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Warning: UK personal tax rates are changing, and you need to know how

by The Investor on April 5, 2008

Today is the last day of the UK tax year. Hurrah!

Fair enough, the end of the tax year can’t really compete with this afternoon’s Grand National, the 172-year old steeplechase that will be watched by 600million viewers worldwide. But paying closer attention to your taxes will almost certainly leave you richer than betting on Shed a Tear for Gordon at 100-1.

I admit I took far too long to get interested in tax, in as much as I am ‘interested’ now, which isn’t very. But I belatedly realised that it’s pointless spending hours on my investing, let alone working hard for a wage, only to give away lots of my earnings through paying needlessly large amounts of tax.

Some of the tax-related moves I’ve made since that lightbulb moment include:

Being sure to use my full ISA allowance each year (I wish I could go back to the early years of ISAs and PEPS when I didn’t do this!)
Favouring dividend income over cash savings, except for my emergency funds (dividends are taxed more favourably than cash in the UK)
Buying AIM shares, which attracted a lower-rate of tax if held for two years
Trying to use at least some of my Capital Gains Allowance each year, to ‘defuse’ long-term tax bills
Investing in VCTs, which give an income tax rebate and tax free dividends
Putting my freelance earnings through a properly organised Limited Company

Tax changes in 2008/9

If you’re looking to begin planning your finances more tax efficiently, you’ve picked an interesting year to start; there are some reasonably big changes to look out for in this new tax year.

To mark this, I’ll be looking at UK tax changes over five articles.

My ‘Five big boring tax changes that will make you richer or poorer in 2008’ series will start with a summary of the newly revised ISA rules. If you don’t think ISAs are for you, make sure you read this article since nearly every saver in the UK should use ISAs.

In full, the exciting schedule of posts will cover the following major changes to the UK tax regime:

Each post will link to at least two off-site resources, so you can read up further if you want to.

Those are the main changes coming in with this new tax year that I think UK-based Monevator readers should look out for, but there are lots of fiddly adjustments, too, such as the usual annual raising of the higher-rate tax band to compensate for inflation and so on. The Government’s own tax information page looks pretty comprehensive if you want to research further.

This series is a bit of an experiment for Monevator, so it’ll be interesting to see how many of you splendid folk tune in every day to read the posts. To help you remember, please consider subscribing via RSS or email.

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Nationwide house price index shows every UK region has fallen in 2008

by The Investor on April 4, 2008

More evidence that house prices are really falling comes from the Nationwide building society, in its latest official house price index.

While it tries to draw attention more to annual figures in the accompanying commentary, which are still very much up, the quarterly figures for January to March 2008 are dreadful. House prices haven’t fallen across every region of the UK like this since the early 1970s:

[TABLE=5]

A few points:

The negative spin would be that just as the bubble had spread out across the whole of the UK (instead of it being only London and the South East that went crazed, as in previous years), this time it’s bursting everywhere.
If you were more bullish, you might say the uniformity of the falls reflects the impact of lenders making mortgages more expensive, rather than any particular changes in demand…
…but still, doesn’t that drop in Northern Ireland of 10% have all the hallmarks of a bubble bursting?

You can download the first quarter 2008 figures from Nationwide as a PDF, or just the figures for March.

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Two signs the crisis for financial shares may be abating

by The Investor on April 4, 2008

Stock markets have been falling for months, led by a collapse in confidence in the financial system and plunging bank stocks. In the UK we’ve seen Northern Rock crumble, while in the US the investment bank Bear Stearns lived up to its name after jitters led to rumours which led to a run on its assets, ultimately forcing it towards bankruptcy and into the arms of JP Morgan.

I happened to watch some of Washington’s investigations into the Fed-backed buy-up of Bear Sterns on Bloomberg yesterday. The CEOs of both Bear and JP Morgan were there to account for themselves, sitting side-by-side as if in some slow bit of a Shakespearian tragedy. (You can read JP Morgan’s testimony over on Forbes).

I’ve also watched Fed chairman giving evidence in recent months defending his attempts to alleviate the blockage in the credit markets, and his deep cuts in interest rates.

What’s all this mean, apart from that I need to get out more?

[continue reading…]

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2008 the worst first quarter for stock markets in five years

by The Investor on April 4, 2008

If you invest in the stock markets and recently you’ve had to check your portfolio with a stiff drink, at least you’re not alone. According to the FT:

Stock markets finished their worst quarter in more than five years on Monday with further losses as investors continued to favour less risky assets.

The losses have seen many equity markets enter bear market territory – a fall of 20 per cent from recent peaks – over the last three months as a result of deepening fears about a US recession and continued tensions in credit markets.

For the UK’s FTSE 100, the S&P 500 index in the US and the pan-European FTSE Eurofirst 300, this was the worst quarterly performance since the third quarter of 2002, when accounting scandals at Enron and WorldCom sparked a global equity sell-off.

Of course, if you’re buying shares for the long-term than this is good news, although I agree it doesn’t always feel like it. Cheaper is better, remember?

In particular, Japan now looks seriously under-valued. The Nikkei 225 Average lost 2.3 per cent on the day, and finished at 12,525.54, down 17.4 per cent on the quarter. It was up at 18,000 just a year or two ago, and around 40,000 at its late 1980s peak.

The trouble with Japan is companies pay very low dividends, which makes it impossible to construct a dividend-based portfolio. This means you have to sit around hoping the index goes up again, with no income in-between. An expensive waste of time, recently.

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