Investment markets in May experienced volatility amid concerns that economies could fall into a recession as inflation pressure remains high.

While you may be worried about the volatility your investments have experienced, keep your long-term goals in mind. A long-term time frame can help smooth out the peaks and troughs of markets. This is because, historically, markets have recovered when you look at the bigger picture.

UK

At the end of May, chancellor Rishi Sunak unveiled a package of measures designed to alleviate some of the cost-of-living challenges families are facing.

The £15 billion package will be paid through a levy on the profits of energy companies, known as a “windfall tax”. Among the measures introduced were one-off payments to vulnerable families and support to reduce energy bills for all households.

The measures were made after the latest inflation figures show that, on average, prices increased by 9% in April – the highest level since 1982.

This led to the Bank of England (BoE) raising its base interest rate for the third time this year to 1%. It’s the highest the base rate has been in 13 years after it was cut following the 2008 financial crisis.

Inflation is also affecting the value of salaries. Figures from the Office for National Statistics (ONS) found that regular pay, which excludes bonuses, increased by 4.2% in the three months to March. While this may seem positive at first, once inflation has been factored in, salaries have fallen in value in real terms.

Unsurprisingly, this is affecting consumer confidence.

A consumer confidence index from GfK suggests that sentiment levels have fallen to their lowest point since records began in 1974. The index measures how people view their personal finances and wider economic outlook.

However, according to Barclaycard, consumer card spending grew 18.1% in April when compared to the same period in 2019.  After two years of cancelled holiday plans, the travel sector saw its best month since the pandemic.  

From a business perspective, inflation is also affecting operations and confidence.

A report from S&P Global and CIPS found UK factories are facing price hikes. 85% of companies said their purchase prices have increased, while no firms reported a decrease. In addition, new order growth hit a 15-month low.

The poor demand has been linked to a range of factors, including ongoing lockdowns in China, the conflict in Ukraine, and Brexit.

As a result of these pressures, ONS figures show GDP fell by 0.1% in March, leading to concerns that the UK could fall into a recession in 2023.

Europe

The effect of the conflict in Ukraine and the inflation pressure it has led to is reflected in the European Commission (EC) downgrading its growth forecasts.

The EC now predicts real GDP growth in both the EU and eurozone of 2.7% for 2022. This compares to a previous forecast of 4% just three months earlier.

While the European Central Bank (ECB) didn’t make any changes to its base interest rate in May to control inflation, president of the ECB Christine Lagarde has indicated a rise will happen in July.

Data from Germany, the largest economy in the EU, demonstrates the challenges that many European countries are facing.

German producer prices have increased by 33.5% in the year to April, with energy prices surging by 87.3% to drive this increase. Some German businesses are also being directly affected by the conflict in Ukraine – exports to Russia have fallen by nearly two-thirds when compared to last year and are now at their lowest levels in almost two decades.

US

Inflation in the US almost reached a 40-year high in March, with prices rising 8.3% year-on-year. Once again, energy and food prices are driving this rise.

In response, the Federal Reserve raised its interest rate by 50 basis points to a 0.75% – 1% range. The organisation also noted that ongoing increases to the interest rate may be appropriate to try to get inflation under control.

While the University of Michigan’s index of consumer sentiment fell to its lowest level since 2011, data suggests that consumers aren’t cutting back their spending yet. The value of retail sales increased by 0.9% in April.

However, payroll data indicates that businesses are being more cautious than expected. In April, 247,000 new jobs were created, according to ADP. While the number of jobs is still growing, it’s significantly below the 390,000 expected. 

US company Apple has lost the title of the world’s most valuable company. As oil prices soared, so too did the value of Saudi Arabia’s oil giant Saudi Aramco, which has now surpassed Apple.

Elon Musk’s bid to buy social media platform Twitter has also continued to make headlines. The $44 billion (£34.8 billion) deal is temporarily on hold as Musk is seeking details about spam and fake accounts. The news led to shares in the company falling by 10%.

Asia

China is also facing challenges as it continues to enforce ongoing lockdowns in certain areas.

The lockdowns, along with consumers cutting their spending – retail sales fell by 11.1% in April – and falling industrial production have slowed the economy’s growth. In turn, there are more unemployed people compared to a month earlier.

Like many other countries, China is battling rising inflation, which has been linked to currency weakness, and food and energy prices rising.

If you’d like to discuss your investment strategy or how events have affected your portfolio, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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.

Travelling doesn’t have to just get you from A to B. These stunning train journeys can evoke the feel of a bygone era of luxury train travel through scenic Europe.

Luxury train journeys were first introduced in the 1860s, with the Orient Express becoming the most well known. Originally, it travelled from Paris to Istanbul and it’s still a six-day excursion you can book today.

Whether you’ve been inspired by stories of the Orient Express or the popular World’s Most Scenic Railway Journeys TV show, here are some incredible train journeys you can take across Europe.

Rauma Line, Norway

Named Europe’s most beautiful railway journey by Lonely Planet, planning a trip on the Rauma Railway is a must for enthusiasts and explorers.

Departing from Åndalsnes and Dombås, the 1.5-hour journey takes you through the Romsdalen Valley and Reinheimen National Park, and boasts incredible mountain views. Highlights of the trip include the Trollveggen wall and crossing Kylling Bridge. It’s the perfect option for a day trip and exploring the mountain village of Dombås.

Bernina Express, Switzerland and Italy

The Bernina Express is the highest railway in the Alps and promises spectacular views at any time of the year as you travel from Italy to Switzerland during the four-hour trip.

The modern panoramic carriages mean you have unrestricted views as you climb up to glaciers, weave through alpine landscapes, and cross almost 200 bridges. Part of the railway was built between 1896 and 1904 and it now has UNESCO World Heritage status.

West Highland Line, Scotland

Running from Glasgow to Fort William, the journey on the West Highland Railway will take you through the rugged highlands and offers incredible views of mountains, heather moors, and lochs.

The train will also cross the viaduct at Glenfinnan, which has become famous after it featured in the Harry Potter films. The journey from Glasgow to Fort William takes around four hours, or you can continue to Mallaig, a bustling port on the north-west coast.

Barcelona to Montserrat, Spain

The journey between Barcelona and Montserrat takes around 1.5 hours, and some tickets will include a cable car ride to the top of the Montserrat mountain.

Not only can you explore the stunning Benedictine monastery, which dates back to 1025, and walk through the Montserrat Natural Park, the journey is worth the trip alone. You can relax on the way there as you take in the scenic views.

The Balkan Express, Serbia and Montenegro

Dubbed the “Balkan Express”, this train journey from Belgrade, the capital of Serbia, to Bar, a coastal town in southern Montenegro, takes around 10 hours.

During the journey, you’ll cross more than 400 bridges and go through over 200 tunnels. The service is no-frills but the scenery more than makes up for it, you’ll pass through mountains, villages, and stunning countryside. If you want to explore more of this part of Europe, you can split the journey into several legs.

Central Rhine Railway, Germany

This train journey through Germany can offer views that feel as though they are from a fairy tale. The Central Rhine Railway, or Mittelrheinbahn, takes less than an hour, but it packs a lot in during that time.

You’ll be able to take in Germany’s Rhine Valley, parts of which has World Heritage status. It runs from Cologne to Mainz via Bonn and Koblenz. During the trip, you may even spot castles – there are more than 40 along the Rhine – so it’s a great opportunity to explore the local area too.

Semmering Railway, Austria

This route will take you across the Semmering Pass which was built between 1848 and 1854. It’s still considered one of the greatest feats of civil engineering and was the world’s first mountain railway.

The train will take you over viaducts and through tunnels among forested mountains and the spectacular Austrian Alps. It runs between Gloggnitz and Mürzzuschlag and lasts around 1.5 hours.

Glacier Express, Switzerland

The Glacier Express takes around eight hours and offers a full day of fantastic views as you travel from Zermatt to St. Moritz. It’s a great chance to slow the pace of a trip down and just enjoy the views.

Highlights of the trip include the alpine village of Zermatt, which has views of the Matterhorn, the Rhine Gorge, dubbed the “Grand Canyon of Switzerland”, and the Landwasser Viaduct.

More people than ever are embracing lifestyle changes to reduce the negative effect they have on the environment. As the effect of our choices becomes more widely known, some feel guilty about the decisions they make.

According to an Aviva survey, 64% of adults in the UK have experienced “green guilt” after carrying out environmentally-unfriendly actions.

If you’ve felt guilty about your lifestyle, there are some simple things you can do to have a more positive effect, including these eight steps.

1. Reduce how much plastic you buy at the supermarket

The effect of plastic pollution on wildlife and ecosystems is huge. So, it’s not surprising that using single-use plastic products is one of the most common things to cause green guilt.

The use of plastic shopping bags has fallen drastically since the charge was introduced in 2015 – 28% of people feel guilty when they buy one today. Choosing products that use less plastic packaging or purchasing reusable muslin produce bags to cut back further can make your weekly shop more environmentally friendly.

2. Choose paperless bills

If you’ve already set up direct debits and manage your accounts online, switching to paperless contact makes sense. Not only does it reduce waste, but the letters don’t need to travel to reach you.

When using paperless billing, make sure your account details are secure, regularly check that the bills are accurate, and download and save any necessary files.

3. Be mindful of your energy use

With utility bills soaring this year, cutting back on how much energy you use might be something that’s already on your mind.

Simple steps like switching gadgets off at the wall, rather than leaving them on standby, choosing energy-efficient light bulbs, and turning down your thermostat really do add up.

If you have a smart meter, you can easily track how the changes you’re making are affecting your energy use.

If you want to invest in your home and reduce bills in the long term, taking steps to improve its energy efficiency can make sense. From insulating your loft to upgrading windows and doors, these steps could dramatically cut how much energy you need to heat your property.

4. Cut back on using your car for short journeys

Hopping in the car when you need to pick up some milk or to drop the children off at school is convenient, but we know that a short journey can unnecessarily harm the environment.

More than a fifth of Brits said they feel guilty after using the car for a short journey. Committing to walking more will boost your eco-credentials, and there are lots of health benefits too. 

5. Reduce how much meat and fish you eat

There are more options than ever for vegetarians and vegans, and you don’t have to give up meat entirely to have a positive effect on the planet.

Rearing animals is an intensive process that contributes to climate change in several ways, including deforestation and the release of greenhouse gases.

14% of people said they feel guilty about how much meat or fish they eat. Cutting out animal products just a few days a week can really add up. It’s also a chance to explore new dishes.

6. Choose local produce when you can

More people are choosing to support local businesses when they shop. It’s a step that can improve your community and means that items don’t have to travel as far to get to you. So, shopping at local butchers or greengrocers where possible can reduce your carbon footprint.

7. Add flowers to your garden

One simple way to help nature thrive is to make your garden more wildlife-friendly. Adding flowers can support the local ecosystem, from birds to insects, and brighten up your garden.

Adding plants to your outdoor space doesn’t have to be a lot of hard work. There are low maintenance options, such as wildflower seeds you can scatter. Planters are a good choice if you have limited space.  

8. Offset your emissions

If you’re worried about your carbon footprint, offsetting emissions can reduce your impact. You may want to regularly offset your emissions or after one-off events, like going on holiday, as 12% of people said they feel guilty about travelling by aeroplane.

When you offset your emissions, your money will be used to fund projects like reforestation. However, be cautious as some projects may not have the positive effect you hope for, and some scams pose as offsetting projects.

When you think of TV shows that can teach you valuable financial lessons, Bridgerton probably isn’t the first one that comes to mind.

Yet, the historical romance on Netflix has a few things you can learn about money and financial planning. The first season of the hit show racked up more than 625 million viewing hours in the first 28 days it was available on the streaming platform, and the second season was released earlier this year.

Based on the Regency era, London’s ton is brought to life during the busy social season. Children of nobility and gentry of marriageable age are launched into a society filled with balls, social events, and scandalous secrets. The show follows the eight Bridgerton siblings as they search for love.

Documents from Aviva give a fascinating insight into what Regency era London was like and the items that residents of Grosvenor Square, London, where the Bridgertons reside, prized.

Elizabeth Sophia Lawrence insured the contents of her home in 1815 for £2,000 – the equivalent of more than £2 million today. The items insured include jewels, liquor “for private use”, mathematical and musical instruments, and a carriage.

So, against this backdrop, what can modern-day savers learn from Bridgerton?

1. The positive effects of generational planning

The Bridgertons are one of the most powerful families in the ton, partly because of the wealth they hold and have inherited.

Careful generational wealth planning means the siblings have lived a life of luxury without having to work even though their father passed away. The sizeable estate that’s been carefully managed to secure future generations highlights how useful long-term thinking can be if you want to create financial security for children and grandchildren.

While you may not be passing on a Georgian villa, there are steps you can take to secure the future of the next generation. From opening a Junior ISA for the youngest members of your family to setting out an estate plan that may consider things like trusts and Inheritance Tax, you can give them a financial head start.2

2. Plan for the unexpected

Even the best-laid plans can go off course, and it can leave you or your loved ones in a difficult financial position.

Baron Featherington finds himself in debt after his gambling spiralled out of control and he got involved with a dangerous crowd. When he’s murdered for his bad debts, his wife and three daughters are left in a precarious position. There’s no emergency fund for them to draw on, no life insurance to claim, and they were unaware of the debt the baron had accumulated.

It’s a useful reminder about why having a financial safety net is so important. Whether you have accessible savings to use to cover an unexpected bill or financial protection that will provide an income if you’re unable to work, a plan for the unexpected can be invaluable.

3. Get-rich-quick schemes should be a red flag

An investment opportunity that claims it has guaranteed results and will quickly increase your wealth is understandably tempting. But it’s a sure sign of a scam.

When Lord Jack Featherington arrives on the scene of Bridgerton, he’s the talk of the ton. He quickly becomes one of the most eligible bachelors thanks to his supposed fortune from mining gems in America. Throughout the social calendar, he quietly mentions his success to select people and starts to drum up interest in investing in his new venture.

Blinded by the potential returns, eager investors overlook his dubious intentions and don’t delve further into Jack’s past.

While it can be tempting to hand over money when investment opportunities sound too good to pass up, scams are still rife today. Taking your time to research your options and who is offering you an investment opportunity is crucial for spotting red flags.

4. You don’t have to go it alone

The eldest Bridgerton sibling Anthony is head of the household after his father tragically passed away when he was young.

Both the first two seasons explore the pressure he feels to maintain family finances and ensure their reputation remains positive in the competitive social scene. He brushes off offers of help and advice, instead choosing to take on all the responsibilities alone.

It can be tempting to do the same. While taking control of everything can seem like a good idea, it can lead to you feeling overwhelmed. It can also mean you miss out on valuable guidance or advice. It may mean you miss out on opportunities or that you simply can’t enjoy your successes because you’re already focused on the next challenge.

If you want support to create a financial plan, we can help. We’ll work with you to create a long-term plan that you can have confidence in. Please contact us to arrange a meeting.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Key tax allowances like the Personal Allowance and Capital Gains Tax (CGT) annual exempt amount can help your money go further. As research shows that overall tax allowances have been cut, it’s more important than ever to understand what allowances make sense for you, and how they can complement your financial plan.

According to calculations by Quilter, over the last decade, eight key tax allowances have fallen by 6% in total. As many of the allowances have failed to grow in line with inflation, in real terms, tax allowances have shrunk at a much sharper pace.

So, which allowances have changed the most in the last 10 years?

The 2 allowances that have increased since 2012/13

Two important allowances have increased in the last decade, which could reduce how much tax you pay.

1. Personal Allowance

The Personal Allowance is the threshold for paying Income Tax. You don’t pay Income Tax on any income that is below the threshold.

It was £7,475 in 2012/13 and has increased to £12,570 for the 2022/23 tax year – a 68% increase.

2. Capital Gains Tax annual exempt amount

If you’re disposing of some assets, such as stocks not held in an ISA, you may be liable for CGT.

The rate of CGT depends on your Income Tax rate, but it can be as high as 20%, or 28% if you’re selling some types of properties. Making use of the annual exempt amount can minimise how much tax you pay when selling assets.

For the 2022/23 tax year, the allowance is £12,300, up from £8,105 10 years ago.

The 6 tax allowances that have fallen in the last decade

1. Pension Annual Allowance

The pension Annual Allowance is the maximum you can contribute to your pension each tax year while still benefiting from tax relief (not including any “carry forward”). In the last decade, the allowance has fallen by 20% to £40,000 in 2022/23.

Some high earners may have an even lower Annual Allowance if they’re affected by the Tapered Annual Allowance. For every £2 you earn over £240,000 (adjusted income), your Annual Allowance falls by £1 to a minimum allowance of £4,000.

2. Pension Lifetime Allowance

The Lifetime Allowance is the total value your pension can be before you may face additional tax charges when you access it. Over the last 10 years, it’s fallen by 28%. So, how much you can save for retirement tax-efficiently has been significantly reduced.

For the 2022/23 tax year, the Lifetime Allowance is £1,073,100.

3. Money Purchase Annual Allowance

The Money Purchase Annual Allowance (MPAA) affects how much you can tax-efficiently add to your pension if you’ve already withdrawn an income from it. So, it may affect people who have flexibly retired or plan to return to work after taking some time off.

The MPAA is now just £4,000. It was £10,000 a decade ago.

4. Nil-rate band for Inheritance Tax

The nil-rate band is the threshold for paying Inheritance Tax (IHT). If the value of all of your assets is below the threshold, you don’t need to pay IHT. If it’s above the threshold your estate may be liable for IHT at a standard rate of 40%.

The nil-rate band hasn’t changed in the last 10 years and is £325,000 for the 2022/23 tax year. While that may seem positive, when you consider inflation and how the value of assets may have grown, particularly property, it’s fallen in real terms.

5. The Inheritance Tax (IHT) annual exemption

Much like the nil-rate band, the annual IHT gifting exemption is the same as it was 10 years ago. So, in real terms, it’s become less valuable.

The annual exemption is £3,000 for the 2022/23 tax year. This is the amount you can gift each tax year without it potentially being considered for IHT purposes, as it’s considered immediately outside of your estate.

6. Dividend Allowance

Dividends are a common way for investors to generate an income from their portfolio or for business owners to pay themselves.

The Dividend Allowance is how much you can receive in dividends before tax is due. When it was introduced in the 2016/17 tax year it was £5,000, but it’s now just £2,000.

How can you get the most out of your tax allowances?

With some allowances now frozen until 2026, understanding which ones make sense for you and will help cut your tax bill is important. We’re here to help you understand how to use the eight allowances above, as well as others that may be appropriate, in your financial plan.

Please contact us to arrange a meeting with our team.

Please note: This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

The Financial Conduct Authority does not regulate estate planning or tax planning.

Successive cuts to the Lifetime Allowance (LTA) and a freeze means that more people than ever could face an unexpected tax bill when they access their pension.

The LTA is the total amount a person can build up in pension benefits without incurring tax charges. Since it was introduced in the 2006/07 tax year, there have been several cuts to the allowance, and it’s now frozen until 2026.

As a result, more people are being affected by the LTA and the amount the government has collected through the charges has increased.

Could you unexpectedly exceed the LTA?

The LTA covers all your pension benefits, not just your contributions. So, it can be easier than you may think to exceed it unexpectedly.

If you have a defined contribution (DC) pension, your total pension benefits will include your contributions, those made by your employer, and tax relief. As your pension is usually invested, it will often include investment returns.

As a result, you will need to consider how the value of your pension will change over the years. Even if you stop pension contributions, the value may continue to grow.

If you have a defined benefit (DB) pension, you normally calculate the total value by multiplying your expected annual income when you start to collect your pension by 20. If your DB pension also provides a lump sum, this will need to be included in the calculation.

As you may not check your pension regularly and it can be difficult to understand how the value will change over what could be decades, it is possible to unexpectedly exceed the LTA.

Pension benefits above the LTA could be subject to a 55% tax charge

Your pension will usually be tested to see if it exceeds the LTA when you access your pension or on your 75th birthday whether you are taking the pension benefits or not.

Even if you exceed the LTA, you will not face additional charges on the amount below the threshold. For pension benefits above the LTA, the rate of tax will depend on how you access your savings:

• If you take an income from your pension, the tax rate is 25%.
• If you take a lump sum from your pension, the tax rate is 55%.

As a result, it’s important to understand how your decisions to access your pension will affect the amount of tax you pay and the effect it will have on your income.

While the potential tax charge may mean you’re tempted to halt pension contributions if you’re nearing the LTA, this isn’t always the right solution. 

In some cases, you may still benefit overall, for example, once you factor in long-term investment returns. Opting out of a pension scheme may mean you lose other benefits too. For instance, if your scheme would provide an income for your partner or children if you passed away.

In the last 5 years, the amount collected from the LTA has increased, on average, by 28% a year

Since its introduction, the total value charged from the LTA has increased every year, according to a Money Marketing report. Over the last five years, the amount collected has increased by an average of 28% each year.

The rise is due to cuts in the LTA. In 2006/07, the LTA was £1.5 million and reached a peak of £1.8 million in 2010/11. Over the last decade, the LTA has gradually reduced and is now £1,073,100.

By 2025, it’s estimated that the total LTA tax collected will reach almost £1.5 billion.

While the LTA isn’t expected to fall between now and 2026, in real terms, the freeze means its value is falling. As the allowance won’t be rising in line with inflation, more people are likely to exceed the LTA.

If your pension benefits are nearing the LTA, it doesn’t mean you should automatically stop pension contributions. However, it’s important to be aware of the allowance and the potential charges you could face.

If you’re worried about exceeding the LTA, it’s important to review your options and how your pension fits into your financial plan. Please contact us if you have any questions or would like to discuss your retirement.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.