This information is relevant to anyone living abroad who receives pension income from the UK.

If you are living abroad it is sometimes possible to enjoy your UK pension income free of tax. This is usually the case if you have worked overseas during much of your career, or if you live in a country with which the UK has a double taxation treaty.

Generally, the taxman ensures that this exemption applies by granting a ‘No Tax Code’. This code is usually re-awarded automatically each year.

However, in the last few months we have seen a big increase in the number of clients who have contacted us to say that their ‘No Tax Code’ has not been rolled forward into the current tax year and that they have started to see income tax withheld from their pensions. Understandably, many are very concerned, but we are finding that the taxman will eventually reinstate these codes, though this can often take a little while. In a nutshell, provided that your situation has not changed and you remain overseas, you should still be entitled to enjoy the benefit of a No Tax Code.

It is difficult to determine why there have been so many of these cases this year. Undoubtedly it may be an IT glitch, which necessitates human intervention.

If you receive UK pension income which is normally exempt, we would suggest that you check your payslips carefully. If you are concerned please contact us and we will be happy to liaise with the taxman on your behalf.

Alternatively, if you receive pension income from the UK which is normally taxed at source and would like to check whether exemption could apply to you, please let us know. If exemption does apply, it can usually be applied retrospectively, which can often lead to a refund of income tax, sometimes covering many years.

For more information please get in touch with Martin Rimmer, International Tax Manager at The Fry Group by emailing martin.rimmer@thefrygroup.co.uk or calling 01903 222230.

The Fry Group (HK) Ltd is authorised to conduct investment business by the Securities & Futures Commission (SFC) in Hong Kong.

An overview of the UK Emergency Budget, delivered on 22nd June 2010, is available here.

On 25th May, the Queen delivered a speech which cemented the new British Coalition’s full programme for government. Notably, the plans confirmed that the world of pensions has changed significantly.

In simple terms the long term value of pensions went up, the British public is being forced to start planning for itself, greater flexibility has been added and most will have to wait longer before starting to claim a State pension.

The main announcements were as follows:

• The government will restore the earnings link for the basic state pension from April 2011, with a ‘triple guarantee’ that pensions are raised by the higher of earnings, prices or 2.5%.
• An independent commission will be established to review the long-term affordability of public sector pensions, while protecting accrued rights.
• The ‘default’ retirement age will be phased out. A review will be undertaken to set the date at which the state pension age starts to rise to 66, although it will not be sooner than 2016 for men and 2020 for women. The government will also end the rules requiring compulsory annuitisation at 75.
• The government will explore the potential to give people greater flexibility in accessing part of their personal pension fund early.
• Pensions rules and regulations will be simplified to help reinvigorate occupational pensions, encouraging companies to offer high-quality pensions to all employees, and the government will work with business and the industry to support auto enrolment.

If you would like to review your pension planning, please get in touch.

The UK is now agog at the appearance of a real 3rd force in domestic politics and the stock market is having to adjust to the real prospect of the next Parliament being hung or balanced.

Amidst the welter of scares about the currency crisis that this situation would cause, the stock and bond markets are quietly going about their jobs. Perhaps we are seeing signs that if voters are tired of politicians then so is business. The attitude seems to be that the world will do what it will no matter what the politicians decide.

Of course, there is a large budget deficit to face but meantime figures for the first quarter show the UK economy continuing to recover. Despite the snow chaos, GDP grew by 0.2% and although that might be a little lower than forecast it is a higher number than originally announced for the last quarter of 2009 and will probably be revised upwards.

So, the economy is recovering and corporate earnings – both in the UK and around the globe – are coming in very nicely. All of this suggests that the UK market will stagnate before the Election on 6 May. The immediate post Election reaction will depend very much on what happens but the vibrant economic mood will dominate the outcome. With the yield on the FTSE 100 at 3.25% pa exceeding the return on deposits and with interest rates set to remain low the stock market still offers considerable attractions for the long term.

Naturally, the UK election tends to dominate thinking. Global markets remain attractive although threats of a global bank tax will cause occasional concerns.

Despite worries about future action on the UK Budget, deficit Sterling has strengthened just recently – perhaps the markets have something in common with UK voters in that a hung Parliament is not as bad an outcome as might have been feared.

Author: Graham Barnes, International Director

Investment Highlights

• US stockmarkets have a strong month, with the S&P 500 index recording its best first-quarter return since 1998
• US economy continues to improve, helped by retail sales and jobs growth
• Unemployment in the Eurozone hits 10%
• Greek rescue package agreed, Portugal downgraded by Fitch
• Mid-cap companies outperform their large- and small-cap counterparts, spurred on by mergers & acquisitions activity
• Chancellor Alistair Darling’s 24 March Budget proved to be a non-event
• Interest rates increased in Australia, India and Malaysia as ‘emergency’ measures start to be phased out
• Rhetoric surrounding the valuation of the Chinese currency increases, with the US pushing for appreciation of the renminbi
• Mexico leads rally in Latin American stocks, benefiting from a steady recovery in US consumption
• Yields on the two-year Treasury and Gilt increased by 21bps and 20bps respectively, while on Greek bonds they fell by 102bps.
• However, while two-year yields are a little over 1% for US and UK bonds, on Greek debt they remain over 5%

With the Dow Jones Index breaking back through the 10,000 mark, we have reached a real milestone for equities. At the same time, the FTSE 100 has pushed comfortably through the 5,000 level. Thus the Dow Jones and FTSE 100 have risen by 11% and 15% in local currency terms since the beginning of 2009 and by 46% and 44% since March.

Investors face the prospect of very low returns on cash deposits and have clearly fuelled rises in the price of most risk assets this year. Bonds and commodities have moved up strongly too.

Can equity markets continue at this rate? Certainly there is clear historic proof that the market recovery will continue for some time yet.

The markets have rallied because of the huge support provided by World Governments to the financial system and we have two statements from central bankers demonstrating that commitment will remain in place for some time.

“I believe that policy makers should err on the side of caution as they decide when to exit from their crisis response policies.”
Dominique Strauss-Kahn, Managing Director of the International Monetary Fund speaking in Berlin on 4th September 2009

“It is far too early to talk about an exit strategy. The economy may face a bumpy road ahead”
Liu Mingkang, Chairman of the China Banking Regulatory Commission, speaking in Hong Kong

So, our view on equity markets has shown to be right. It is possible, even now, to buy shares with an income higher than that paid on UK gilts. Surely it is better to invest in strong business with the prospect of growing dividends than with the Government at a fixed (and very low) rate.

The fear remains that the economies of the UK, USA and Europe will struggle to grow under the burden of the support provided by their Governments to financial markets. That burden is much lower in the emerging markets hence our long term view that those are the areas to look for growth.

And the threat of inflation? In our view it is still there but perhaps two or three years away. In the meantime, with interest rates set to remain low the outlook is good for risk assets.

Graham Barnes – 21 October 2009

Highlights for October 2009

• Evidence that the US is exiting recession boosted by upbeat retail sales and housing data
• US dollar remains under pressure
• In Europe improving economic outlook and better-than-expected earnings results provide support for equities
• Strength of the euro currency remains an area of concern for the region’s exporters
• The FTSE 100 index rallies through the psychologically important 5,000 for the first time since October 2008
• Economic data less buoyant as reflected by a further rise in unemployment levels
• Equity markets in Asia ex-Japan extend their recent rally
• Japanese stocks lag due to political concerns and possible regulatory changes to the banking sector
• Double-digit monthly returns in several countries, including Brazil and Russia
• UK corporate bond market posts sixth consecutive month of positive returns