in the spotlight

In the spotlight: Our monthly news round-up (May 2019)

Posted by
Rouse Partners
30.04.2019

Now it is easy to keep up-to-date, with our monthly ‘In the Spotlight’ news round-up – a hand-picked summary of key tax news and industry developments. If you have any questions on how any of these affect you personally, please do not hesitate to contact us.

Brexit

UK top in Europe and third globally for foreign investment despite Brexit – Figures from the Organisation for Economic Cooperation and Development (OECD) show the UK remains the top destination in Europe for foreign investment despite a fall in new funds coming into the country. New investment fell from $100bn to $64bn, but the UK still had a £1,400bn stock of funds – more than Germany, Spain and Poland combined and only surpassed by the US and China. International Trade Secretary Liam Fox said: “The latest OECD figures show the UK remains one of the world’s most attractive destinations for foreign investment. International investors continue to recognise the fundamental strengths of our economy – everything from our predictable legal system to our world-leading financial services.” The OECD data follows an EY survey earlier this month which found that Britain was expected to be the most popular destination in the world for merger activity this year. The survey on corporate deal-making identified Britain as the top investment destination in the world for the first time in the report’s 10-year history – overtaking the United States, which has held the top spot since 2014. The UK’s top sectors for investment were consumer products and retail, industrials and financial services. The fall in the value of the pound since the 2016 Brexit referendum was reportedly not a major driver of foreign investment in Britain, with deals mostly driven by strategic rationale rather currency movements. (Source: The Times, 30/04/19)

Brexit delays are damaging productivity – Analysts at Goldman Sachs have suggested that delays to Brexit will put more pressure on the British economy because a lack of business investment will act as a drag on productivity. Adrian Paul, Goldman’s European economist, said: “Since the referendum, firms have opted to hire workers rather than invest in capital and the misallocation of resources looks to have deepened.” The analysts added that Britain was still likely to leave with a deal and predicted that there would be “minimal macroeconomic disruption” once Brexit does happen. Separately, billionaire investor Warren Buffett has told the FT he is “ready to buy something in the UK tomorrow” regardless of whether the UK left the EU, because he can trust the country’s laws and culture. (Source: The Times, 27/04/19)

Factories stockpile for Brexit as eurozone manufacturing crashes – UK factories stockpiled goods for Brexit at an unexpectedly high rate last month, boosting manufacturing growth to a 13-month high, according to the IHS Markit/CIPS survey. The Purchasing Managers’ Index (PMI) for the manufacturing sector rose to 55.1 in March, from 52.1 in February. A figure above 50 indicates expansion. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, commented: “We continue to doubt that precautionary stockpiling for a no-deal Brexit will boost GDP, because manufacturers primarily are buying imports and are tying up cash that otherwise might have been used for investment. All told, then, the PMI should not instil any confidence about the near-term outlook for the manufacturing sector.” Meanwhile, the IHS Markit eurozone manufacturing PMI fell to 47.5 last month, down from 49.3 in February and the lowest reading since April 2013. The downturn has hit the eurozone’s three biggest economies. Germany had a PMI reading of 44.1, the lowest for more than six-and-a-half years. (Source: The Times, 02/04/19)

SMEs urged to make the most of Brexit delay – Consultant Ready For Brexit says 80% of small businesses were not prepared for Brexit, saying they would have been at risk of disruption if the UK had exited the EU on March 29. Ready for Brexit chairman Paul Hodges has urged SMEs to utilise the delay, saying: “They can’t waste the extension and can’t afford to be complacent, as no deal remains the default position and businesses need to know how Brexit will affect them.” (Sunday Express, 21/04/19)

Brexit effect brings best ever pension deals to retirees – The Telegraph’s Laura Miller reports on how, on average, savers were offered £10,000 more last month to swap a guaranteed lifetime income for an immediate lump sum, compared to pensioners doing the same in February. Average transfer values for a 64 year old peaked at £251,000 – the highest level since pension freedoms were introduced in April 2015. Swings in the financial markets resulting from nervousness over Brexit have led companies to offer higher transfer values as they look to offload their liabilities, says James Baxter of transfer specialist Tideway. (Source: The Daily Telegraph, 17/04/19)

Individuals

HMRC warns over spring scams – HMRC has warned young adults with less experience of the tax system to be especially vigilant against springtime refund scams, with this group – alongside the vulnerable and elderly – increasingly being targeted by fraudsters. Last spring HMRC received around 250,000 reports of tax scams, or almost 2,500 a day, and requested that over 6,000 phishing websites be deactivated. HMRC says April and May often see scammers target people to coincide with the time legitimate rebates are being processed. Pauline Smith of Action Fraud said criminals will often target victims with spoofed calls, voicemails and text messages and urged people to be wary of emails with attachments which might contain viruses designed to obtain personal or financial information. (Source: BBC News, 20/04/19)

Fraudsters target company directors – A Telegraph investigation has found that over the past three years 9,769 complaints have been made to Companies House by people saying personal details listed on its public website have been stolen by fraudsters, with 356 saying the public listing of their information has directly led to them becoming a victim of fraud. The Telegraph notes that company directors are required by law to disclose details including a correspondence or service address, a personal address and date of birth, adding that while the person’s residential address is not listed publicly, the service address is and as some people use their home details for both, they are susceptible to fraud. Mike Haley, of fraud prevention agency Cifas, said: “There is a belief that directors are more creditworthy – that they own more assets and have well-established careers – which makes them a prime target for fraudsters.” (Source: The Daily Telegraph, 22/04/19)

Tax-efficient schemes enjoy second-highest year on record – At £731m, venture capital trusts – which invest in the UK’s higher-risk small businesses – amassed more assets in the 2018-19 tax year than in any other year since 2005-06. (Source: Financial Times, 14/04/19)

Pension warning for those approaching 75th birthday – The Sunday Times’ Ali Hussain warns savers approaching their 75th birthday to check their pension policies or risk being caught out by a range of tax charges. Savers will need to confirm retirement funds total less than the lifetime allowance (£1.03m) or they face an emergency tax charge of 25% – or 55% in some cases. Additionally, some pension contracts were written with an end date set for when the customer reached 75, which means savers have to move their money to another provider if they do not want to be forced into their pension firm’s “default” annuity. (Source: The Sunday Times, 14/04/19)

Meanwhile, half a million over-65s pay too much tax – Around 520,000 older workers could be paying unnecessary tax on their state pension as they have not taken up the option of deferring it until they stop work, analysis from insurance specialists Royal London shows. It is suggested that those who defer can potentially get an extra 5.8% a year on their pension for the rest of their life for each year they defer. Sir Steve Webb, director of policy at Royal London, said: “There has been a huge increase in the number of people working past 65, and most are claiming their state pension as soon as it is available. If their earnings are enough to support them, it makes sense to consider deferring taking a state pension so that less of their pension disappears in tax.” (Source: The Times, 03/04/19)

Tax warning for accidental landlords – There have been warnings that the proposed tax rules set to come into force next April could drive accidental landlords from the market. The Government is consulting on alterations to principal private residence relief that would see the 18 month exemption from capital gains tax on the proceeds from the sale of a main home cut to nine months. This new exempt period means that those who are going through separation may find themselves dragged into the capital gains tax net if the former marital home is not sold within nine months of the separation. (Source: The Times, 06/04/19)

An inheritance tax trick for widowed spouses who remarry – The Telegraph discusses how individuals who are no longer married can continue to take advantage of their partner’s IHT allowance after they die. The use of discretionary trusts has practically died out since the introduction of the transfer of allowances, but widowed spouses who remarry can enjoy almost the same amount of protection as direct descendants under current IHT rules if they utilise IHT-exempt discretionary trusts, enabling them to pass on £975,000 tax-free. Beneficiaries can use a deed of variation up to two years after death to make use of this tactic retrospectively. (Source: The Daily Telegraph, 12/04/19)

Families warned over unregulated trust providers – The Sunday Telegraph reports on heightened concerns over unregulated trust providers going bust leaving families out of pocket and at risk of losing control of their assets. The paper cites several cases where people who put properties into trusts to help pay for future care or for inheritance purposes have struggled to regain control of their assets when the provider goes into administration or gets taken over. Katie Robertshaw of Nelsons said she had seen more inquiries following firm closures or changes in provider. Richard Bates of Cognitive Law also warns that increases in probate fees could be used as a “cynical justification to sell more trust arrangements” people did not necessarily need. (Source: The Sunday Telegraph, 28/04/19)

Auto-enrolment pensions can mean a smaller mortgage – The Telegraph reports on how last week’s rise in auto-enrolment pension contributions will leave some workers unable to borrow as much from mortgage lenders. Some lenders will subtract pension contributions from income before working out how much they will which may result in a number of prospective [buyers] finding their borrowing power reduced despite their earning capacity remaining constant. (Source: The Daily Telegraph, 12/04/19)

HMRC to bring in online complaints process for the first time – Taxpayers will be able to log complaints online about HMRC with the Adjudicator’s Office for the first time from the autumn after pressure from Treasury select committee chair Nicky Morgan. (Source: Financial Times, 27/04/19)

Businesses

Scheme sees 80 new small firms a week – Official figures show that 28,000 entrepreneurs have taken advantage of the New Enterprise Allowance scheme, with 80 new small businesses created every week since its launch in 2011. Of the 126,000 companies created through the initiative, a quarter were started by someone with a disability. The scheme, which supports new firms with mentoring and funding of up to £25,000, has been extended for two more years. (Source: The Sun on Sunday, 07/04/19)

SMEs hit by invoice fraud – Barclays Bank research shows that one in seven UK SMEs have paid fake invoices in the last year, with over a quarter of those saying invoice scams resulted in losses of more than £5,000. Mike Cherry of the Federation of Small Businesses warned: “All too often businesses introduce cyber-defences only after they have been the victim of fraud or an attack, and this attitude needs to change.” (Source: The Times, 06/04/19)

HMRC clamps down on US underpaid tax – HMRC is stepping up investigations into US-based businesses tax affairs, believing they may have underpaid £4.6bn in the 2017/18 tax year. This is up from £3.4bn in 2016/17 and £1.8bn in 2013/14. (Source: Financial Times, 23/04/19)

Half of UK firms fail to narrow gender pay gap – More than half of UK companies failed to narrow their gender pay gaps in the second year of compulsory reporting. Overall, 52% of private companies did not narrow the divide from the previous year. The figures showed 78% of firms had a pay gap in favour of men while 14% favoured women, with the remainder reporting no gap. Firms had until midnight on Thursday to file their gender pay gaps – by which time 10,428 had done so – or face legal action. At the deadline, the median pay gap in favour of men had lowered slightly from 9.7% last year to 9.6%. At 45% of firms the pay gap had widened in favour of men, while at 7% there was no change. (Source: BBC news, 06/04/19)

Construction/property

Estate agents see supply and demand drop – The supply of new properties on the UK market has hit a record low. The typical estate agency branch had 37 properties available for sale during March, according to data published by the National Association of Estate Agents – the lowest figure ever recorded for the month. This has left buyers reluctant to come to market as they have few homes to choose from, with the number of prospective buyers registering with estate agents down by 25% in the last two years, the trade body added. The NAEA said the current political climate and economic uncertainty had caused confidence to drain from the market. (Source: The Daily Telegraph, 30/04/19)

Lenders expect demand for mortgages to weaken – The Bank of England’s quarterly survey shows lenders expect demand for mortgages to fall over the next three months amid continuing Brexit uncertainty. A net balance of 18.9% of respondents said that demand from homebuyers was likely to fall between April and June. This is the largest figure since the fourth quarter of 2010, when almost a third of lenders were preparing for a slowdown. According to the Royal Institution of Chartered Surveyors, both new buyer inquiries and instructions to sell have been falling for several months. (Source: The Times, 19/04/19)

Average deposit for first-time buyers now at £31k – First-time buyers looking to get onto the property now require an average house deposit of £30,989 following an increase of 12% in 2018, Experian figures have revealed. House prices rose across Britain rose just 2.5% over the same period, data from the Office for National Statistics shows, suggesting first-time buyers might be struggling to access the 5% deposit deals that are the most common way onto the property ladder. Previous Experian research supports this, as 22% of would-be homebuyers said finding a deposit was the largest obstacle to owning a home. (Source: The Daily Telegraph, 26/04/19)

Remortgaging climbs – Figures from UK Finance show that the number of borrowers remortgaging is at its highest level in more than a decade, with 220,000 homeowners doing so last year. February saw a 10% year-on-year increase while the number of borrowers taking loans to move home remained flat. (Source: Daily Mail, 22/04/19)

Fewer homes earn more than owners – Analysis suggests that the proportion of homes earning more than their owners is shrinking as house price growth continues to slow. Halifax says the average rise in house prices over the last two years has outstripped post-tax earnings in 8% of local authority districts. This compares to 18% in 2017 and 31% in 2016. The average UK house price has increased by £14,975 over the past two years, while the average take-home pay over two years has been £46,225. (Source: Daily Express, 20/04/19)

Probate backlog puts property deals at risk – A rise in the number of probate applications ahead of a rise in charges has led to delays in grants being issued putting thousands of property transactions at risk. Andrew Wilkinson of Lime Solicitors said: “A glut of applications has inevitably slowed down the process, meaning that grants are taking months to be issued, rather than weeks. At the same time, the probate system is moving online and physical probate registries are closing down, with staff being gradually replaced by computers.” Samantha Neagle of Clarke Willmott said the system had descended into “mayhem”, while Josh Lewison, a barrister at Radcliffe Chambers, said the prospect of property deals falling through was “significant” and delays could see sellers losing their buyers. (Source: The Daily Telegraph, 28/04/19)

Buy to let

Best buy-to-let yields revealed – New research from lending platform Landbay has ranked the best places for buy-to-let landlords to invest in the UK, based on three key metrics: capital value growth, rental yield and rental price growth to achieve a total yield. Number one on the list is Newport, with a total annual yield of 13.22%, followed by Torfaen and West Lothian at 11.87% and 10.94% respectively. “Despite landlords suffering as a result of tax changes, these figures highlight the resilience of the UK’s residential property market,” says John Goodall, chief executive of Landbay. “Savvy landlords might be wise to consider looking further afield. Areas with significant investment in infrastructure like Manchester, Nottingham and Liverpool have also performed well.” (Source: The Daily Telegraph, 17/04/19)

Stamp duty receipts fall by £1bn as attacks on landlords continue – Sam Meadows details in the Sunday Telegraph how stamp duty receipts have been decimated by a series of attacks on buy-to-let investors. Figures published last week by HMRC show the tax take from stamp duty fell to £11.9bn in 2018-19 from £12.9bn the previous year after a decade of almost constant increases. As a result of the squeeze on landlords, the number of mortgages taken out by buy-to-let investors has fallen by 7.7% year-on-year, according to figures from UK Finance, while David Smith of the Residential Landlords Association fears fatal damage to the private rented sector with tenants also suffering. (Source: The Sunday Telegraph, 28/04/19)

Landlords should consider switch to holiday lets – The Sunday Telegraph’s explains the tax advantages of investing in a holiday let rather than a conventional buy-to-let property in light of the reduction in tax breaks for landlords. Analysis for the paper shows that for two identical properties generating £15,000 a year in rental income, the holiday let landlord can use tax breaks and other savings to avoid paying any income tax on their property. Holiday rentals are expected to generate more than £2.2bn this year, with mortgage experts reporting a rise in the number of owners boosting their incomes. Second Estates, the property investment firm, says rents on holiday lets have gone up by 4% since 2016, bringing the average rental income in the peak season to £1,250 a week. Meanwhile, the buy-to-let landlord will be left with a tax bill of thousands of pounds. Additionally, the sale of a holiday let will usually qualify for entrepreneurs’ relief, meaning capital gains tax is charged at 10% rather than the 28% rate a landlord must pay. (Source: The Sunday Telegraph, 28/04/19)

Struggling landlords want tax breaks to help with new energy laws – Many landlords cannot afford to upgrade their properties’ energy efficiency to meet new laws which came in this month. All new tenancies with Energy Performance Certificate (EPC) ratings of F or G must have upgraded to at least band E by April 1 and, while landlords who have not carried out the work can be fined up to £5,000 by local authorities, the Residential Landlords Association has warned that such an outlay could cause 20% of landlords with F or G rated properties to sell up, while over half (51%) would be forced to raise rents to compensate. Landlords who repair homes can claim the cost back against their income tax, but they cannot do this for improvements, and the RLA has now urged the Government to make any EPC-related upgrade work tax-deductible. (Source: The Daily Telegraph, 02/04/19)

Manufacturing

Factories stockpiling goods at record rate – A quarterly survey from the CBI has found that British factories are stockpiling goods at the fastest pace since records began in the 1950s as they prepare for Brexit. The survey showed that output growth sped up slightly in the three months but remained “modest” overall. CBI chief economist Rain Newton-Smith said the Brexit extension has been “encouraging”, but “does not give the longer-term certainty that [manufacturers] desperately need to invest in their businesses”. (Source: The Times, 27/04/19)

Eurozone factories stuck in longest slump since debt crisis – Eurozone factories have suffered a fourth straight month of contraction with industrial production slipping 0.3% year-on-year in February, dragged lower by a 2% decline in Germany’s ailing factories. The region’s manufacturers have blamed trade tensions, Brexit uncertainty, the car industry’s woes and China’s slowdown for the longest losing streak since 2013. (Source: The Daily Telegraph, 13/04/19)

Recruitment

Unemployment continues to fall – Unemployment fell by 27,000 in the three months to February to 1.34m, ONS figures show. The number of people in work was also virtually unchanged at a record high of 32.7m, with a jump of 179,000. The figure has increased by 457,000 over the past year, all among full-time employees and the self-employed. Average weekly earnings, excluding bonuses, had an estimated rise of 3.4%, before adjusting for inflation. When adjusted for inflation, pay, including bonuses, increased by 1.5% on the year, the highest figure since the summer of 2016. (Source: Financial Times, 17/04/19)

Brits take most new jobs since Brexit vote – Government figures show that British workers have filled nearly all of the new jobs created in the UK since the Brexit vote. Employment Minister Alok Sharma said the number of EU nationals joining the workforce since the 2016 referendum had fallen to fewer than 35,000, compared to the 410,000 EU citizens who joined the workforce in the two years before the vote. This means that while in the two years ahead of the referendum EU nationals accounted for over 45% of the UK’s growth in employment, since the vote the proportion has slipped to around 5%. Mr Sharma says that since the Brexit vote over 1m more people are in work in the UK, commenting: “Employers are clearly already adjusting to lower immigration from the EU.” (Source: The Daily Telegraph, 22/04/19)

Brexit fails to slow Robert Walters down – Robert Walters has reported a 10% rise in fees for its UK operations, brushing aside fears that uncertainty caused by Brexit will slow the jobs market. The recruitment specialist in sectors including accountancy and finance, banking, engineering, HR, IT, legal and sales and marketing said that it had made a “solid start to the year” with profits up 10% to £98.6m. (Source: The Times, 16/04/19)

Hospitality

£60bn in sales at risk from new fraud checks – The Federation of Small Businesses has joined the Institute of Directors and the British Retail Consortium in questioning the wisdom of new anti-fraud rules which industry groups fear will make it impossible to process online transactions. Purchases worth more than £30 will require “two-factor authentication” from mid-September but retailers fear £60bn of sales via cards online could be lost due to a lack of preparation for the change. “Rolling out the system before businesses and shoppers are prepared for it will be bad for all concerned. We’re a few months from enforcement and hardly anyone has even heard of it,” said Mike Cherry, chairman of the FSB. (Source: The Daily Telegraph, 26/04/19)

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