We have held off writing this piece pending developments in the ongoing conflict in Ukraine. It now seems clear that an early cessation of the conflict is unlikely and hence we wanted to reassure you in respect of the impact on your financial planning arrangements.

World stock markets remain particularly volatile. Under rules that were introduced in 2018, you may receive a notification from us that the value of your portfolio has fallen by 10% or more since your last quarterly valuation. Many clients received such letters in the early stages of the covid crisis so you may be familiar with this. Whilst such an event is unwelcome, many of you will have experienced market downturns before now and know that the best course of action is to sit tight and wait for the value of your portfolio to recover. One of the main reasons that we show performance graphs in our review meetings is to demonstrate that market falls are not unusual, that recovery follows, and the long-term trend has been upwards.

The unknown in any market downturn is how long a recovery may take to materialise and we cannot begin to forecast this in respect of the Ukraine conflict or any other downturn. However, we aim to mitigate the risks of such downturns by means of our financial planning incorporating cashflow modelling. The following planning mechanisms are common to all Financial Plans that we create and will vary simply with personal circumstances:

• We recommend that all our clients hold a reserve of accessible cash savings that feels comfortable in all foreseeable circumstances. This means that if some form of emergency arises there should be enough in savings to cover that need if investments markets happen to be down.

• For larger cashflow needs, we always ask clients what major expenditure plans there may be over the next few years and then plan to have that cash available in advance. Again, this avoids the need to sell investments at an inopportune time.

• Where regular withdrawals are being taken these are usually set at a level whereby they can continue regardless of market downturns. The sustainable withdrawal level that we recommend is a long-term average that takes account of such events.

Using these mechanisms means that in the vast majority of circumstances clients can rest easy during a market downturn. But if you remain concerned you can consider the following steps:

• Defer any expenditure if possible until markets recover and then take a withdrawal from your investments.
• Reduce or stop withdrawals from investments, using cash reserves in the interim until recovery.
• Take a withdrawal from your investments in the full knowledge that the value will not be as high as it was a few months ago.

Of course, if you are considering further investment then investing when markets are low can be a benefit. Those making regular contributions to their investment and pension portfolios will be buying more units for each contribution made.

Financial markets across the world have reacted in a volatile manner to the situation in Ukraine and markets will likely remain volatile as the situation develops due to the uncertainty.

You may feel concerned about your investments given the news emerging from Ukraine, and this is entirely understandable. If you are feeling concerned it is important to remember the following:

• Investing in a well-diversified investment portfolio means that the natural movement of markets is a normal part of investing. Investment values rise and fall in the short term, but in the long term, the trajectory of markets has been positive.
• Long term history has shown that markets do eventually recover, no matter what challenges the global economy has faced.
• It is important to try to keep calm throughout periods of volatility and not make any sudden changes to your investments. Remember, as the old investment saying goes, it is time in the market – not timing the market – which is key to long term returns.

We will continue to monitor events very closely and, if you are a client, we will be in touch should we feel any action is needed before our next meeting.

However, if you have any personal concerns please do get in touch – we are happy to talk this through with you and reassure you that your plans are still on track.

With the end of the current tax year fast approaching, it’s worth considering the various allowances available to individuals and keeping track of the use of these. Such allowances will ‘reset’ from the beginning of the next tax year; 6^th April 2022.

Below, we have outlined some of the key considerations and the current rules:

ISA Allowance

This is the maximum amount that can be invested into ISA wrappers each tax year, currently at £20,000 pa. It can be split across a Stocks & Shares ISA, Cash ISA, Lifetime ISA (maximum of £4,000 pa), and/or an Innovative Finance ISA, as long as you keep within the overall limit and don’t contribute to more than one of each type.

Money held within an ISA is free from Income and Capital Gains Tax, and withdrawals can be made tax-free.

Pension Allowance

Your Annual Allowance is the most you can save in pensions in a tax year with tax relief applying before incurring a tax charge. The standard Annual Allowance is £40,000 pa, although separate limits may apply that can reduce this.

The maximum you can contribute to a pension and qualify for Income Tax relief is the higher of 100% of your relevant UK earnings or £3,600 gross, subject to your Annual Allowance. Income Tax relief can only be received until age 75.

Capital Gains Tax (CGT) Annual Exempt Amount

Each year, individuals have an Annual Exempt Amount for Capital Gains Tax, above which tax will be payable on gains. By gain, we mean the ‘profit’ that is made on the disposal of certain assets. The exemption can be managed within an individual’s planning to help minimise CGT liability.

The annual exempt amount for 2021/22 is £12,300 and is frozen at this level until April 2026.

Inheritance Tax Gifting Exemptions

Individuals can make use of their annual gifting exemption, currently £3,000 pa, by gifting this amount and having it fall immediately outside of their estate for Inheritance Tax purposes. Any unused amount can be carried forward to the next tax year, but no further.

Depending on their level of income and expenditure, individuals may also be able to make use of the ‘gifts out of surplus income’ exemption. Certain requirements must be met to use this, but if used successfully the gifts will also become immediately free of Inheritance Tax.

Summary

We manage the above allowances and exemptions within our clients’ wider financial planning, as part of our ongoing service. This ensures they are making good use of their resources over time.

If you would like any more information on the above, please do not hesitate to contact a member of our team.

The Consumer Price Index (CPI) rose by 5.4% in the 12 months to December 2021. This is the highest CPI 12-month inflation rate recorded in the National Statistical data series since it began in January 1997, and it was last higher in the historical modelled data series in March 1992, when it stood at 7.1%.

Inflation has been creeping above the Bank of England’s 2.0% target since May 2021, with significant increases in October, November and now December. But what are the main contributors to this figure?

Transport

Movements in transport costs have mainly been caused by the increase in the price of motor fuels. Fuel prices reduced over the 12-month period to February 2021 but have since increased to much higher levels. The average petrol price stood at 145.8p per litre in December 2021, compared with 114.1p per litre a year earlier.

The price increase of second hand cars has also been a factor, with a cumulative increase in used car prices of 28.0% since January 2021 compared with 7.3% over the same period in the previous year. This has mainly been driven by increased demand after lockdown and the global shortage of semi-conductor chips affecting new car production, which has steered consumers to the used car market.

Energy

This comes off the back of downward prices for energy and gas over much of 2020 and the first quarter of 2021, reflecting the reduction in the energy price cap at the time. This fall was reversed in April 2021 with rises of over 50% in energy costs, as gas prices hit record highs as the world emerged from lockdown.

The energy price cap is set to rise significantly again in April 2022 due to continued volatility of wholesale energy prices.

Looking ahead

We cannot be sure how much further inflation will rise, but the Bank of England has now raised the base interest rate to 0.5% to combat this, the second increase in as many months.

We will continue to monitor both inflation and interest rates and what this means for clients.

In light of the additional pressures some individuals and business are facing due to the impacts of COVID-19, HMRC has announced that they will be waiving late filing and late payment penalties on Self Assessment tax returns for one month.

Lucy Frazer, Financial Secretary to the Treasury commented:

“We recognise that Omicron is putting people under pressure, so we are giving millions of people more breathing space to manage their tax affairs. Waiving late filing and payment penalties will help ease financial burdens and protect livelihoods as we navigate the months ahead.”

In a usual tax year, the deadline to file and pay any tax due is 31^st January, however the introduction of these penalty waivers means:

• If you are unable to file your 2020/21 tax return by the 31^st January 2022 deadline, then you will not incur a late filing penalty provided you file online by 28^th February 2022.
• If you are unable to pay your taxes due on your Self Assessment tax return for 2020/21 by the 31^st January 2022 deadline, then you will not incur a late payment penalty as long as you pay your tax in full, or set up a Time to Pay arrangement, by 1^st April 2022.

Despite the penalties being waived, interest will accrue on unpaid tax from 1^st February 2022 as normal, so it is still better to pay on time if possible.

With only a few more doors to open on your advent calendar, Christmas is just around the corner!

Office Hours

The office will close on Christmas Eve at lunchtime, reopening again on Tuesday 4^th January 2022. If you have any urgent queries over the period, please email them to enquiries@eldonfinancial.co.uk and we will ensure you receive a response.

From everyone at Eldon, we would like to wish you the very best for Christmas and the New Year and we look forward to seeing you in 2022.

On September 1, the Trust Registration Service (TRS) finally opened for the registration of non-taxable trusts.

Previously, only trusts that have UK tax to pay had to register for the TRS but all UK express trusts, including non-taxable trusts are now required to register with HMRC, unless they are specifically excluded.

Express trusts are usually created by a written deed and include the majority of trust plans used for estate and inheritance tax planning.

Non-taxable trusts have approximately 12 months to register from the date the Trust Registration Service went live. The TRS Service will ask trustees to register the identity of trust beneficiaries and in certain circumstances, details of the trust assets.

September 2022 may feel like a long way off now, but if you are a trustee of a trust, it is important to consider whether you will need to register. If you need any guidance, please contact us and we would be pleased to help.

As announced in the Autumn budget, any capital gains tax liability arising on the sale of UK residential property will now need to be paid within 60 days of the date of completion of a sale. This became effective immediately and applies to completions taking place on or after 27^th October 2021.

Previously if buy-to-let property owners and second homeowners were to sell a residential property that resulted in capital gains tax (CGT) being due, this needed to be reported and paid to HMRC within 30 days of sale.

The 30-day deadline was a drastic change when brought in on 6 April 2020, as previously you simply reported the gain within the relevant Self Assessment return, with tax due by 31 January following the end of that tax year.

This change therefore gives a much better timescale to gather all the required information and complete any forms for HMRC’s reporting requirements. Particularly as such things can only be calculated once the sale has been completed and fees incurred for instance.

Reporting a Gain

For those with accountants, they should be able to take care of any reporting requirements, as agent on someone’s behalf.

To report a gain yourself, you would need to register on the Government Gateway for capital gains tax. This provides the facility to report and pay any capital gains tax. Please note, late filing penalties apply if a gain is not reported within the 60-day time frame.

You would also need to report the gain on the relevant Self Assessment, as would have been the case previously. After this, any under/over payments of capital gains tax will be settled, ensuring the overall capital gains tax position for the year is correct.

This week, Eldon welcomed Tom Babbé as a new addition to our paraplanning team.

Below is a short introduction from Tom:

I graduated from Newcastle University in 2021 with a Mathematics BSc degree and joined Eldon shortly after. Having worked in Financial Services before in my hometown of Guernsey, I knew that this was something I wanted to come back to after I had completed my time at university.

I was attracted to the focus on client relationships at Eldon and the family atmosphere within the company, making it a great place to work. Eldon is very supportive when it comes to studying towards qualifications which is something that I am looking forward to starting.

Aside from work, I am a keen baker and animal lover. You will either find me walking my yellow Labrador Phoebe around the tracks of County Durham or whipping up a Victoria Sponge. I am also an avid Newcastle United fan, so I spend most weekends watching football on the TV – which, more often than not, ends in tears.

On Wednesday 27^th October, the Chancellor, Rishi Sunak, unveiled his plans for the Autumn budget including a proposed £150 billion post-Covid spending spree by 2024/25. He admitted that inflation is set to rise on average by 4% over the next year and taxes are also set to rise.

One of the biggest controversies is the cut to Air Passenger Duty despite the upcoming COP26 summit although the Chancellor claims that £30 billion has already been committed to greener measures since March 2021. The promise to increase Research and Development funding to £22 billion has been broken and now pushed back to 2026/27.

Some of the key points highlighted were:

• Universal Credit taper cut from 63p to 55p by 1^st December
• Universal Credit work allowance set to rise to £500 a year by 1^st December
• Increase to National Minimum Wages at each age band (for over 23’s the rise is from £8.91 per hour to £9.50 per hour in April 2022)
• Class 1 National Insurance Rates increase in April 2022 on pay over £9,568 from 12% to 13.25%
• Bank corporation tax surcharge cut from 8% to 3%
• £6 billion to go to the NHS to help with technology and backlogs
• NHS budget to rise by 3.8% pa in real terms for the next 3 years
• Duty rates on cigarettes to rise by RPI plus 2% immediately along with an RPI rise to hand rolling tobacco
• “Draught relief” on draught beer and cider cutting tax by 5%
• £2.6 billion of funding for 50 local road upgrades over the long term
• £5 billion already committed to local road maintenance
• Overseas aid spending will return to 0.7% in 2024/25
• Air passenger duty cut for UK domestic flights
• £11.5 billion to support the building of affordable houses
• Tax relief for theatres, orchestras, museums, and galleries doubled immediately
• Half price business rates for those in retail, hospitality, and leisure
• A one-stop-shop announced to deliver parenting programmes, breastfeeding advice, and mental health support
• £4.7 billion to be invested in England’s core schools’ budget and £1.8 billion to fund education recovery and catch up