-20.89
Nasdaq Composite	2028.77	0.39	2.7	15.81	-15.88
Europe excl UK	286.77	2.04	9.58	15.09	-16.45
Nikkei 225	10534.14	2.89	4.43	11.46	-17.5
Topix	969.31	2.32	4.21	8.23	-20.52
Pacific Basin excl Japan	352.05	2.43	1.15	16.08	-6.05

UK

- The UK market continued to advance, ending the month of August 7.1% higher as the
trend of better than expected data continued.
- Rising UK business confidence, rising US consumer confidence and further encouraging
US housing data were among factors helping to lift the mood, although an air of
caution remained due to the size of the rally since March.
- The top gainer in the FTSE 100 for the week was RBS, rising 18.9%. Talks to sell their
Asian assets to Standard Chartered and speculation they may be looking at buying back
shares from the UK Government were key drivers.
- Although miners were hit by profit taking mid-week, Kazakmhys was the stand out
winner in the sector after reporting better than expected earnings in the first half of the
year. The stock was up 8%.
- BAE was the biggest faller in the FTSE 100, down 6.44% following the loss of a US
defence contract.

US

- US equities rose to a new high for the year in last Thursday’s trading, driven by strength
in the oil price, which lifted oil stocks, and by news that GDP shrank less than previously
anticipated in the second quarter, at an annualised rate of -1.0%. Analysts had expected
a decline of 1.5%.
- The Case-Shiller Index of house prices in 20 metropolitan cities rose 1.4% over June
versus expectations of just 0.2%. In addition, sales of newly built single family homes
rose for a fourth straight month in July, whilst the overall inventory of unsold homes fell
to a sixteen year low.
- The Conference Board’s Index of Consumer Sentiment rebounded in August to a
reading of 54.1, having fallen to 47.3 in July.
- The Dow and S&P declined on Friday, though the Nasdaq managed to gain 0.5% after
Dell beat Q2 earnings expectation, and Intel upped guidance on Q3 revenue due to
improved demand for its microprocessors and chipsets.

Fixed Interest

- The week began with the yield on two year gilts hitting an all time low of 0.822% after a
broad rise in bond prices due to weaker shares and renewed market jitters that the Bank
of England may cut the interest it pays on deposits.
- Gilts then struggled after upbeat US home sales gave investors cause for optimism.
Further downward downward pressure came when it came to light that the BoE paid
below market price in its latest reverse auction.
- Later in the week mixed data gave investors no clear direction. In the UK, figures on
business investment for the second quarter showed the sharpest quarterly fall since 1985
and led to concerns of a downward revision to Q2 GDP data. August retail sales figures
from the CBI showed an unexpected slight worsening, but firms were more optimistic
about the coming month than any time since July 2008. Housing data from the
Nationwide Building Society showed the biggest monthly price rise in two and a half
years.

Europe

- European equity indices booked another positive week, hitting 10 month highs.
Investors were buoyed by continued strong corporate results, both at home and
overseas, and optimism about the outlook for the global economy. The FTSE Europe
ex UK index rose 2.0%.
- A raft of upbeat economic data including better than anticipated industrial new orders in Europe, Germany’s IFO index of business climate which was upwardly revised, and
housing numbers in the US all pointed to a better outlook for the global economy and
helped boost risk appetite.
- Nokia’s announcement that they are to enter the highly competitive business of making laptops was taken well. Shares climbed 10.6% over the week.
- Nataxis shares soared almost 18% following news that its majority owner, statebacked BPCE, is to guarantee around J35 billion worth of toxic debt at the French
investment bank.
- Banco Santander announced that they are to buy-back up to J16.5 billion of assetbacked securities (commercial & residential).

Japan/Pacific Basin

- Japanese equities ended the week up 2.89% and also hit a 10 month high in the
process. Positive economic data released in the US improved investor sentiment on
hopes for a global economic recovery. The S&P/Case-Shiller home price index and
consumer confidence in August topped forecasts. Exporters climbed on the back the
news. Energy linked shares advanced as oil prices steadied around $74 a barrel.
- The Hang Seng closed down 0.50%. Investors took profits after recent strong
performance, however, they continued to worry over the government’s fine-tuning of
fiscal and monetary policy. Disappointing results from blue chips CNOOC and Esprit
fuelled concerns ahead of a flurry of results from other companies in the coming days.
- Indian shares finished the week 4.47% higher. Sales of previously owned US homes in
July, which recorded their fastest pace in nearly two years, and upbeat comments from
Ben Bernanke boosted stocks. Index heavyweight Tata Motors advanced after a Credit
Suisse upgrade and outsourcer Wipro climbed higher on a weaker Rupee.

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I have taken this from Standard Life's press release that has just been issued:

The Cutting Edge - Finance Act 2009 receives Royal Assent
The Finance Act 2009 has now received Royal Assent. The Act includes the pension and tax changes announced in this year's Budget dealing with pension contributions made between Budget day and 5 April 2011 by high income individuals. While the changes only have an immediate impact on a small fraction of the UK population the shockwaves, which resonate from removing the principle that people get tax relief on pension contributions at their highest marginal rate, should not be underestimated.
Following some sustained lobbying by the industry there was a relatively late change to the rules, introducing some further leeway for those high income individuals who have a history of paying irregular contributions. Full details of the revised rules and how they impact upon people is detailed below.
While the Finance Act is now law it is likely that some further changes will be introduced in two specific areas through forthcoming regulations. The first is around transfers. As things stand, high income individuals who move their pension provision to a new provider may fall foul of the new special annual allowance tax charge even if they don't increase contributions.
This Finance Act contains the rules covering the position between Budget day and 5 April 2011 - so that part is largely done and dusted. The Government suggests the rules for 2011 onwards will be included in a Finance Bill early in 2010. It's therefore likely that these measures will be law before any General Election. The Conservatives have said they are unlikely to repeal any legislation if they win the election, so it seems likely we will have to cope with these rules whichever Government is in power in future.

If you are wondering how this is likely to affect you, feel free to contact me.

That seems to have been the message of the latest Budget with the new 50 per cent income tax rate and a number of proposed changes to pension payment relief aimed at individuals with income over £150,000.

In addition anyone earning over £100,000 will see their personal allowances tapered away by £1 for every £2 over £100,000 earned, such that persons receiving income over £112,950 will have no personal allowances at all.

The new 50% income tax rate, the highest of any major economy in the developed world, will apply from 6 April 2010 as will the reduction in personal allowances meaning that the effective rate of income tax on income between £100,000 and £112,950 will be an eye-watering 60 per cent!

However, how much will the new 50 per cent tax rate actually generate for the Government coffers? Astonishingly, even the Government seems to think that the amount of tax it will raise will be negligible with Treasury figures revealing that they expect 69 per cent of those liable to pay the tax will find some ways of avoiding it.

The Institute for Fiscal Studies went even further and stated that the rises may not result any increase in tax takings as those individuals affected may decide to leave the country or retire early.
It said that those who stayed in the system would look for ways to reduce their taxable income by working less, contributing to a tax-free pension or converting it into other types of earnings which are taxed at lower rates.
Our own experience since the announcement of the 50 per cent tax rate and the restrictions on pension contribution reliefs certainly bears out the Institute for Fiscal Studies’ view as there has been a marked increase in interest from clients at looking at ways of reducing their taxable income below the thresholds that the new measures will apply from.

We have been able to advise them of a number of methods in which income can be sheltered from tax completely or how pension contributions can be made without falling foul of the new rules saving the clients significant amounts of tax immediately and also moving forward.

In these hard times, in an uncertain market a major opportunity for individuals and small businesses is still being ignored in pension planning.

Changes in legislation on A-day which allows connected parties to purchase assets from multiple sources are still not being explored by the financial planner market.

The recent increase in funds with the relaxation of the protected rights rules, an estimated £40 billion plus, gives these opportunities more strength in the current market.

Purchase of Commercial Property

In the UK business market as a whole many commercial properties are owned by the person or the company that works out of them. Pre A-day if the property was

brought outside of a pension then it could not be used to increase the fund either by buying into the assets or by using it for in-specie contributions.

From A-day the connected party rules were removed and this meant that every person or small company that owns a commercial property can review their options going forward.

Self Invested Personal Pensions have seen a change in pension planning from A-day and now that protected rights monies can be transferred into SIPPs the funds that can be used for purchase of commercial property have significantly increased.

The rules on borrowing through a Self Invested pension changed on A-day. The pension can borrow 50% of the net fund, this can be added to the fund and used to purchase assets.

Basic case study;

Property worth               £ 300,000 owned by individual or company

Client pension fund        £ 200,000

50% Fund Gearing         £ 100,000

Property can be purchased from individual or company.

It is not necessary to purchase the full property into the pension.

What can this achieve?

• Cash from pension scheme can be used in the company or;
• Cash from pension scheme is paid to individual
• Rent is paid in gross to the pension scheme
• Rent is an investment return and does not affect pension contribution levels
• Rent can be taken as income in retirement
• Property free from CGT on sale from pension

In these times of uncertainty a cash injection into a small company can make a considerable difference. The property asset is not lost to an un-connected party.

The lending is to the pension scheme and not to the company so the rent that will be paid by the tenant goes into the pension gross and services the repayment of the borrowing. Under the current rules with gearing at 50% of the net fund this repayment is normally set over a 5 to 10 year period.

If the property is owned by an individual then the pension fund purchases the property and the individual receives the cash. For some people at the moment this can prove attractive.

One very important point to remember is provided you can find a provider that will allow "Split ownership" it is not necessary to purchase the full property into the pension scheme. This can allow more flexibility when looking at smaller pension funds and does not preclude clients or companies that own a large or relatively expensive property from considering using their pension funds in this way.

If a property is owned by two or more parties then the rent is paid in proportion of the percentage owned by each party. When an individual wishes to take benefits provided there is sufficient liquid assets held in the fund they can take their 25% tax free cash from this part of the fund. It is not necessary to sell the property at this point as the rental income can be taken as pension and the property or the part owned in the pension scheme can be sold on at a later date.

This type of pension planning can really make a difference to people's ability to provide for themselves in retirement. The tax benefits are all beneficial and can increase asset values by 20%.

Attention all overseas property holders - Government extends tax relief shocker!

A little-known and little-used relief available to individuals is the ability to set losses incurred on furnished holiday lettings against general income. This is probably because there are a great number of restrictions on the circumstances under which the loss can be used in this way. However, the good news is that one of the main restrictions has been relaxed - the bad news is that the relief will be abolished completely in less than a year!

Up until this year's Budget, the property being let had to be situated in the UK, however this has now been extended to any property situated in the European Economic Area. The reason for this sudden and generous extension is that the Government was concerned that the restriction of relief to UK situated properties contravened European Union law.

The result is that any owner of property situated in the European Economic Area can now claim for losses incurred on that property to be set against income providing they meet the following conditions:

• the property must be situated in the EEA;
• the business must be carried on commercially, and with a view to a profit;
• The property must be available for commercial letting as holiday accommodation to the public for at least 140 days during the relevant 12 month period;
• The property must be commercially let as holiday accommodation to members of the public for at least 70 days during the relevant 12 month period. A letting for a period of longer term occupation is not a letting as holiday accommodation for the purposes of the letting condition; and
• Not more than 155 days must fall during periods of longer term occupation.

A period of longer term occupation is a continuous period of more than 31 days during which the accommodation is let to the same person.

However, anybody looking to take advantage of this generous extension to the rules needs to act quickly as the Government, no doubt mindful of the potential tax cost of the new rules, intends to abolish all furnished holiday lettings relief in April 2010.

As well as claiming for the current year, property owners can also make a claim for loss relief for previous years by amending their personal tax return for earlier years providing this is completed within one year from 31 January following the date the return was submitted. In most cases therefore it will be possible to amend your return and claim losses for overseas holiday lets for 2006/2007 onwards.

In addition to being able to set losses against general income, the extension of the definition of furnished holiday letting also provides for generous capital gains tax reliefs which could also prove extremely valuable.

Therefore, if you do have an overseas property which meets the criteria set out above, don't look this unexpected gift horse in the mouth and act now to take advantage of this generous new relief before it is taken away again!

I came across this interesting piece in the Daily Mail on the Chancellor avoiding SDLT...

If you are interested in SDLT give us a call.

Read Article Here

Fancy doing a 'David Cameron'?

As the papers revealed yesterday, and at the tender age of 43, the Tory leader has indeed paid off his mortgage. For many people, the idea of owning their home outright is one of the most appealing of all financial possibilities. Supposing for a moment that a windfall did come your way, which was just sufficient to prize the deeds from the clutches of building society. Would you or should you do that? On the surface at least, it should be a straightforward decision. But regrettably, it isn't. Because it all depends on your age, your financial circumstances and that other minor matter - what you and your spouse want out of life. Here are a few scenarios that help illustrate the point, assuming in each case that there's a lump sum of £150,000 available.

1. Couple A are in their early 50's, owe £120,000 on their mortgage, £10,000 on credit cards and have a pension pot and investments worth £150,000. Answer? Don't blow the cash on fast cars, holidays and racehorses - do the right thing and deal with the credit card debt first, then the mortgage. And then (perhaps) buy that new car.

2. Couple B are also in their 50's, have a £100,000 mortgage, owe £10,000 on credit cards and have no pension or investments. In the absence of a pension, one of the key considerations here is what they do with the money they save by being rid of the mortgage? If they don't like the idea of investing it in stocks and shares, preferring instead to leave their windfall on deposit, then the most their capital could earn would be around 3% gross a year. There is the risk that their money will devalue if inflation takes off but if the mortgage is cleared they could consider redirecting the monthly savings from the mortgage into a pension contribution for the future spreading the risk. On the other hand, investing their £100,000 could produce a return for them that's higher than the rate of interest they pay on their mortgage. So in theory at least they'd do better investing their windfall and continuing with their mortgage.

3. Couple C are in their early 30's owe £150,000 on their mortgage, have no other borrowings, savings of £7,000 and because of Mr C's redundancy, have decided that they need to start their own business. Perhaps the answer here is to do a bit of both: pay say £75,000 off the mortgage and use the rest to provide working capital for the business and some income for the couple until the enterprise is up and running. Alternatively, they may wish to look at an offset mortgage which would give the best of both worlds. Your capital sits in a deposit account for your use earning no interest but the amount in this account is balanced off against what you owe meaning no mortgage interest either.

If this is you beware of the new pension legislation being put in place from July as it may be absolutely imperative that you make a pension contribution with some of the money.

Certainty is a difficult thing to come by in this world but it is an undisputable fact that by reducing your mortgage you have that certainty. It is vital however that you do not miss an opportunity unique to your situation and it is key to have cash available somewhere.

Just how desperate are you to get out of the clutches of the building society? And do you think that paying off a mortgage is a smart move financially - no matter what your circumstances it may be? Just remember mortgage borrowings on your primary residence are likely to be the cheapest long term borrowings you ever have!!

There is no doubt which story has gripped the nation over the past fortnight – MPs’ expenses and how many have seemed to get away with expense claims that us mere mortals could never dream of.

One of the most high-profile politicians to fall under the media spotlight is Hazel Blears. She was found to have designated her London home as her main residence so as to claim second home allowances on her constituency home. However she told HMRC that the constituency house was her main home and therefore exempt from capital gains tax when it was subsequently sold at a profit.

Ms Blears insisted that she had fully complied with the tax system and that no capital gains tax was due on the house profit. This begs the question “what are the tax rules when you have more than one home and you sell one of them?”

Sections 222(5) and 223(1) of The Taxation of Chargeable Gains Act 1992 cover this area and state:
222(5) So far as it is necessary for the purposes of this section to determine which of 2 or more residences is an individual’s main residence for any period— (a) the individual may conclude that question by notice to the inspector given within 2 years from the beginning of that period but subject to a right to vary that notice by a further notice to the inspector as respects any period beginning not earlier than 2 years before the giving of the further notice.

223(1) No part of a gain to which section 222 applies shall be a chargeable gain if the dwelling-house or part of a dwelling-house has been the individual’s only or main residence throughout the period of ownership, or throughout the period of ownership except for all or any part of the last 36 months of that period.

Therefore it would appear that, providing Ms Blears (or any other MP) notified HMRC that their constituency home was their main residence for tax purposes and that this remained the case throughout the ownership of that property (except the last 36 months when it will be deemed to have been their main home) then any gain on the property should be exempt from capital gains tax.

The rules on the sale of second homes do seem to be very generous compared to most other parts of the tax legislation. I will let the cynics amongst you speculate as to why there seems to have been little appetite to tighten up these rules!