Wealth planning issues of various kinds have been a real feature of our conversations with High Net Worth Individuals in recent weeks.
The Conservative government’s new rock-solid mandate means that investors are no longer sitting on the side-lines, but rising geopolitical tensions have put risk – and therefore gold – back in the spotlight. The UK’s punitive IHT rates are also top of the agenda.
The Conservatives’ landslide victory in December delivered high net worth individuals from the potential “Nightmare before Christmas” of a tax-hungry Labour government with plans for stock seizures and other measures not at all favourable to anyone with any wealth. The resulting certainty of the Tories very strong majority has turned on the investment hoses into the previously unloved UK stock market and seriously bolstered sterling.
We’ve seen a flurry of new users looking for wealth management advice at the beginning of 2020, underscoring very powerfully to us that investors are now looking to put investment capital to work. Indeed, we often hear of users who have been sitting on an inheritance or other windfall in order to see how the political landscape lay. For at the next five years at least, now we know.
Many predict that equity growth will not exceed high single digits this year, making it even more vital that investors secure the very best performance and the lowest possible management costs
The UK may be set to boom, but investors are recognising the ongoing difficulty of securing attractive investment returns as old and emerging risks continue to weigh on markets (the tensions between Iran and the US already affecting asset allocations, as below).
Experts are urging investors to remember that 2019 was a stellar year for global equities (these returning 22% in sterling terms) and that corporate earnings will need to resurge to sustain further market gains in 2020. Many predict that equity growth will not exceed high single digits this year, making it even more vital that investors secure the very best performance and the lowest possible management costs.
Rising tensions between the US and Iran have helped push gold prices to seven-year highs as investors have rushed to the traditional safe haven asset. The resulting headlines have got many of our users this month asking whether they should be buying the precious metal.
Gold may be a time-honoured store of wealth, however, as we always caution our users, it is still very much an alternative investment and as such only usually warrants a small allocation within a portfolio. Investment managers are already warning that gold’s gains could be lost as soon as any de-escalation of geopolitical tensions takes place.
Potential “gold bugs” also need to be aware that investment in physical gold bars starts at around £100,000 and storage costs need to be taken account if physical delivery is taken. It is likely that getting gold exposure through an Exchange-Traded Fund (investing either in the metal itself of mining companies) might be the most cost-effective option for the majority of investors.
Whether gold is an appropriate investment for you is not a simple question to answer. Arriving at (and maintaining) an appropriate asset allocation for your profile and needs is a complex task and one where wealth managers really add value. Why not arrange to have a professional take a look at your portfolio free of charge to ensure yours is as it should be?
It’s always gratifying to hear our users talking about their net performance – the figure we always urge investors to pay attention to. By appreciating how much of a drag costs and fees represent to your long-term performance, you can ascertain the true value an investment manager provides. It is good practice to compare existing and prospective providers on a like-for-like basis and our 3-minute matching tool makes this easy.
Concerns over Inheritance Tax (IHT) are never far from our users’ minds, since people naturally want to pass as much wealth as possible to the next generation, rather than bequeathing tax charges to their family.
We’ve recently heard a lot more about IHT from our users, however, no doubt due to new figures from UHY International revealing that the burden of this much-hated tax is paid in the UK at levels more than double the EU average.
While high net worth individuals would no doubt faced much greater challenges under the Labour party, our users have clearly been roused to read in many of the broadsheets that individuals in the UK pay an average of 24% or £564,523 GBP in IHT when passing on an estate worth £2.4 million, compared to an EU average of 10% or £243,297.
As many beneficiaries have learnt to their cost, the issue is that the IHT threshold has been held at £325,000 for over a decade while property prices have broadly soared (particularly in London and the South East). This has resulted in significant numbers becoming “property millionaires” and many more families being caught in the IHT net.
There are many strategies families can pursue to minimise – and even effectively eliminate – any IHT charges that may be applicable to estates
There are many strategies families can pursue to minimise – and even effectively eliminate – any IHT charges that may be applicable to estates. Business Property Relief eligible investments like Enterprise Investment Funds can, for example, be a particularly powerful tool.
Yet it should never be forgotten that the UK has one of the most complex tax codes in the world and professional guidance is essential to implement any tax mitigation technique successfully. IHT can be particularly fraught with challenges, but the gains on offer means that anyone with the capability should try to keep their estate’s potential tax exposure down. Also bear in mind that a certain degree of lead time is necessary for some strategies to fully bear fruit.
Our traffic volumes confirm that political certainty and the spirit of the New Year are clearing motivating High Net Worth Individuals to get their financial action plans moving. Choosing to get proactive about making your wealth work as hard as it can could be one of the best decisions you ever make.
Many of the wealth managers on our panel offer expert financial planning advice as well as investment management services all under one roof. Why not get 2020 off to the best possible start by meeting with a few wealth managers to see what they could help you achieve? You might be surprised at how much more quickly you could reach your goals and maximise the wealth of your family long term.