The MAM Blog – National Savings & Investments


Charles Roberston – Senior Investment Manager

From 1 May 2019, existing holders of Index-linked Savings Certificates will only be able to re-invest the maturity proceeds in Index-Linked Certificates where the return is based on the Consumer Price Index (CPI) measure of inflation, instead of the currently used Retail Price Index (RPI). The change is due to the reduced use of RPI by successive governments to measure inflation and is in line with NS&I’s requirement to balance the interests of its savers and the cost to the taxpayer.

CPI has historically yielded a lower rate of inflation than RPI (currently 0.9% lower). This can largely be attributed to the way the two indexes are calculated and the fact that RPI incorporates the housing market (which has historically been a volatile asset class); taking into account rises in mortgage payments, rents and council tax while CPI does not. Therefore, existing holders of Index-Linked certificates (they are currently not available for new purchases) which mature prior to the 1st May 2019 deadline should consider re-investing the proceeds for the maximum period of 5 years if they are able do so. The new measure of inflation will only be applied when a re-investment is made because existing holdings will continue to be based on RPI.

The MAM Blog – Budget 2018


Richard Johnston – Financial Planning Director

On Monday 29th October, Philip Hammond delivered his third Budget as Chancellor and, similar to the previous two, there were few standout policy changes.

It has been commented that it was an agreeable Budget and one typical of a party running for re-election, but Mr Hammond did highlight that a more severe ‘emergency’ Budget may be required in the event of a ‘no deal’ Brexit.

Focusing on one giveaway, the personal income tax allowance will be increased from £11,850 to £12,500 for 2019/20, with the higher rate income tax threshold for residents in England/Wales/NI increased from £46,350 to £50,000. This lofty, round number was originally promised for 2020/21, but will now be enjoyed a year earlier – assuming, of course, that a Brexit deal can be agreed.

For residents in Scotland, this should prove to be interesting with the SNP’s Derek Mackay due to deliver his own Budget on 12 December.

The Scottish Government cannot control the personal allowance (as it is reserved for Westminster), although it might not be inclined to use a lower figure, in any event.

It can, however, determine the higher rate threshold in Scotland, with it already lower than that of the rest of the UK, at £43,430. It would be surprising if Mr Mackay introduces a similarly large increase and, therefore, the gap between the two parts of the UK is expected to widen from April 2019.

I previously wrote about how the gap causes some undesirable results, as certain taxes remain reserved for Westminster. If the gap widens further, it may lead mobile, high earners to move south – something which the Scottish Government should be keen to monitor before it is too late.

The MAM Blog – Additional Permitted Subscription for an ISA


Charles Robertson – Senior Investment Manager

For most investors a Stocks and Shares ISAs is an excellent long-term savings vehicle given the associated exemptions from Income Tax and Capital Gains Tax.

Until recently, the ISA tax benefits were lost on the death of the account holder, but this changed in the 2014 Autumn Budget when the Chancellor announced a new measure called an Additional Permitted Subscription (APS). An APS allows the spouse or civil partner of the deceased ISA account holder to effectively ‘inherit’ the ISA.

The rules relating to an APS contribution are complicated and time limits are applied, but the benefits may be considerable given the potential capital sum involved. Therefore, it is worth seeking advice whenever an ISA is held in a deceased’s Estate. The number of people taking advantage of these new rules has fallen well below initial forecasts and we consider that this is very surprising given the potential tax benefits associated in making an APS.

The MAM Blog – Scottish Income Tax Rates


Richard Johnston – Financial Planning Director

The Scottish Parliament now has much greater power to adjust income tax rates for Scottish residents and has taken the opportunity to do so for 2018/19.

  • Firstly, the higher rate of tax has been increased from 40% to 41%, with the threshold restricted to £43,430. The corresponding level in the rest of the UK is £46,350.
  • Secondly, the basic rate of income tax has been split into three bands – the first £2,000 being taxed at 19% (the ‘starter’ rate), the next £10,150, being taxed at 20% (the new ‘basic’ rate) and the remaining £19,430 taxable at 21% (the ‘intermediate’ rate).
  • Finally, the additional tax rate, applying to income above £150,000, has been increased to from 45% to 46%.
  • This divergence creates some complexities because the Scottish Parliament’s powers do not extend to savings interest, dividends or Capital Gains Tax – all of which work by being added to the individual’s other taxable income to determine the rate at which they are payable.

    In addition, National Insurance (NI) rates and thresholds are not controlled by the Scottish Parliament. For example, as NI rates are 12% for basic rate taxpayers and 2% for higher rate taxpayers, Scottish taxpayers’ earnings between £43,430 and £46,350 will therefore now be taxed at 53% (i.e. 41% + 12%), before falling back to 43% beyond this.

    Personal pension and charitable contributions are also affected, as the default rate of relief applied remains at 20%, but a Scottish taxpayer will have the right to claim the additional 1%.

    It is therefore clear that the changes introduced will not only lead to additional tax for Scottish taxpayers, but potentially some confusion and administrative burden.

    The MAM Blog – Bitcoin


    Charles Robertson – Senior Investment Manager

    Having returned recently from the USA there was one topic of conversation that frequently occurred and it wasn’t what you would have thought. It was ‘should I invest in Bitcoin’?

    Bitcoin is a virtual or cryptocurrency that was created in 2009. Created/’mined’ by computer code they exist within an interlinked computer system and the maximum number in circulation will be limited to 21 million. A ledger, Blockchain, can store, monitor and be used to exchange the Bitcoin in the ‘real world’ or on-line economies. It is perceived to be attractive because of the limited supply, the lack of regulation and anonymity it affords and the lack of government control. The last two features means that it has also been associated with on-line criminal activity. Bitcoin has displayed a staggering increase in value from 6 cents in August 2010 to more recently when the price has exceeded $8000. The number of exchanges where Bitcoin can be traded and the number of retailers prepared to accept Bitcoin has also increased exponentially. The price has displayed a staggering level of volatility, but after each dramatic fall it has so far recovered and pushed higher.

    Perhaps it is the rise in value that has prompted so much discussion and persuaded so many investors to become involved. People are prepared to trade and accept Bitcoin because other people are prepared to accept Bitcoin. If this source of demand is materially reduced for whatever reason (and my best guess would be some form of synchronised interference by governments) then recent investor behaviour does start to look a lot like ‘a mania’, the epitome of the so-called ‘greed trade’.

    This week saw the launch of Glint Pay Services which has the aim of ‘re-introducing gold as money’. Based on a debit card and supported by mobile technology, it will allow people to store rights to gold i.e. a very different type of currency to Bitcoin. Gold as a currency has been in existence for nearly 3000 years, but over the past few years the performance has fallen well short of the price rise seen in Bitcoin. However, I can say with a degree of certainty that gold will have a value in 10 years’ time, but I am far less confident about making the same statement about Bitcoin, particularly if we are in a period of investor mania. So would I invest in Bitcoin right now? The answer would be no, but the development of cryptocurrencies is a phenomenon that is likely to last and so should be monitored carefully.

    On my trip the ‘Trump effect’ was also discussed a fair amount, but I will save that for another time – perhaps it should be in the form of a Tweet!

    The MAM Blog – Defined Benefit Pension Transfers


    Richard Johnston – Financial Planning Director

    Recently, there has been a surge in individuals transferring their entitlement within defined benefit (DB) pension schemes (e.g. a final salary pension scheme) to a defined contribution (DC) arrangement (e.g. a personal pension) – and with good reason.

    Why the Sudden Interest?

    The ability to transfer the entitlement has always existed, but the sums offered have increased significantly since the Brexit referendum of June 2016 as a result of changing economic factors which influence the calculation performed by the DB schemes’ actuaries. (Specifically, the reduced Gilt yield and increased inflation rate are largely responsible).

    As DC arrangements have become much more flexible in recent years, this has also increased the demand for such plans. Many people view the transfer as an opportunity to enhance the potential inheritance for their children, given that the income from a DB scheme often ceases upon death (unless there is a surviving spouse), whereas a DC pot can be inherited – potentially with little or no tax being payable.

    Who Can Transfer?

    Essentially, any person with benefits within a ‘funded’ DB scheme can transfer (so excluding schemes such as those applying to the NHS and Civil Service), but normally only deferred members (i.e. those no longer actively accruing entitlement) are likely to pursue it, given that it would otherwise be necessary to opt-out of the scheme.

    From a practical perspective, however, there is a legislative requirement to obtain independent financial advice if the value involved is over £30,000 and so those with transfer sums below, say, £150,000, may find it unviable to pursue the matter.

    For a person in their late 50s, current transfer values are typically 25-30 times the annual deferred pension income and so this can be used as a means of estimating.

    How to Proceed

    Firstly, it is important to obtain a guaranteed transfer value quotation from the scheme which, once presented, is guaranteed for three months. The main concern with doing this is that most schemes only permit members to obtain one valuation each year – but otherwise there is no cost to requesting it.

    The next step is to approach an appropriate and qualified financial adviser so that they may assess the valuation, discuss the pros and cons, and advise accordingly.

    Murray Asset Management provides this service, so please get in touch if it interests you.