What caught my eye this week.
Figures from HMRC, as reported on in the Financial Times [search result] show the tax take from capital gains tax and inheritance tax rising fast in recent years:
Much of the increase is apparently due to growing tax receipts from property sales. The FT quotes Sean McCann, a chartered financial planner at NFU Mutual:
“Landlords are being caught in a very effective pincer movement from the taxman. From one side the higher rate tax relief on mortgage interest is gradually being phased out and making letting properties less profitable. From the other side, landlords looking to sell buy-to-let properties are being squeezed with an extra 8 per cent capital gains tax.”
I suspect most Monevator readers won’t be too sad to see buy-to-let being squeezed after a 20-year boom. I’m not against the rental sector on principle. But I did think the game had tilted too much in favour of landlords, and I was glad to see measures to address that.
Of course I myself swooped to buy my own home barely a year or so into the resultant correction. My stellar record of making a fist of the erstwhile millionaire-maker that is the London property market continues!
Tax take
I don’t think property is the whole story, though. It doesn’t take a charting genius to notice the previous peak in capital gains tax receipts was just before the last bear market. So after a decade of strong stock markets, at least some of the latest surge is surely also coming from investors coughing up on selling unsheltered investments.
Always use your ISAs and SIPPs as much as you can! Don’t be a klutz like me 15 or so years ago, when I was tardy in sheltering my investments.
I am still defusing capital gains tax liabilities from back then – as well as some built up when I’d filled ISAs but hadn’t started on a SIPP – and expect to be doing so in a decade.
You might say it’s a high-class tiny violin problem to have; perhaps but it was also an unforced error.
Back then I thought tax on investments was only a concern for moguls. Not only was I wrong, but in the eyes of The Man anyone pursuing the sort of high six-figure portfolios required for financial independence pretty much is a mini-mogul.
Now I’ve got rid of nearly all the dividend payers it’s not such a pressing issue as it was (at least not until the rules change again) but it is a pain.
Paying investment taxes can savage your returns, for no risk/reward upside. Use tax mitigation strategies wherever legal and practical.
From Monevator
How to improve your sustainable withdrawal rate – Monevator
From the archive-ator: Environmental degradation threatens your long-term wealth – Monevator
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1
The Slashie: A glamorous new way to work, or the ultimate grind? – Guardian
Tickets now on sale for the UK premiere screening of Playing with FIRE – EventBrite & Review
Number of landlords investing in London falls 31% since 2010 – ThisIsMoney
Living costs rising faster for UK’s poorest families than richest – Guardian
More companies are going public again, but the trend to stay private longer is here to stay – Tech Crunch
“Outrage is justified”: David Attenborough backs school climate strikers – Guardian
They’re popular, but high-yield bonds offer the worst of both worlds – Bloomberg
Products and services
Monzo announces new ‘Plus’ accounts with a £6 monthly fee – Monzo
20 ways to save cash while helping to save the planet – ThisIsMoney
Ratesetter’s £100 bonus effectively boosts your expected annual return on £1,000 to 14% – Ratesetter [Affiliate link]
GiffGaff is the best rated mobile deal provider – ThisIsMoney
Smart Beta slows down – Institutional Investor
Are prefabs the homes of the future? – ThisIsMoney
The price of buying into the classic English country life – ThisIsMoney
Five of the best wisteria-clad homes for sale [Gallery] – Guardian
Comment and opinion
The problem with most financial advice – Of Dollars and Data
Is the value premium dead? – The Evidence-based Investor
You played yourself – Morgan Housel
[Effectively] get 97% off annuity rates with Class 2 NI contributions… – Simple Living in Somerset
…but beware the top-up system is complex and overdue an overhaul – ThisIsMoney
A stealth wealth solution for property investors with kids – Financial Samurai
Only intrinsic motivation lasts – Daniel Vassallo
“I’m having more fun than any 88-year-old in the world”: Warren Buffett [Search result] – FT
A bad year in the bond market is a bad day in the stock market – A Wealth of Common Sense
The path-dependent nature of Perfect Withdrawal Rates [Nerdy] – Flirting with Models
How many stocks should you own in your portfolio? – Intrinsic Investing
Bond-fund managers have enjoyed a happier hunting ground – Morningstar
Professional investors are now very bearish. Retail investors are very bullish – The Macro Tourist
There’s a case for a 1% allocation to Bitcoin, but beware the charlatans – Money Maven
How do great (active) investors measure success? – Market Fox
Brexit
The best place to build a life in English? The Netherlands [Search result] – FT
Kindle book bargains
How to Have A Good Day by Caroline Webb – £0.99 on Kindle
Eat Well for Less by Jo Scarratt-Jones- £1.99 on Kindle
Mortality by Christopher Hitchens – £1.39 on Kindle
What You See is What You Get by Alan Sugar – £0.99 on Kindle
Off our beat
Who’s really buying property in San Francisco? [Fascinating end-of-times stuff] – The Atlantic
Global warming: Is Greta Thunberg right about UK climate emissions? – BBC
Computer scientists say AI’s ethics have yet to move beyond Libertarian phase – The Onion
Housework could keep your brain young, research suggests – Guardian
On finding something to say – Seth’s Blog
The Instagram aesthetic is over – The Atlantic
How to talk like you’re a character in Billions – Vulture
Post-coal Prom Queen: Romania’s lost lands [Gallery] – Guardian
And finally…
“Warren and I aren’t prodigies. We can’t play chess blindfolded or be concert pianists. But the results are prodigious, because we have a temperament advantage that more than compensates for a lack of IQ points.”
– Buffett’s partner Charlie Munger quoted in Michael Batnick’s Big Mistakes
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Apartment blocks are being built like crazy in london at the moment, every bit of land that isnt nailed down is being converted to flats, and the thing I’m wondering is who will live there and more importantly where will they park their cars?
The price of these flats is still going to be way out of range for most buyers and especially first time buyers. Only wealthy people will afford to live there, and wealthy people will want to have a car….. but where will they park? These apartment blocks are not being built with underground car parks and there isnt enough space on the streets to park there either.
“wealthy people will want to have a car”: in London? Why? Perhaps the flats will appeal to people who use Uber a lot. Or who expect to use self-driving rental cars.
How many of these blocks of flats have helipads on the roof? I’ve long suspected that London only suits the helicoptering classes.
When will wealthy people in London start opting for cars with armour? Or does that happen already? Could one buy a waterfront property with a little boathouse, and keep a mini-submarine in it? If rioting breaks out, sneak away to the open sea.
“A stealth wealth solution for property investors with kids – Financial Samurai”
Brilliant – don’t advertise your wealth. But how? I used to dress like a ragamuffin and drive an ancient Landrover. I was once accused of being a duke, because everyone knows that that’s how dukes behave. Apart from stammering out “only a marquess, actually”, what can one say?
Note, the link behind “The price of buying into the classic English country life” seems wrong. It leads to an article about Monzo.
Capital gains tax is a funny tax – in some ways a tax break for the already rich. Unlike inheritance tax which gets in the news a lot, CGT flies under the radar.
I was looking to sell some shares this year (didn’t in the end as the price wasn’t to my liking) but if you really do have to pay CGT you are already doing well, you can’t complain about it as a tax.
If there are landlords selling houses and paying the tax, it must mean that many believe it’s better to take their money and run – property looks bubbly in Londony parts – from my direct observations
What is worrying is that CGT take by the government rises until there is a massive crash!!! Something to think about.
Having just gone through the whole “shall we have CGT” in kiwiland and seen it canned by faux outrage – and, to be fair, a far too ambitious regime being proposed – it’s been kicked in to the long grass for another decade. Still, given I have a personal interest in not having CGT in New Zealand, I can still see the fairness of having it – after all, why should CGT be charged just on non-Australasian shares and BTL homes sold within 5 years and not any other way of making lots of money whilst not working for the Man??
And there are no ISA/SIPP tax shelters here.
Just started Mortality by Chris Hitchens – looks like being and insightful, if harrowing read by one of my favourite thinkers and speakers.
Anyone else read Monevator from NZ?
@Dearime – you picked up on the NZ actuarial decumulation last Monevator post?
CGT has become a tax on inflation since indexation and taper relief were abolished. Many landlords are also stuck in the so-called “tender trap” where sale receipts net of CGT will barely cover outstanding mortgage liabilities. In the past you could emigrate to get round this problem, but since CGT was extended to overseas residents that’s not an option. People have strong views about the rights and wrongs of private landlords, but forcing them out of business will reduce the supply of rental properties and therefore increase rents.
The linked Bitcoin strategy is similar to mine. I bought a small amount in the middle of 2017 and am happy to play the wait and see lottery ticket game. I’ve stayed out of all other coins (apart from gold & silver) as if any of them succeed I think it’ll likely be the one with brand recognition.
@Chris
Is bitcoin an investment though? If you literally put 1% of your wealth in actual lottery tickets, is that an investment?
Now if you want to set some money aside for spread betting, the gee gees, Bitcoins, for fun and excitement, fine I suppose. I wouldn’t class them as investments though.
@chirlu — Oops! Thanks. Fixed now.
Sadly for tenants, this seems to be just a shift of gear in the professionalism of landlords (not in their favour) whereby the amateur BTL army is realising that the game is up, it is no longer worth it. While this is being cheered by some as forcing the price to drop, so ordinary people have a chance to have a home vs unending temporary accommodation, the problem is what is replacing the former situation.
Institutional and financial entities like private hedge funds are buying up swathes of rental units to create a cash cow asset, with the rental income being a relatively predictable and regular return on investment. That is not a problem in itself if well-run and fair, but that requires balance with tenant rights as well as enforcers of those laws with real teeth. Based on recent history though, we’re more likely to see the Wonga-risation of the private rental sector as organised landlordism capitalises on the never-ending vulnerability of tenants to aggressively raise rents, evict and neglect maintenence, Wilson style. (Contemporary Rachmanism)
@Ben – I didn’t put anything like 1% of my actual wealth into Bitcoin. Closer to 0.1%. In terms of regarding it as an investment, I put it somewhere on a multi-dimensional spectrum between a lottery ticket and investing in a start up or premium bonds.
The existing utility of Bitcoin already looks rather better than a lottery ticket or horses – but the risk/reward profile looks similar to investing in a start up. You could lose most (but unlikely all of your money), but it could also 10-20x. Like premium bonds, there’s a remote chance you could win very big.
I also have a suspicion bitcoin may end up being a counter cyclical play, like gold, once everything shakes out.
Not for everyone, but a few less mainstream investments keeps things interesting and unlike spread betting, lottery tickets or the horses – it’s a buy once and forget low hassle investment.
@Norfolk
“we’re more likely to see the Wonga-risation of the private rental sector”
It depends what you think Wonga replaced. Surely an improvement over the friendly local loan shark! Having never actually met any of my prior land lords, only property maintenance people, I can’t see it having any practical effect.
@Chris
“multi-dimensional spectrum”
I like it 🙂
I still object to the investment language though, there aren’t calculable odds even, there isn’t an inherent value to work from, so its finger in the air time.
You do seem to have the right attitude, so that’s fine as far as it goes, but if everyone talks about bitcoin as investment, then soon the nuance is lost, and granny’s putting her life savings into it. That’s my concern.
@Ben @Chris — There are plenty of investments without calculable odds or inherent value, and where you have to put your finger in the air. 🙂 For example very early stage tech startups or biotech companies. If Bitcoin is seen through the lens of an (already incredibly well-capitalized) attempt to start-up a new and alternative payment system, then it easily fits into this framework.
The main issue, which you do mention Ben, is how it is appropriate to invest in an opportunity with the high risk / potential high reward traits of Bitcoin. Funds that specialise in those tech and biotech startups (early stage / seed funds) are structured so that they make *many* bets on the grounds that a couple should come off, go up 100-1,000-fold, and cover all the losers. As you say, this is the diametric opposite of granny putting their life savings into it.
So I think Bitcoin an be an investment, just a very high risk one that needs to be treated accordingly.
I suspect in reality history will ‘tell us’ whether it was an investment. If it succeeds, becomes a viable payments system and/or store of value system, and trades at $50,000 a Bitcoin everyone will agree it was an investment. If it goes to zero, not so much. 😉
One thing that took me a long time to understand was whether CGT applies to a fund class switch. If you re-register funds (in specie) to a new platform, sometimes they automatically sell in order to place your fund in whatever class they offer. I think I did eventually find some technical guidance from HMRC saying that this does not count as a sale for CGT purposes. But it did take a long time!
@TI
I accept the tech startup analogy. If you’re doing it right though you invest in 100 tech startups expecting 90 of them to fail.
I’m actually quite bullish on cryptocurrency, I’m not bullish on any particular one, and it’s not clear to me that the holders of the currency will be the winners either. The case for bitcoin is just the case for cryptocurrency in general, with brand recognition, your thesis could be right, but you could still end up losing.
@TI
To clarify, as I slightly misread your comment.
I wouldn’t class 1 tech startup as an investment, that’s a punt. In aggregate though it can become an investment if you invest in enough.
In the same way I wouldn’t class Bitcoin as an investment, but cryptocurrency could be, albeit still very risky.
Um, not sure why you say “though” that’s exactly what I wrote? 🙂 As for Bitcoin versus cryptocurrencies generally, I reached a different conclusion after diving pretty deeply into it all last year. Personally I think Bitcoin has a high potential of being a class apart, if only for network/first-mover advantages. (It has tons of disadvantages obviously, but those two advantages are huge). I don’t currently own any cryptocurrencies (I’ve dabbled in the past) but if ex-tax sheltered cash wasn’t so scarce and I wasn’t so into my unlisted company explorations I could see myself putting a little bit back into Bitcoin.
Far from an expert or even a “believer” though. I have strong positions on cryptocurrency, weakly held, as they say. 🙂
p.s. Oh wait, I see why “though”. 🙂 You mean the analogy would be to invest in 100 different cryptocurrencies? Well I don’t see it that way, but take your point. I would be comfortable with Bitcoin being a 1/100 tech bet alongside say a payments fintech and a blood cancer biotech and however many others.
@TI
Reading comprehension homework for both of us this weekend lol.
Or maybe just writing practice for me…..
CGT can be a pain. I’ve got to sell some acc units. The first pass calculations didn’t account for dividends, which is relatively easy. The second pass will have to grasp the nettle as it means I can sell a bit more. I’m steeling myself for the job..
If I get stuck I’ll have to dig out the relevant MV article!
It’s worth remembering that, a decade or two ago, working out capital gains tax used to involve some calculations to do with “indexation allowance”, later replaced by “taper relief”. These were recognition of the fact that some of the appreciation of asset values was simply down to inflation, and it’d be a bit mean to tax people on gains due to that. But now we are.
@Haphazard – Yes, that’s my understanding. HMRC issued some guidance a few years back clarifying the situation with moving share classes (when the whole commission to clean stuff was going on). My understanding is that as long at the underlying assets are the same then switching between classes in the same fund doesn’t trigger CGT. But as always DYOR.
@The Rhino – good luck. The s104 pool brings me out in sweats (and I don’t do acc funds!)
@Tim and David – I question the economic justification of having indexation for corporations (for corporation tax purposes) but not for individuals (through CGT). But hey ho.
@thedetailsman @Haphazard – this is one of those ultimate tax confusions that I wish HMRC would issue some simple rules about. I never find ‘guidance’ is quite cast-iron enough – some specific legislation would be more useful.
Years ago, a fund I follow said they’d been told by HMRC that you could switch classes in their sub-fund (e.g. from the US$ class to a Sterling hedged class) without incurring a disposal for CGT. And it appears that this also applies for Acc to Inc classes as well.
Most accountants I know (and speaking as an ex-one) struggle with it, and seem reluctant to commit to an answer, which makes me a little nervous. So I appreciate any extra voices chiming in (are you an accountant too YFG/Details?).
@The Details Man
Ah, I somehow missed David’s point making the same “tax on inflation point”; thanks.
I believe indexation for gains for corporation tax was abolished last year, although you still get to apply it to any gains up to December 2017 so the impact will phase in more slowly. See https://www.gov.uk/government/publications/corporation-tax-removal-of-capital-gains-indexation-allowance-from-1-january-2018/corporation-tax-removal-of-capital-gains-indexation-allowance-from-1-january-2018
@tom_grlla. Interesting; conclusions from my own research on CGT fund switching is here: https://money.stackexchange.com/q/99919/35887 . The information I found said that while switches like trail commission to clean-priced units and Inc-Acc were indeed fine (section 104 rules), switches between hedged and unhedged would count as a disposal for CGT purposes.
Bitcoin may have a role in portfolio diversification. Its volatile price movement is uncorrelated to other asset classes and in this respect a small allocation may be beneficial. But beware the volatility is such that it requires some nerve to follow through on rebalancing!
@Tim – thanks on the indexation point – I forgot about the change. What a clanger! As you say, it’ll take a while to phase in.
@tom_grlla and Tim – I’m a Chartered Accountant (though not a tax specialist). Your comments spurred me to look at what the actual legislation says. Which is this:
“103F […] Where— (a) a participant in a collective investment scheme exchanges units in the scheme for other units in the scheme (“new units”) of substantially the same value, and (b) the property subject to the scheme and the rights of participants to share in the capital and income in relation to that property are the same immediately before and immediately after the event (ignoring any changes as a result of a variation in management charges) […]” (2013 Capital Gains Tax Statutory Instrument)
“127 […] a reorganisation shall not be treated as involving any disposal of the original shares or any acquisition of the new holding or any part of it, but the original shares (taken as a single asset) and the new holding (taken as a single asset) shall be treated as the same asset acquired as the original shares were acquired.” (TCGA 1992)
To me (with all the caveats that readers should speak to an expert, I’m not providing advice etc.) that says that switches from trail commission units to clean units would not trigger CGT. But something like a change from unhedged to hedged units does trigger CGT. Obviously important to say that it will depend on the exact circumstances. Which is why I imagine accountants skirt the issue as it’s hard to give a categorical answer without the exact transaction in front of you.
Here are the links to the legislation:
http://www.legislation.gov.uk/uksi/2013/1400/pdfs/uksi_20131400_en.pdf
https://www.legislation.gov.uk/ukpga/1992/12/contents/enacted
@britinkiwi not reading from NZ, but I follow the news. CGT outcome predictable and depressing. Entire country is beholden to property investors.
I have NZ citizenship but doubt I’ll ever live there again.
Funny to see a link to Seth Godin’s blog. Never heard of the guy until he popped up as a guest on Cooking Issues podcast last week. Gets a bit philosophical in the middle and might appeal to some: https://heritageradionetwork.org/podcast/the-conservation-of-crap-giving-w-seth-godin/
Whilst I appreciate that any attempt to elicit sympathy for BTL landlords is likely to be met with the same enthusiasm a turkey has for the farmer on Christmas Eve, what seems to me immoral about the removal of taper relief is that it represented retrospective taxation of gains already accrued (notwithstanding that these are only paper gains until encashed). Imagine the outcry if the government suddenly decided it had been overly generous to SIPP holders, and imposed CGT on gains made over their lifetime at point of crystallisation!
In my own case, I started my career in the early 90s working for a small local charity which offered nothing in the way of pension provision to its employees. My personal pension with Norwich Union offered a default investment option of the With Profits fund (remember those!), with a further choice of half a dozen NU funds (NU Latin America etc) at additional cost. Sadly I didn’t keep the brochure, but seem to remember something like 120% of the first year’s contributions went in charges, much of it in commission to the adviser who set it up (you couldn’t buy direct in those days). And, of course, at retirement annuity purchase was the only option in town.
So my decision instead to purchase a small BTL flat as my ‘pension’ seemed pretty rational, particularly when I figured taper relief would protect for much of the gain over a 40 year period.
Today the pension (and BTL) landscape is completely different, and I’m stuck with a potential CGT liability I never thought I’d have. Whilst the 270% capital appreciation is fantastic, averaged over 25 years it is only a pretty reasonable 10% pa. To add insult to injury, it’s not as if I ever invested the original capital value at the start – it was borrowed from the bank and repaid over many years out of taxed income.
What is even more incredulous is that, at one point, Gordon Brown actually proposed allowing BTLs to be rolled into SIPPs, before changing his mind with only weeks to go!
It’s a clear lesson that you can never trust governments of any hue not to move the goalposts many times during a lifetime, and this is a huge disincentive to long term financial planning.
I have read the Monzo link twice now and fail to find any reason why I should pay £6 per month for – wait for it –
Is it just me being a curmudgeonly old git or does the emperor really not have any clothes? £72 a year seems expensive just to be able to choose the colour of your debit card. I’d at least expect some free travel insurance with byzantine Ts and Cs such that you can never claim on it along with the colour choice.
@MartinT
Speaking as a somewhat younger person, your comment does raise some interesting points.
My (our) investing decisions are influenced by the rules of the day, you have to consider what happens when the rules change.
I suppose the problem with a BTL is that its an indivisible unit. You can’t sell it off in pieces to make use of multiple years CGT allowances, neither can you sell quickly if the tide does turn.
I’m kind of the same way with my SIPP at the moment. I’m currently concentrating on ISAs etc, after all I can always add money, but I can remove it from a SIPP until 55 currently, although when I started it was 50, and wouldn’t be surprised if it was 60+ by the time I got there.
@martinT
If you have lived in your BTL as your main home at any time, it offers an opportunity (presently) for some CGT breaks.
By the way 270% gain compounded over 25 years is more like a 5+% annualised gain.
I don’t think we ever need to bother with bitcoin directly, if it gets big then surely the companies dealing with it will be in the indexes we track. Likewise if the world changes and emerging market countries became developed then the developed world indexes would change
@Hari thanks for the correction – I overlooked the power of the 8th wonder of the world. Your correction adds further weight to my point – should anyone really be taxed on a 5% annualised gain, especially when they’ve already paid tax on the income from the investment?
@Ben you’re right about the indivisible nature of property. I guess it might have been fairer to let the old rules apply to those who’d bought under that regime, but I’m sure you’ll face many more similar changes of the goalposts. It’s depressing that, despite the billions spent on advisers, reports etc, successive governments continually flunk making long term decisions on really major issues – the future funding of the NHS, pensions, social care, Brexit, climate change, infrastructure etc – until it’s almost too late, preferring instead to tinker self-interestedly at the margins in the short term.
@tom_grlla On realising that acc funds outside of tax shelters were a pain to deal with (e.g. having to find and declare dividends), I got as close as I could to speaking to a tax inspector (they were sat next to the ‘technical operator’ on the other end of the phone). I was asking if CGT would be triggered by converting from the acc to inc style of fund and was told it would not. This was a few years ago but I’ve not read anything different since. This year I finally sold my small portfolio of CGT-exposed acc funds and invested in a Vanguard LS inc fund… this should realise the gain, as the fund is different, and simplify my tax return in future years.
Regarding CGT on BTL: I understand why people feel little sympathy for landlords but I would say the new taxes do seem spiteful, or at least misguided. While private landlords (good and bad) are being taxed and charged out of the sector, corporations and owner/occupiers are not liable for CGT. There might be a small number of people who will be able to reach for a rung on the ladder with the cooler market, but rental properties will still be required and, as @Norfolk implies, are likely to be supplied by faceless companies with pockets deep enough to ignore the needs of their tenants.
The BTL CG anual return is nearer 10% than 5 due to the leverage. You get all the gain on the purchase price while trickling in the capital. I think CGT should be applied on all property, including own homes, but the allowance should be allowed to roll over indefinitely.
Rental companies are probably easier to regulate than individuals. Europeans seen to be happier with their rental market run that way.
@John B – “Europeans seen [sic] to be happier …..”
Come what may with Brexit, plague or pestilence, we British also are and will remain Europeans.
The legislation I’d rooted out was the same as The Details Man found. It’s a struggle to follow if you’re not an expert, but my understanding was that it meant the fund class switch I was looking at was not a disposal for CGT purposes.
The switch I was looking at was due to a broker transfer. Sometimes when you move, the new broker offers Class X instead of Class Y – it’s just what they have – but it’s otherwise the same thing, still ACC (or INC), still hedged (or not)… the issue seems to have come up originally when people were switching to “clean” funds but that was before my day. I assume the same principle applies.
I agree it would be good to have more clearly worded guidance though!
@ermine – it’s not just you (post 32)!
@jon thank you – I was beginning to wonder what I was missing for this to get a Monevator pick.
Even the custom link for people to pay you can be had for free – it appears that Starling do this for me already, called settle up.
Let’s hope the Monzo Plus events and swag are the USP 😉
Monzo has over a million customers, is widely touted as a bank killer, but is also unprofitable. (And I am a shareholder!)
It’s super interesting seeing how this plays out.
As I’ve said before, I often link to things I don’t agree with. (Well, except in the Brexit section. 😉 )
When Monzo has 100k premium members I’ll link to it again, and you can wonder again what you’re missing… 😉
Its unprofitable (monzo) when it charges £6 a month for customisable debit cards? When standard banks give you money for your custom and still make a profit. Wow it offers online banking… What is exactly hi-tech about this that seems to draw people? I see the attraction of no credit check but standard banks are supposed to offer basic accounts too by law.
Its like when a friend was trying to sell credit unions to me – “you can put in money and withdraw it whenever you want” – erm wow, does it pay interest? – “no but you can access it whenever you want” – erm…. “Oh and if you borrow money and you have that amount in your savings account they wont charge much interest but you cant access your savings” – thats nice to know that you can borrow your own money from yourself at rates that compete with high street banks. “Theyre better than payday lenders, their unsecured loans are only 40%” – and yet you consider vanquis credit builder cards exploitative, but that said I wouldnt be happy lending unsecured loans to that population for less interest
@Matthew — Well it’s only just introduced the £6 cards, hold your horses on profits. 🙂
No, it’s not the sort of thing that would have me battering its doors down either (not that it’s all that’s in the £6 a month offer) but I find it fascinating watching (and trying to anticipate!) how people/consumer spending is changing.
Take these flashy colourful credit cards, for example. At some point someone realized we flash these around (status symbol) usually when we’re spending money (double status symbol) often somewhere very public where we might be being generous with our money (triple status symbol).
For a long time Monzo was an “in the know” kind of thing, too.
It might seem ridiculous to us but for an image-preoccupied 20-something, £72 a year for various bits of flash from a fancy Monzo card, looking different, having a more Instagrammable moment when they pay for their dinner — it’s probably not much more than you’d pay for a fancy bit of fashion. I understand the temptation to laugh or even scorn this stuff, but personally I want to understand what’s driving it. 🙂
None of this is to go into the actually utility of this/other Fintechs, which were miles ahead although the legacy banks are catching up quick.
@ti – you’re right, its easy to forget that we aren’t the average consumer, not even remotely, and the economy relies on fashion as you say, flash cars, and other vanity things, gambling, not switching utilities, etc, and most don’t care much about finances – and we must be glad that they are like this because there would be no profit to be had or deals to exploit if everyone were like us.
The success of monzo will depend on how fashionable it can be, like some credit cards, rather than topping comparison sites… unless it can trick people with a package deal. As a bank are they obliged to have a free option I wonder?
Some that make bitcoin easy – I can see the attraction but I wonder if thats legally risky as it could be seen as encouraging. In my opinion even having a crypto transaction on a statement can make the customer look dubious itself
Why do people accept David’s comment so easily?
“…private landlords, but forcing them out of business will reduce the supply of rental properties and therefore increase rents”
This comes up time and time again. Do houses get demolished when BTL landlords sell up? Sometimes they sell to other BTL landlords and sometimes they sell to people who are renting. Neither case will cause more demand for rented properties.
Ideally, there should be no need for anyone to rent privately.
@Matthew — Yes, exactly. It can get tricky wearing lots of different hats to try to see different perspectives, but especially as an investor it is helpful.
E.g. Here’s an unlisted company raising money I am looking at, called Tickr (impact investing):
https://www.seedrs.com/tickr/
Would I use it with any appreciable amount of my money? Very unlikely. Even if I wanted to go down the impact investing route I’d probably look to a cheap ETF or trust (though they are talking about doing ETFs eventually) or more likely stock pick my own companies (because I’m an active investor).
But do I know lots of Millennials who don’t invest and think the stock market is evil?
I do! 🙂
Do I get loads of emails/comments to Monevator imploring us to do more on ethical/impact investing?
Yep.
So does Tickr have a chance? Quite possibly.
@ti – I ‘ve come to believe that essentially you can support ethical investments even if all you ever buy is Evil puppy killers inc, since if you raise the p/e of Evil inc, then other investors’ money will flow more towards non-evil things. It doesnt matter what you’re buying, it essentially supports everything
We can confidently say that ethical and venture will always have more than its share of investment
We tend to underestimate the hidden good that sin stock and boring companies somewhere on the index do, sometimes that good can be quite abstract, but real
The BTL tax changes aren’t some sort of windfall tax on one particular asset class which has done well but a response to a broken housing market which allows (generally) older, wealthy amateur landlords to profiteer on the backs of the young by dint of flawed housing policymaking. Should we want BTL landlords driven out to be replaced by institutional investors who professionally manage new, better quality homes? Absolutely. Should we encourage amateur landlords to exit the sector (and discourage future investment) while improving opportunities for private tenants and others to enter homeownership? Of course. And are those who’ve gotten rich as a consequence of legislative and tax reforms which encouraged BTL being hypocritical complaining when legislative and tax reforms seek to rebalance the market? Undoubtedly.
@E&G comments like these are typical of the current politics of envy which vilifies private landlords, many of whom are ordinary, decent people trying to do the best for themselves and their families against an uncertain future. What we need is a diverse rental market which includes private landlords as well as social housing and large providers. Is turning rental properties over to huge cartels answerable to rich (foreign?) shareholders really going to result in professionally managed, better quality homes, or will it rather lead to asset stripping, increased costs to tenants, lack of maintenance, cutting corners, and blanket bans on certain types of tenant ?
If we’re serious about rebalancing the housing sector we need a much broader approach, which includes encouraging more building/regeneration (this is currently controlled by a cartel of major developers sitting on huge landbanks), looking at modest taxation of gains on all properties, encouraging older people to downsize by providing quality alternatives and better returns on the capital it frees up etc etc.
Of course the last (Labour) government ducked the perfect opportunity to allow the market to rebalance itself at the start of the credit crunch, because seeing property prices drop sharply, with the resultant negative equity and mass repossessions would have been political suicide. Instead its policy of QE fuelled many of the difficulties we are facing today.
What I’m arguing is that the role of government should be to create a stable environment in which people can make long term plans. Instead, successive governments have flip flopped along creating issues almost inadvertently one minute, then hurriedly reaching for the reverse button the next.
CGT question.
I have insurance company shares bought whilst an employee (up to 25% of salary at 20% discount annually – which was nice!).
Currently I am withdrawing over a period of years to Avoid CGT. The scheme does not allow transfers to spouse – which would have sped things up.
Can I sell X shares in the company run share account and simultaneously buy X in a normal Interactive investor account (so that this is not treated as a transaction by HMRC)? The plan being to give them to my wife – so she can use her CGT allowance.
Too convoluted? Not in the spirit of the rules? Views please.
B
I have some sympathy for the individual predicament of private landlords who found the tax changes affecting their long-term planning; if you used the old regime to buy yourself a portfolio of properties to provide a retirement income via a big mortgage, clearly that strategy has now floundered through no fault of your own due to the changes in the tax regime.
However as I said initially I equally think the market favoured them for so long that something had to be done. Five or six years ago landlords were buying 50-75% of all flats that went up for sale in my area of London. (Source: estate agents when I bought my flat). Why? Because the market dynamics were structured to favour them over (especially) first-time buyers.
Now prices are correcting despite banks still lending money, immigration still running quite high, interest rates still very low and unemployment very low, too. This suggests the tax policy change did find its target.
I believe it’s possible to have sympathy with my fellow readers/private investors while believing the change was required, especially due to the special nature of housing. (Universal need, limited supply, ownership part of most people’s life goals, etc).
Tax changes that appear retrospective are often labelled as unprecedented but in reality they seem to come along quite often.
For example, I know of many older investors who’d built large (in some cases six/seven figure) dividend paying portfolios outside of tax shelters, because under the old rules they used to receive tens of thousands of dividend payments tax free. (I am now foggy on the exact old rules, but I think it was tax free dividends up to the higher rate of income tax). I used to urge these people (on this site and elsewhere) to use ISAs to progressively shield their portfolios, but many demurred, for reasons I’ve never understood. (Hassle I guess)
When the dividend tax rules changed their tax bills would have risen substantially.
Nothing to do with the ‘politics of envy’ Martin. I also have wide experience of the private rented sector and am well aware that the vast majority of landlords are good, well-meaning people but ultimately it is a question of what we should aspire to for our housing system (and wider economy). And that is definitely not a concentration of housing wealth and management in the hands of well-meaning amateurs. Public policy including the tax regime should rightly drive towards supporting citizens to access homeownership or professionally managed rented accommodation. There should be no room for amateurs in an ideal world.
I don’t know if the relevant people will read this – but many thanks to those commenting on the fund switching point.
Firstly, many thanks for the relevant legislation. I can just about translate it (muscle memory from exam days), but it’s not always to find it!
Secondly, I have some clearer confirmation about hedged & unhedged share classes – Details Man, of course you’re right, they are considered different. The language is fairly dry, but a little clearer than the legislation.
I’m glad to have finally got clarity on all this – thanks again to all who chipped in.
To quote:
Extent of s103F case 1
B.8 A number of respondents also queried the extent of the new s103F case 1… In particular respondents questioned the application of the new section to scenarios where there was a change from a hedged to an un-hedged share class….
B.9 The purpose of the new rule in s103F is to provide clarity of capital gains treatment for collective investment schemes and to avoid a disposal on an exchange where the underlying economic assets, and the investor’s rights over them, remain unchanged. This means, for example, that the relief will be available in situations where the different share classes attract different annual management charges or are denominated in different currencies.
B.10 In the examples given of the currency hedge, gearing arrangement or sidepocket then a unit without such features is a different asset (with differing risks and rewards) from one which does have them. The hedge (or similar) may constitute a major part of the asset and we would therefore expect there to be an economic investment decision involved in deciding to switch. Because of this in those circumstances the relief in s103F would not apply.
Feature is here:
http://taxnews.lexisnexis.co.uk/TaxNewsLive/Members/BreakingNewsFullText.aspx?id=4465&css=1&xml=0