The team from The Fry Group consists of David Penney and Anthony Flynn both of whom are financial planners located at the firm’s London and Cirencester offices (respectively), in addition to James Latchford, a paraplanner, and Danielle Barnes, an administrator, both from the London office.  The team is hoping to collectively raise at least £4,000 for the charity.

The Highlands Challenge will see the team start from Inverness on the east coast of Scotland and travel by mountain bike, foot and canoe for 60 miles across the full length of Scotland’s Great Glen.  A climb of Ben Nevis will take the team to the highest point in the UK at just under 5,000ft, where they will then descend to Fort William on the west coast to complete the race.

Jeremy Woodley, UK Director, The Fry Group said, “We all wish the team the very best of luck in the forthcoming Highlands Challenge. It is certainly a significant test of endurance and we are all proud of the team’s determination to not only complete the challenge, but to raise as much money for the Mitchemp Trust charity as possible.  Good luck!”

Donations can be made by visiting http://uk.virginmoneygiving.com/team/highlandtossers. Further details regarding the Highlands Challenge are also available by visiting http://www.highlandrace.co.uk/#overview.

Our view is “no”.

Reverting to fundamental analysis of human behaviour, all investment decisions are either based on ‘fear’ or ‘greed’.  No doubt markets are gripped by fear at the moment but that mustn’t be a reason to rush into irrational investment decisions.  For example, during equity market volatility, the gut reaction is typically to sell and revert to cash or government bonds.  But, allowing for inflation, cash will lose you 5% a year at the moment and bonds are likely to lose you 2% – 3% a year.  I hasten to add that one should hold bonds if a secure income is a priority but perhaps within a strategic bond fund as a means of enhancing/protecting returns.

Our conviction is that Western economies will have to monetise their debt (ie: continue to print money) to get out of this slump and, in the end, that will result in a rise in inflation.  Over the medium to long term, set against that backdrop, the fundamental appeal of real assets such as equities remains apparent.  However, effective stock and asset selection is key to navigating an upward path through these volatile times and anyone in trackers where stock selection or diversified asset allocation is not an option is likely to be in for a bumpy ride over the short term. 

In the meantime, the good news:
• In the majority of cases, a correction doesn’t turn into a bear market according to a new note from Birinyi Associates:

- Since 1962, there have been 25 corrections greater than 10% during bull markets. Nine of these instances became bear markets. Historically there is a 64% probability that this is only a correction and not the start of a bear market.

- The average correction is 13.2% and lasts 118 days. If this market follows the pattern of the average correction, the FTSE100 will bottom at 5,268 on the 25th of August.

• Wall Street has never been more sure the Standard & Poor’s 500 index will rally in 2011, even after speculation the US economy is heading for a recession prompted the biggest plunge since the bull market began.  Chief strategists at 13 banks from Barclays Plc to UBS AG see the benchmark measure of American equities surging 17% through to December 31, the average estimate in a Bloomberg survey.

• Corporate health is strong for many companies across the globe according to fund managers.  Jupiter CIO John Chatfield-Roberts:

“It is at difficult times like these that we have to remind ourselves that companies are generally in excellent health.  By way of example, two-thirds of the US companies in the S&P 500 Index have now reported Q2 earnings and 73% of those have exceeded analyst expectations. That said, they are understandably making cautious outlook statements to the market.”

For further information on the current state of markets Patrick Armstrong of Armstrong Investment Management provided this interview on CNBC on August 3rd.

Our message for the time being is to sit tight and not to lose sight of the long term objectives of your portfolio.  Of course, if you have concerns or wish to review your investment portfolio, or to discuss your investment strategy please contact us.

In the March 2011 budget, the UK Government announced its intention to formulate a legal definition of residence. The aim was to create a framework which could be easily used to help people decide with certainty whether they are resident in the UK or not.

Last Friday the Government issued a Consultation Paper outlining their thoughts. The consultation period runs for 12 weeks and The Fry Group will be participating. After the consultation ends, legislation will be enacted to bring new rules into force on 6^th April 2012.

This news will be of interest to any British expatriate anywhere in the world. Please make it a priority to update friends and colleagues, and to recommend that they subscribe to our eBulletins. We will report on developments as they happen.

The consultation document shows that the government has a good appreciation of the difficulties people have faced when trying to establish whether they are resident in the UK or not.

The main highlights of the proposals are that:

Ø      Residence status will be decided on an annual basis, with each year being viewed in isolation from the previous year

Ø      It will be harder to break residence for UK tax purposes than it will be to become resident

Ø      The 91 day average test will be scrapped, the 183 day rule will remain

Ø      Up to three separate tests will be used to determine whether a person is resident or not, and the maximum number of days a person may spend in the UK each year. Each test has separate conditions.

Working full time overseas?

At first glance, the rules seem more or less unchanged for those leaving the UK for full-time overseas employment, apart from a complication if more than 20 days work is carried out in the UK during the tax year in question. This will be a tremendous relief to many thousands of expatriates. However, those who claim non-resident status whilst undertaking ‘substantive’ employment in the UK and who have other connecting factors are likely to be the most at risk. Here we think primarily of those who have regular duties in the UK, such as airline pilots and those with responsibilities entailing frequent business travel to the UK.

Leaving the UK for other reasons?

For those who leave the UK for other reasons the rules are quite restrictive and an exit from the UK would need to be planned very carefully. For example, in certain circumstances leaving the UK for anything less than full-time overseas employment and spending more than 10 days in the UK in the year of departure will mean an individual is still resident in the UK for tax purposes for that year.

Retired overseas?

For those who are already safely non-resident and are not working full-time, advice will be needed as to the strength of connections to the UK and the maximum amount of time which can be spent in the UK each year. An annual review will almost certainly be needed. For the British expatriate who lives abroad and has only modest connections to the UK, the proposals look to be good news. For those not working full time abroad, whose families remain in the UK, whose main home may be in the UK and who are keen to spend as much time in the UK as possible, the proposals are very much more concerning.

Ultimately it is a question of how carefully each person plans their overseas life. The Government appears focused on using the new guidelines to capture those who are trying to claim non-resident status whilst everything in the way they live their life points in the opposite direction. This principle has also been the focus of most recent case law decisions on residence – so in a sense the proposals offer no significant surprises. 

Finally, please remember that this news item presents a simple summary of the Government’s proposals. The final rules are likely to be somewhat different. Therefore, it is important to keep in touch with us and to seek personalised advice as to how they might impact you.

Please contact us if you would like to be kept informed of how these changes could impact you. If you would like to subscribe to future editions of our eBulletin please complete the Subscribe to our E-Bulletin box on The Fry Group home page.

The traditional model of risk is straightforward enough, with low risk : low potential return investments sitting on one side of the scale and high risk : high return investments on the other. Risk increases incrementally through cash, gilts, corporate bonds and then equities.

The current economic backdrop is one of low interest rates, heavy tax burdens and stubborn inflation. This is not a favourable environment for assets traditionally seen as low risk. With UK interest rates close to zero and inflation running at approximately 4%, cash is guaranteed to lose real purchasing power. A UK higher rate taxpayer would need to earn in excess of 6% simply to stand still.

Government bonds are being propped up by the enforced buying of central banks through quantative easing, with an increased risk of default in some countries.

Corporate bonds will offer higher yields to compensate for the increased risk of default and managers of strategic bond funds have an opportunity to demonstrate their worth by optimising returns across all fixed income assets.

If these lower risk assets appear unattractive or run the risk of falling in value, investors may turn increasingly to more volatile and higher risk assets, such as equities. In a mildly inflationary economy with low interest rates, large “blue chip” companies have the capacity to borrow relatively cheaply and pass on to consumers the increased costs of production and are therefore able to maintain relatively attractive dividend distributions with the yield on the FTSE 100 Index running at approximately 4%. The corporate sector has gone through significant cost reduction over the last few years, removing inefficiencies and enabling companies to hoard cash.

In a well-balanced portfolio an argument could be made for reducing exposure to lower risk assets, such as fixed income, whilst building up exposure to higher risk assets, such as equities. Without overlooking the remaining asset classes of property and commodities, most clients recognise and understand cash, bonds and equities.

The inflation risk we see increasingly in cash and bonds argues strongly in favour of diversified portfolios containing good quality equities.

To review your investment portfolio or discuss your investment strategy, please contact us.

It is also worth considering how your current ISA savings are performing. If your cash ISAs are languishing in poorly paying bank ISA savings schemes, it is worth exploring other options. There are many 100% capital guaranteed ISA’s – with the same regulatory protection as the banks – available which may offer you a better return than your current plan. For example, some ISA schemes are currently paying 6% per annum. Alternatively, there are growth plans available offering a minimum 15% return and a maximum return of the gain in the FTSE or 50% – whichever is lower.  Capital does have to be invested for at least 5 years, and these plans do have a limited shelf life, but they can be useful if you have a lump sum to invest.

For more information about ISA and investment options, please contact us.

The plans referred to in the above statement will still ensure that your capital is guaranteed. The rates of return however may be dependant upon the growth of equity indices and therefore could be less than the figures quoted – depending on trading conditions over the period invested. You must read the terms of any plan thoroughly before entering into any investment.

This test, which would come into force in April 2012, should provide a legal framework by which taxpayers can determine whether they are resident in the UK or not.

Press speculation about this topic is sure to be widespread. The Revenue’s attitude on residence rules has become increasingly stringent in recent years, and the legislators have a tricky job on their hands to try to ensure the test is reasonable and useable. Hopefully a sensible solution can be found which satisfies the need of taxpayers, advisers and business for clarity on the one hand, and the Exchequer’s need for tax revenue today and tomorrow, on the other.

Whilst crystal ball gazing can always be hazardous, I would expect that certain elements will form part of the text:

(i) Days of presence in the UK – not just in the most recent tax year but perhaps over a period of years. In the last few years Parliament has debated the virtues or otherwise of the Irish and US day counting systems and it is questionable whether the current 91 day average rule will survive. That said, a count of the number of days an individual is in the UK is a measurable and provable fact and so I would be astonished if there wasn’t some kind of test along these lines.

(ii) Separate and different sets of conditions may well apply to those who leave the UK to work full-time and those who do not. Any terms should confirm the level of attachment a person in either category may have to the UK to be able to maintain their non-resident status. It is likely that items to be taken into account would include the availability of accommodation in the UK (which was in statute law until 6 April 1993) and in the host country, the location of immediate family members, the question of whether a person is resident in their host country for tax purposes, and where the duties of any employment are undertaken.

(iii) Some form of requirement for registration and deregistration for tax purposes in the UK might be introduced – i.e. an administrative step to prove that a person has left the UK or has returned. This is already a feature of many European tax systems.

There is a further facet to this. Will the new residence test help those people who are UK resident presently to break residence in the future? Or will it merely be a guidance mechanism to help non-residents stay non-resident, or to capture the unwary non-resident? It is too early to say for sure. However, it is unlikely that the new test will be entirely satisfactory to everyone. There will be winners and losers and inevitably there will be devil in the detail which will complicate any interpretation.

As with so much government legislation, time will tell. On a positive note The Fry Group expects to be fully involved in the government’s consultation process. After dealing with clients and residence issues for many years we are well placed to try to ensure that the test provides a sensible, useful framework for determining residence status.

If you have a concern about residence, and your exposure to UK tax whilst living overseas please contact us.

Aidan Bailey is Associate Director at The Fry Group. As manager of The Fry Group’s Singapore office he produced a successful blog on current financial matters and, following his return to the UK office, will now offer insight into the latest opinions in the financial world.

A bond issued by a non-UK (offshore) insurance company offers two principle advantages:-

1 – Many separate investments can all be held in one simple package. Switching between funds is straightforward.

2 – Often the tax treatment of the bond is different from that applying to the underlying assets. For example, if a UK resident holds cash on deposit then tax is payable on the interest. When holding that same deposit in a bond, no UK tax is payable until a withdrawal is taken – and even then 5% of the original investment can be drawn without tax at that time.

Unfortunately, unscrupulous advisers can use bonds to generate extremely high levels of commission. This has given bonds a bad press – but as a planning tool they certainly have their place in any tax adviser’s armoury.

Indeed, starting an offshore bond sooner rather than later can make a good deal of sense. That is due to “time apportionment relief”. For example, if you had started a bond in 2000, returned to the UK in 2010 and decided to surrender the whole of the bond in 2011, tax would only have to be paid on one eleventh of the gain. What is particularly attractive is that this relief applies even where the bond has been built up by a number of contributions over many years. So, if you are not able to invest a lump sum but can afford to build up to that lump sum by regular contributions, then the whole of the value in your bond still attracts that beneficial tax treatment.

That is quite convenient as most of us save from earnings, with perhaps the occasional bonus, and simply do not have large lump sums of capital until close to retiring, or just returning back to the UK.

In that case, we can arrange for a bond to accept contributions over a long period of time so it becomes a good home for savings at the same time as you build up a tax advantage. You do need to be careful though about the charges – expatriates wanting to save regularly is a frequent receipt for “rip offs”.

Of course, the same logic applies if you happen to have a larger lump sum. Again, you need to be wary of the level of commission being charged. We are here to help you assess whether a bond is likely to be effective in your own circumstances.

So, overall, bonds are well worth a look when you are tax-planning (but be careful of the commission) and it can make sense to start sooner rather than later.

Bonds therefore have their place in the expatriate’s investment portfolio. For more information on planning your finances so that you benefit more from your savings please get in touch.

Until recently, the government made it mandatory for those aged 75 to purchase an annuity (an income for life provided by an insurance company in exchange for a pension fund).

On 9th December 2010, all this changed when the government published new rules which stopped the forced purchase of annuities at 75.

However this relaxation of the rules may just cloud the issue. For many the purchase of an annuity may still be the best, or only, option.

Newer flexible plans and other enhancements made during recent years mean that opting for an annuity may provide the most sensible means of providing for financial security in retirement.

Caution is still required though…

For those with pension funds which would pay at least £20,000 a year there are some very radical changes, and action needs to be taken to avoid a large tax charge.

These changes do also impact those already using a SIPP for drawdown purposes and could have serious consequences on the level of income being taken. If you have any concerns please do get in touch.

Pension planning is one financial task which is better started early and reviewed over time. For more information, please contact us.