17 Mar 2017, 12:38pm
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  • I need a jolly good stock market crash to go along with that 20k annual ISA

    It’s nice that we have a bigger annual tax-free investment allowance in April (20k up from 15,240), but most of the opportunities for saving and investment suck at the moment IMO.  Tax-sheltered savings are all very well, but there’s no point in doing that with cash these days, because at current 1-2% interest rates you can save 25k of cash as a higher rate taxpayer and twice that much as an ordinary grunt before you run out of savings interest allowance. And have you tried 1 to get 2% in a cash ISA lately?

    What to buy next year then?

    Over to the good old S&S ISA. So I have 20k burning a hole in my pocket next year, what should I go for? Although I do some background steady index investing in one ISA, with about half a year’s contribution I try and aim at what’s beaten up at the moment. I’ve tended to be too early into these – I was saved by Brexit from an early foray into Putin’s Russia, and saved by Brexit again when I was overenthusiastic about emerging markets. Other dogs have come good by their own work, and been Brexit boosted – I can’t remember when I first bought BRWM when it was in the doghouse and topped it up when it continued to be in the doghouse, but it has redeemed itself of its mutthood to be a good team player in my ISA now. I can be happy that I have nothing in the most popular fund lists for 2017, apart from VGLS100, which I have just sold. In indexing, I am a VWRL guy these days, because I have zero cost of carry 2. It’s good not having the same stuff as everyone else. I tried that the other way round in the dotcom boom and it didn’t end well at all 😉

    Valuations have been high of late, those nice guys at starcapital have a summary of where we stand with CAPE and various other metrics. Donald Trump’s America is the 600lb gorilla here at 43% of global weighting, but I was surprised to see Blighty in there with 5% global, and indeed to see that France is a bigger part of global markets than Germany though less than the UK. What the hell should I buy, if anything? Trumpland is way up there in valuation. And I’m already buying a load of that via a regular Dev World exUK purchase as well as VWRL, I really don’t want any more of it. I have every admiration for American exceptionalism, but you can have too much of a good thing.

    The trouble with looking at performance is that Brexit has muddied the waters greatly

    Our fellow countrymen voted for a pay cut of 20% so they could take their country back and stop hearing furreners jabbering away talking foreign on the High Street. An awful lot of my ISA is foreign assets, and even the UK based HYP tends to be FTSE100 big fish who earn a lot of money out of the UK. As a result the whole thing, denominated in pounds, is sky-high. It’s sort of like the effect on this picture

    If Brexit were an Instagram filter it would look like the top right

    It makes it the devil’s own job to tell what’s going on, whether something is up because of its inherent value, or if it is the effect of the devalued pound. Into that fog of war I need to try and invest £20k, or hold it as cash because I deem the stock market overvalued, or some combination of all that. And I’m puzzled. Okay, so when you take last year’s £15k ISA allowance and deflate it by the 20% Brexit Tax then that means 18k of the new allowance represents the same real value as £15k did last year if you’re buying foreign assets, however, the allowance has genuinely increased by about 10% in real terms.

    What on earth is a fellow to do?

    Perhaps His Trump-ness is really going to drag the US out of the twisted wreckage of the financial crisis, by building walls all over the place, and telling the rest of the world to fuck right off as he Makes America Great Again. At the moment it seems he does policy by diktat and his pronouncements bear more resemblance to religious belief, or at best a random wibble generator powered by haterade, but that is obviously my pusillanimous European 3 upbringing blinding me to his multifarious talents.

    Talking of making countries Great Again, over here we seem to have a similar sort of random policymaking on the hoof, it’s all about taking back control and a lot less about what the grand future is for Little England after the Scots have scarpered. At least the Donald has a destination, rather than just a method in his madness. All we seem to have is process. Brexit means Brexit because it’s the goddamned Will of the People™. Yes, but WTF does it actually mean?

    For most people, ignoring valuations and drinking the regular passive investment Kool-Aid is fine for this year. Tax year 2017/18 is just going to be another of the many years in your slow and steady journey to retirement nirvana. For just one year out of 30 or 40 it doesn’t matter than much to you if you buy over valued Stuff, you have years enough ahead and  some other year will be like 2009, so you’ll do okay on average. Even for me, 20k is not a large part of my ISA, because I have most of my saving years behind me, but it is likely to be the last when I can fill an ISA.

    Half of it will come from unwrapped holdings, because the writing is very clearly on the wall for holders of unwrapped holdings, basically you’re toast. For that portion, buying currently overpriced index funds isn’t so bad, after all what I will sell was also overpriced and Brexit-Boosted, it’s not like I actually earned all that money in the distant past when I was a wage slave. But it would be a dreadful shame to put my last 10k of real 20% devalued Great Brexitted Pounds into a sky-high market. Valuation matters IMO, and stinks at the moment. I guess about 30% of the number in the total box of my ISAs isn’t real and needs to go before it comes to reasonable value. The over a third nominal boost in my unit price last year is ‘king absolutely ridiculous, even if I knock off the lift due to the Brexit dumabass levy. Equity prices need to come down.

    If you need a sign of the impending Minsky moment – well, Diamond Bob is back in town it seems. The last lesson of the financial crisis has been unlearned. Time for a rumble on the markets, the last checks and balances on excess have failed to hold back the forces of darkness…

    It’s not like there’s a shortage of good reasons for a Minsky moment, but the tragedy is while I know it’s coming, but never know exactly when. I might take time out on that 10k half this year until this time next year, however. It’s an error I can afford to make, assuming the Minsky moment doesn’t happen and I get to write this article again this time next year. It’s my last significant burst for the ISA, and hell, I want the markets to be down in the dumps for that, or at least like January 2016.

    Notes:

    1. MSE has found you 1.75% fixed tops at the time of writing
    2. VWRL is an ETF, TD don’t charge to carry shares, whereas they charge me to carry VGLS100, and VGLS100 has too much home bias for me as I already have a hefty home bias in the HYP
    3. well, European for the next two years anyway
    10 Mar 2017, 6:14am
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  • The taxman is coming for your dividends – ISAs are the main defence

    Young ‘uns know this already, but there are a lot of older folk who swear by share certificates and shouldn’t. My Dad was one – wouldn’t touch this newfangled nominee account rubbish when it was introduced 1. The trouble with certificates 2 is you eschew any kind of tax wrapper, which seem to be nominee only. There’s a bit more pressure on these refuseniks now because the taxman is coming for your dividends in a big way. Once upon a time, if you had dividend income that wasn’t greater that the higher-rate tax threshold 3 you could get it all tax-free. Well, last year they pulled that down to £5k a year. And from roughly this time next year it’s coming down to £2000, all due to the Budget.They are clearly after unwrapped dividend income, largely to stamp out the practice of self-employed directors paying themselves a token wage and then a massive amount in dividends. It’s worth noting that the tax on dividend income is still much lower than the tax on actually selling your time for money to an employer, 7.5% (update – I misrepresented the total here – PJ’s comment sets the record right on the need to account for corporation tax too in the case of the self-employed, though not the dividend-income shareholders) as opposed to 20%, but it’s a book-keeping nightmare for people who hold individual share certificates or people who hold unwrapped equity holdings on many platforms 4.

    Most dividend yields aren’t usually much more than 5%, so this means that you are sort of okay with up to ~£40,000 worth of shares, but why take the risk? Get your shares into an ISA 5 – and you have until 5th April to take action this year to bed-and-ISA some of these suckers. But be warned of capital gains tax, so don’t crystallise gains of more than £11k a year. If you need more than that you can do other stuff, like use your SIPP and you can also give shares to your spouse, but whatever you do do it, and do it now and early next year.

    I had a CGT gain that it’s taken me the last few years to run out into an ISA. Next tax year is my last crack at that sort of game, after which all my equity holdings will be in ISAs or SIPPs. I will still retain the empty unwrapped account if it doesn’t cost me anything. After all, you never know, we may be due for another market crash, and if I start thinking along these lines, and can raise the cash, and have the cojones, I may be grateful for more than £20k equity purchasing capacity that year. Then I will take the time to chunter that into the ISA over the following years.

    From a capital gains point of view, even if you want to maximise your ISA savings, you may be better off crystallising the existing gain in unwrapped holdings of Company X and investing 20k of the same shares in Company X in your ISA, even if it means you buy 20k worth of some different shares of Company Y unwrapped 6, because that resets the CGT clock on the unwrapped holdings. Some platforms give you a better deal on costs if you bed and ISA – TD, who I used, is one of them. But if you have share certificates then don’t putz about with that for this tax year – you usually have to get your share certificates into a nominee unwrapped account and then do the Bed and ISA from that. It’s very likely you just haven’t got enough time for the Crest forms to go through in time for this tax year end.

    You have three tax year end periods before you get hit with this – 2016/17, 2017/18 (after which the cut to 2k will happen, due in 2019) and 2018/19, so get with it.

    Listen to what’s written between the lines

    The chancellor is quite right, in that the self-employed white van folk have been playing merry hell 7 with the tax and NI system compared to PAYE employees. Last year I paid a whopping £150 to buy a year’s worth of State Pension accrual – that’s something that used to cost me thousands of pounds a year as a PAYE grunt. It’s easy to attack that sort of loophole, which is why the next tax year is the last year I will get such a good deal. I am chuffed that it is my 35th year out of 35 needed and I shall pay my £150 Class 2 NI contributions with alacrity for one last time for tax year 2016/17.

    distribution of the rise in class 4 NICs across the income spectrum (Resolution Foundation)

    But the self-employed also take the piss in another way, and that is the ‘company director’ who pays himself a pittance wage with the majority in dividends. These were the guys who were targeted by last year’s dividend tax allowance of £5000, but the tax paid is only 7.5% relative to he PAYE grunt’s 32%. As a higher rate tax payer you’re up to 32.5%, which is still a better deal when I was paying 41% (nowadays 42%) tax on PAYE when I was younger and hadn’t discovered what pension savings are there for.

    But there’s another bunch of NI mickey-takers out there, and yes, there’s a mustelid of white pelt in there too. These are the people living on a pension. There is no NI to pay on a pension, and somehow what with all the talk of fairness and the fact that Britain’s true tax rate is about 32% for basic rate taxpayers rather than the headline 20% I can see that changing in not very many years hence. First they came for the self-employed…

    There’s probably a lot more tax win to be had among the self-employed. Not the ‘self-employed’ Deliveroo drivers on zero hours contracts, it’s the “company directors” paying themselves and their wives in dividends. You gotta follow the money, and that 7.5% dividend tax level starts to sound far too low for future years, too. The Deliveroo guys don’t pay themselves in dividends, it’s the well-heeled self-employed that are in the Chancellor’s gunsights here.

    Saving equities in the uncrystallised part of my SIPP is a small way to fight back?

    One of the ideas I thought if I wanted to hold non ISA shareholdings is – what if I hold them in the uncrystallised part of my SIPP? Say I hold £1000 of Megacorp paying 10%. So I put 1000 into my SIPP and the taxman makes this up to £1250. Megacorp pays me 10%, ie £125. I drift this £125 off to my crystallised pot. Because I will always be a BRT taxpayer soon because of other income, I get to pay 20% tax, ie  £25, ending up with £100. Bugger. But on the other hand, without going through this I’d have only got 10% of £1000, which is, drum roll… £100.

    Now if I’d held that in my unwrapped trading account, and accumulated enough to pay tax on it then I get to lose 7.5%, ie end up with £92 from Megacorp p.a. I don’t have a huge need for my SIPP once my main pension starts paying out. I will save my £2880 p.a. to get my 25% boost from the taxman up to £3600. On 75% which I get to pay 20% tax, boo, hiss, but it’s still worth it, because £720-£540=£180, which is a 6.25% guaranteed ROI for two months of a year, and where the hell else are you going to get that on cash these days?

    But if for some reason I had money coming out of my ears and a 20k ISA limit was not enough, I could get a £2880 increase on that by misusing my SIPP. People who are working can do better than that, provided they become basic rate taxpayers in drawdown. Beats holding it all unwrapped and no need to sweat capital gains. If Megacorp goes up 100% I get to pay tax on the price if I sell, but hell, I bought 25% more of it at the lower price because of the taxman’s bung. The uncrystallised portion of my SIPP looks like an interesting place to hold equities after my ISA compared to an unwrapped trading account. On the downside, the potential 32% tax and NI merger could gut the value of doing that.

     

    Notes:

    1. he was a canny old boy in many ways – when he retired in the mid 1980s and the company retirement FA suggested he used unit trusts for diversification the FA got sent off with a flea in his ear because the fees on the suggested unit trusts in those days were absolutely huge. But he didn’t get PEPs or ISAs later on
    2. There are some advantages – your cost of carry is zero, and you are less likely to turn over your portfolio because of the aggravation
    3. if you had no other income
    4. if you hold loads of shares on one or two platforms each platform gives you a consolidated tax certificate for the dividends across your entire portfolio which makes the job of reporting the dividend total a lot easier
    5. If ISAs aren’t enough to contain your vast wealth then I guess you are probably rich enough to use offshore tax havens and find suitable advice 😉
    6. Or you leave it a month before you rebuy Company X
    7. they get less too, they don’t accrue entitlement to contributions based Jobseeker’s Allowance
    7 Mar 2017, 10:32pm
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  • Spring at the Minsmere Bird Reserve

    In this post I thought I’d share how I spent some of that time I bought back from The Man today. It’s also a little bit about Suffolk, and I get to play with audio on here – most of these recordings are binaural giving the bst effect on headphones. The sun was out and I felt like a bit of Spring at the Minsmere bird reserve, on the Suffolk coast. It was free but if you aren’t a member of the RSPB then it will set you back £9.

    I’d say even at that price it’s worth it – they have put in a lot of effort over the last few years to make the areas around the visitor centre and in particular the information and some of the events child-friendly, but the place is big enough to get away from all that too, since it is clustered around the visitor centre, cafe and shop.

    View over the Scrape part of the reserve

    In general spending time in Nature doesn’t cost you anything other than the cost of getting there, but they have worked hard to make this accessible and certainly if you’re coming from a distance it’s worth the price of entry because they have concentrated a lot here. I wasn’t after anything in particular, just a whiff of Spring and a load of birds, what’s not to like?

    Spring seems to come earlier at Minsmere. At home there are still a few winter visitors like Redwings in the trees and very few birds singing, other than our indefatigable Robin. At Minsmere I was greeted almost immediately with a Chaffinch in full song, which is the first I’ve heard this year

    The main feature of the reserve is the Scrape, which is a very shallow lake filled with brackish water. At the beginning of World War 2 the farmland around Minsmere was abandoned to the sea to make it more challenging for a German invasion of the East coast. These defences is still there in the form of anti-tank defences

    Minsmere concrete cubes – anti-tank defences on the sand dunes facing the sea from 1940

    The flooding helped more welcome invaders though, the iconic Avocet started breeding again in the flooded region in 1947, and they are still there

    The Avocet, with its upswept bill-tip

    It’s about a three-mile walk around the Scrape, and there’s a right racket from all the birds on the islands in the Scrape. Many of the gulls and waders breed there, though it’s the gulls that make most of the noise

    Birds on an island in the Scrape

    and this is a quiet time for them, they get a lot louder later on in the year! It wasn’t particularly windy today, but the sea sounded good with long rolling waves

    the North Sea at Minsmere

    If you arrive in the morning at Minsmere and the sun is shining, then it is worth going clockwise round the Scrape (ie first head off from the visitor centre via the reedbed of North Wall by following the signs to East Hide. That way you have the light behind you rather than in your face, and it sort of follows you round if you take your time. The furthest point in the sluice – in Summer it is a good place to see swallows. I had indeed enjoyed seeing them close up in previous years

    but I hadn’t realised they nested inside the sluice! A lot of water goes through this, it’s a terribly noisy place to make a home, but they don’t seem to mind the row.

    and on the way back I got to hear one of these guys – this loud sound is made by something the size of a sparrow, the Cetti’s Warbler

    Minsmere is a welcoming place, they go out of their way to highlight interesting stuff and there were some volunteer guides posted near a couple of adders lurking in the undergrowth. It was a bit cold for them, but they were out of hibernation and coiled up, although in the drab winter skins, so the devil’s own job to spot. I didn’t feel totally good about being a couple of yards away from a venomous snake, but it was worth a gander at some coiled trouble with the trademark flickering forked tongue. It was a good end to a morning reminding myself of better ways to spend a day than going to work 😉

    Minsmere is just off the A12, about 80 miles from London.  Visitors from London might like to stay at Southwold for a pleasant weekend break, which is only a little bit further up the A12.

    Minsmere at the RSPB website and on Twitter. That’s about the first worthwhile use of Twitter that I’ve discovered, kind of fitting in the case of a bird reserve 😉

    3 Mar 2017, 8:02pm
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  • Papers please – the early retiree as identity cleanskin

    Mortgage – check. PAYE – check. Credit card loans – check. In my wage slave days I threw off enough data crumbs to feed the data harvesting operation that has grown into the identity check industry. There’s a creeping centralisation and authoritarian streak to finance these days, due to the odious Know Your Customer (KYC) regulatory burden. In a curious reversal of the burden of proof, banks can freeze/shut down your accounts, and the ancients rights of the Magna Carta do not apply and you do not get due process – the bank will refuse to confirm of deny anything about the account. This is why you should never have all your liquid cash in one bank account, I have three although I use one mostly, but the others have savings and current accounts ready to roll should I lose access to that. I have never had an account frozen, but the authoritarianism goes deeply against the principles of habeas corpus I was taught at school, that in theory an Englishman has the right to hear in court the trumped up charges held against him. It just doesn’t apply.

    However, for some reason I increasingly have pain with the KYC regulations. I got into a massive fight with Betfair betting exchange in my abortive foray into matched betting when they took my money but decided they didn’t want to release the deposit, never mind the winnings because they couldn’t confirm I existed. Clearly I was not their typical gambling customer. I believe this general grief is the penalty of not being a wage slave, not using a mobile phone on a regular basis, and it being several years since I owed anyone any money. I can’t be found in mortgage records, and while I have three credit cards I haven’t changed these for nearly ten years, and my bank accounts are all old. I am a fail on MSE’s Credit club which makes me think that a thin file with Experian is my problem –

    There are a few reasons which may stop Experian from being able to verify your identity; for example, you may have a ‘thin file’. This just means there may be too little information held about you to be able to verify your identity.

    […]

    Older accounts can also cause verification issues…

    – Was your account opened before 1998? If so, your bank may not be sharing the account details with Experian as it was opened before the Data Protection Act came into force. To remedy this, you can contact your bank and ask that it applies a marker to ensure your account details are shared with the credit reference agencies.

    I encountered this most recently when I tried to register online for NS&I, not particularly because I wanted to check on my roughly 15k worth of ILSCs but because I was going to register a lasting power of attorney to add to my mother’s motley collection of Premium Bonds 1. The online system barfed and I have to use the post. Same with registering for online self assessment a couple of years ago. I had grief with Barclays when I wanted to register the LPA though I have to say that they actually brought human beings and a decent helping of common sense to the operation and sorted it out.

    I still have an old paper driving licence with no photocard so some organisations get shirty about taking that, and I am down to one last utility bill as a paper bill, kept that way purely to have something to support proof of address.

    Papers please? On yer bike, officer…

    Think the UK doesn’t have ID cards? You’re wrong. Like the Jesuits, we like to get to them when they are young

    One of the joys of being a Brit is that for cultural reasons we don’t like the idea of the authorities being able to demand your papers please as you are walking down the street – you don’t have to carry ID about your normal business. That is A Good Thing in my view. Obviously if you start breaking into a shop with a crowbar you will get arrested, but it’s kinda nice to actually have to be committing a crime before you get your collar felt 😉 But I suspect this will disappear in the coming years, in the same way as the simplicity of how  I opened two of those bank accounts disappeared over the years since the millennium. I simply went into the branch and producing my works staff card and a payslip, rather than the tedious string of paperwork that seems to be needed now.

    There are many forces demanding more traceability and accountability where we used to muddle along fine without it. Terrorism keep getting rolled out as a great reason for ID cards, though I am sure cars kill more people in the UK than terrorism, so a rational approach to reducing early deaths would be to get self-driving cars ASAP. And for God’s sake do stop falling off high places… Don’t get me wrong, I am all for nutting mean-spirited psychos from killing random people because their twisted mentality says so, but canning more common  sources of random death first seems a better win, and surrendering centuries’ old freedoms to reduce the very low chance of getting killed that way seems a bum deal. I have reigned myself to the fact I am likely to see some version of John Walker’s Unicard in the next few decades…

    The end of the tax year is coming up. Don’t leave it to the last minute

    It’s time to use one’s capital gains tax limit and to fill up this year’s ISA, and because of all these pettifogging rules and regulations it pays to do that a good few weeks before the April 5th deadline. Just in case some obstructive oik says you need to provide this or that documentation. I have to say that opening investment accounts has been relatively pain-free for me compared to anything to do with banks or the GOV.UK website, but it still takes time. It was a hell of a job to squeak in opening a SIPP in time to take advantage of an extra year of saving after Osborne’s kind offer of pensions freedom a couple of years ago, and certainly if you need to open an ISA this year then it’s worth having a few weeks in hand to do it. Particularly if you are going to try and Bed and ISA (or -SIPP) unwrapped shares to use your capital gains limit this year. What that means is do it now

    It seems peculiarly tough that you have to be part of the almost universal trend towards spending and living on more than you earn to be considered a participant in the 21st century economy. There are shadows of the societies of the sci-fi I used to read as a teenager where the oddballs became unpersons – Ray Bradbury’s The Pedestrian springs to mind. The System can’t identify people who don’t work and don’t owe any money or claim benefits. They just don’t exist in the models of Britons that are used by the powers that be, with their shadowy and unaccountable data jacks on the citizenry’s digital lifestreams. The signals dribbling through their data taps are too weak compared to the streams of new credit applications and the richness of normal people’s economic lives. I don’t know if it’s a down on the FIRE community in general or I am a particular outlier. But it’s a pain, I don’t now assume any sort of account opening on change is going to happen in less than a month.

    Notes:

    1. personally I don’t touch Premium Bonds, but since any income is tax-free and NS&I doesn’t need FSCS protection it’s a good match for the risk tolerance of an elderly widow
     
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