Newsletter – March 2018

A recently released report shows dividend payments in the UK grew more than 10% in 2017.

The report included good news for investors, as UK listed companies paid out £94.4 billion of dividends in 2017. This was up 10.5% on the previous year and a new record. However, the headline figures do not tell the whole story:

• In the final quarter of 2017 year-on-year dividend growth was just 1.1%.
• The top five dividend payers accounted for £36 out of every £100 paid, with the next ten delivering £24. The rest of the market made up the remaining £40, emphasising the concentration of dividend payers.
• Nearly half of all special dividends – one-off payments often associated with mergers or asset sales – was attributable to National Grid’s UK gas distribution disposal, totalling £6.7 billion.
• Dividends (excluding special payments) from the Top 100 companies grew by 10.0%, while the Mid 250 achieved a 14.6% increase.
• The strongest dividend growth came from the mining sector, with an increase of 162%. There was an element of smoke and mirrors about this as some big mining firms that had suspended dividends in the commodity downturn – such as Glencore and Anglo American – resumed payouts.

The data was published in February by Capita Asset Services, one of the UK’s main share registrars, which was recently sold to Link Asset Services. Fortunately, the new owners have continued to produce the report.

The Link Asset Services figures are a good reminder of the income producing credentials of UK shares. The firm notes that, “A rise in bank rate, the first in over a decade, did nothing to dent the attractiveness of equities for income.” However, it expects much slower dividend growth in 2018, in part due to the pound’s recovery from its post-referendum lows. This deceleration and the continued weighting towards just a handful of substantial dividend payers means that advice is important in selecting income funds.

The value of your investment can go down as well as up and you may not get back the full amount you invested. 

Past performance is not a reliable indicator of future performance. 

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

February saw a dramatic return of volatility to global stock markets.  

On Friday 2 February, after most of the world’s share markets had finished for the week, the Dow Jones Index dropped by 666 points in a day. Never mind all the beastly connotations of that number, in fact it was a drop of about 2.5%. The professional’s measure of the US stock market, the S&P 500, fell 2.1%.

As might be expected, the following week was unsettled, with the Dow losing over 1,000 points on both Monday and Thursday and other global equity markets experiencing similar shocks.

There were a variety of suggestions about the sudden return of volatility to a market which had spent the previous year seemingly asleep. Some blamed monthly figures released on 2 February showing higher than expected US wage growth of 2.9% C. These were read as a possible inflation threat, that would prompt a more rapid rise in interest rates. The fact that such monthly figures are notoriously volatile was, for once, ignored.

Markets recovered their poise in the following weeks. However, the press’s attentions had moved on: a large fall always gains more attention than a similar rise, especially if the rise is more gradual. For long-term investors, the big picture can therefore be lost in the noise of short term headlines. For example, the performance of the main indices in the first two months of 2018:

From a global viewpoint, as measured by the MSCI All World Index, what happened in February did not fully undo the increases in January.

The value of your investment can go down as well as up and you may not get back the full amount you invested. 

Past performance is not a reliable indicator of future performance. 

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Whilst you might not think of yourself as an employer, under the government’s auto-enrolment pension legislation, the Pensions Regulator may think differently. If you employ a nanny, a cleaner, or a personal care assistant, then you could be classified as an employer and need to set up a workplace pension.

If you pay staff directly, you’ll be expected to provide for their pension. However, this doesn’t include staff you employ through an agency, as it’s the agency’s responsibility to make pension provision for them. If you take your children to a childminder, these rules normally don’t apply, as most childminders are self-employed, as are many gardeners.

Who has to have a pension? Employees aged between 22 and state pension age who earn more than £10,000 a year (or £833 a month, or £192 a week) must be automatically given a workplace pension.

If you employ someone who earns more than £5,876 a year, or someone who is older or younger than the age range, they have the right to ‘opt in’ to a workplace pension and receive employer contributions. Anyone earning less than £5,876 a year can still choose to opt-in to a workplace pension, but employers don’t have to make a contribution to their pension.

If you employ someone who qualifies for auto-enrolment, you will need to set up a pension and make regular contributions on their behalf. The current total minimum contribution of 2% of qualifying earnings will increase on 6 April 2018, to 5%, and on 6 April 2019, reaching a total minimum amount of 8% including the tax relief on your employees’ then 4% contribution. We can advise on the right scheme for your needs and help you complete the documentation required by the Pensions Regulator.

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.

The start of the new tax year on 6 April marks several changes to tax and related matters that could make you richer… or poorer. 

The absence of a Spring Budget does not mean that the usual raft of changes at the start of the new tax year have disappeared. Most of the important changes were announced in the Autumn Budget, in November 2017. However, Scotland has also recently approved a new set of income tax rates and bands.

Here is a list of the more important changes that take effect for 2018/19:

• The personal allowance rises by £350 to £11,850. However, the allowance will still be phased out at £1 per £2 of income over £100,000, leaving an effective 60% (61.5% in Scotland) tax band for between £100,000 and £123,700.
• The higher rate threshold will rise by £1,350 to £46,350.
• Scotland will see several changes to income tax. A new ‘starter rate’ of 19% applies to the first £2,000 of taxable income and an ‘intermediate rate’ of 21% applies to taxable income between £12,150 and £31,580. The higher rate threshold will increase by £430 to £43,430 and the higher rate will rise by 1% to 41%.
• National Insurance Thresholds rise, with the starting point for Class 1 (employers and employees) and Class 4 (self-employed) becoming £8,424 a year. For employees and the self employed the upper limit for full rate contributions will also rise in line with the non-Scottish higher rate threshold (to £46,350).
• The dividend allowance will fall from £5,000 a year to £2,000 a year, reducing a higher rate taxpayer’s net income by up to £975.
• Company car scale rates will generally rise by 2% for petrol vehicles and 3% for diesels. The proportionate increase in tax can be more than those numbers suggest. For example, on a BMW 320d the charge rises from 24% to 27%, increasing the tax payable by one-eighth.
• The pension lifetime allowance will increase for the first time since 2010, albeit only by £30,000 to £1,030,000.
• Pension automatic enrolment minimum contributions will rise. In most instances that will mean a doubling for employers and a 150% increase for employees.

The number of changes, both positive and negative, can make April pay checks a puzzle if you are an employee. This is one reason why the start of the tax year is a good time to talk to your financial adviser.

The value of tax reliefs depends on your individual circumstances. 

Tax laws can change. 

The Financial Conduct Authority does not regulate tax advice.

You may be due a refund if you have registered a power of attorney in recent years. 

It is not often the government offers a refund because of overcharging, but last month it emerged that the Office of the Public Guardian (OPG) had been levying excessive fees for four years. The fees related to the cost of registration of a power of attorney, whether it was an enduring power of attorney or either of its lasting power of attorney successors – dealing with health and welfare or property and financial matters.

The OPG was meant to cover its costs with attorney registration charges, but instead ended up with an £89 million surplus. As such, this sum is being returned to those who registered a power in England or Wales between 1 April 2013 and 31 March 2017. The maximum refund is £54, and most claims can be made via an online form at www.gov.uk/power-of-attorney-refund.

If the person who granted the power of attorney has died, then that individual’s executor must make a claim by email. Figures obtained via a Freedom of Information request show that up to 1.8 million people may be due a refund.

If you have never registered a power of attorney, either for yourself or perhaps an elderly parent, the refund still has relevance as reminder to do so. Enduring powers of attorney address the question, ’Who deals with my affairs – personal and financial – when I cannot do so?’  Although often thought of in terms of the elderly going into care, enduring powers of attorney have a much wider relevance. Unfortunately, accidents can and do happen at all ages.

Enduring powers of attorney are frequently dealt with alongside wills as part of estate planning – in some respects they can be regarded as a form of living will. If you have not reviewed your estate planning for a while and you have no powers of attorney in place, you could make plans now.

The Financial Conduct Authority does not regulate tax advice or will writing.

The rules for inheriting ISAs will change from 6 April. 

It was announced by George Osborne in 2014 that ISAs would become inheritable by surviving spouses and civil partners. At the time, nobody – not even the Treasury – was clear what the then chancellor meant.

The plans for ISA ’inheritance’, when they eventually emerged, were far from simple. Although a surviving spouse or civil partner could effectively take over the investments in their deceased partner’s ISA, the process revolved around the ISA’s value at the date of death, not when the transfer took place.

To make matters worse, the ISA tax rules ceased to apply at death, but started up again once the survivor’s inherited ISA was in place. It made an administratively complex structure of a straightforward idea.

Last November regulations were approved to simplify the process considerably, thanks to much lobbying and a protracted development of legislation. Now, for deaths occurring after 5 April 2018, in most circumstances:

• The ISA tax advantages of UK income tax and capital gains tax exemptions will continue throughout the period of estate administration.
• The inherited ISA can include any increase in value during that period.

If you are a couple and needed another excuse for contributing to an ISA, either as a tax-year-ending or tax-year-starting payment, the new inheritance rules are a good one.

The value of your investment can go down as well as up and you may not get back the full amount you invested. 

Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. 

The value of tax reliefs depends on your individual circumstances. 

Tax laws can change. 

The Financial Conduct Authority does not regulate tax advice.

For further information on ISA’s please contact one of our advisers on 01793 881602 or download our free Key Guide:

Making the most of ISA’s

Our full range of Key Guides can be found at:
www.polestarfa.co.uk/resources/key-guides

Identity theft is when your personal details are stolen and identity fraud is when those details are used to commit fraud.

Identity theft

Identity theft happens when fraudsters access enough information about someone’s identity (such as their name, date of birth, current or previous addresses) to commit identity fraud. Identity theft can take place whether the fraud victim is alive or deceased.

If you’re a victim of identity theft, it can lead to fraud that can have a direct impact on your personal finances and could also make it difficult for you to obtain loans, credit cards or a mortgage until the matter is resolved.

Identity fraud

Identity fraud can be described as the use of that stolen identity in criminal activity to obtain goods or services by deception.

Fraudsters can use your identity details to:

• Open bank accounts.
• Obtain credit cards, loans and state benefits.
• Order goods in your name.
• Take over your existing accounts.
• Take out mobile phone contracts.

Obtain genuine documents such as passports and driving licences in your name.

Stealing an individual’s identity details does not, on its own, constitute identity fraud. But using that identity for any of the above activities does.

The first you know of it may be when you receive bills or invoices for things you haven’t ordered, or when you receive letters from debt collectors for debts that aren’t yours.

Protect yourself against identity fraud

Criminals commit identity theft by stealing your personal information. This is often done by taking documents from your rubbish or by making contact with you and pretending to be from a legitimate organisation.

• Don’t throw out anything with your name, address or financial details without shredding it first.
• If you receive an unsolicited email or phone call from what appears to be your bank or building society asking for your security details, never reveal your full password, login details or account numbers. Be aware that a bank will never ask for your PIN or for a whole security number or password.
• If you are concerned about the source of a call, wait five minutes and call your bank from a different telephone making sure there is a dialling tone.
• Check your statements carefully and report anything suspicious to the bank or financial service provider concerned.
• Don’t leave things like bills lying around for others to look at.
• If you’re expecting a bank or credit card statement and it doesn’t arrive, tell your bank or credit card company.
• If you move house, ask Royal Mail to redirect your post for at least a year.
• These credit reference agencies offer a credit report checking service to alert you to any key changes on your credit file that could indicate potential fraudulent activity: • Callcredit • Equifax • Experian • ClearScore • Noddle
• It is particularly helpful to check your personal credit file 2-3 months after you have moved house.

If you have been affected by this, or any other scam, report it to Action Fraud by calling
0300 123 2040, or by using the online reporting tool at www.actionfraud.police.uk