20 Oct 2017, 11:02pm
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  • Investing for Brexit

    The Ermine has two retirement resources. One is my DB pension, which is easily enough to live on at the moment – it is deferred for only a couple more years, because the Ermine is grizzled of fur and will reach normal retirement age for most of that pension accrual, some time after Brexit, sadly. But it’s denominated in pounds, and there’s an inflation cap on it. Neither of these had been a particular concern until June 2016.

    The other is my stock market holdings, which are in two ISAs for platform diversification. I hold equities and ETFs with TD Direct, which by a quirk of fate don’t incur platform fees because TD make its money on the buy and sell commission. The ermine is not a source of rich pickings here, as my aim is to never sell in the case of the HYP or a world index ETF. Sadly TD Direct have been bought by iii, and I fell out with them a while ago for stupidly hiking fees in an attempt to make us all churn our portfolios. That good fees fortune may not stand.

    I also hold funds with Charles Stanley, or rather a single fund, the excitingly named B2Q6HW6, which tracks the FTSE World (ex UK) Index. The original aim of this was to lean against the home bias of my HYP.

    Brexit changes the risk balance

    The classic view is a DB pension is steady as she goes, as close to gold as you can get, whereas equities are an exciting but unreliable floozy on the side. Brexit changes that because it is likely to hammer the value of the DB pension in real terms by devaluing the pound. It’s a massive risk to the UK. The rest of the world will probably tootle along just fine. Now it’s entirely possible that the Brexiteers are right and nothing of note will happen, or having flung off the yoke of the EU we will do well. Trouble is, I am very heavily exposed to the UK – the ISA is worth only about half the notional value of the DB pension, so even if it was all in foreign assets I’m more than half exposed to the UK. And what I’ve experienced so far of Brexit is inflation, and we ain’t even left yet. Now on a contrarian basis there’s an argument for buying the UK, but I felt a bit bad writing that last time, and @hosimpson and @Neverland  weren’t sold. No, I can’t really convince myself either. There might be a case to do that if I weren’t in the eye of the storm – a Frenchman could consider a small contrarian punt on the UK, but the trouble is if the  UK goes titsup so does my main pension. I don’t need any increase in UK exposure.

    There are some things I could do with the pension – I could draw it a couple of years early, shovel those years into my ISA. But then I get to pay tax on my SIPP that I haven’t cleared out yet. I could take a pension commencement lump sum, which commutes some of it to cash, and invest that, but the rate isn’t terrific.

    Doing nothing is iffy, I am sitting on half a house worth of cash much of it borrowed from my ISA and a Brexit steamroller coming to pummel the value of that into the ground.

    The Ermine takes a sneak peek behind enemy lines

    Most of what I hear of Brexit boosters comes from the Brextremist wing of the Tory party, for the simple reason that they seem to be doing most of the running these days. I obviously hear the endless barrage of whiny Remoaning, to which I am adding here, but it’s always good to hear other voices. I thought I’d look wider, and in amidst a lot of Googling, I came across these guysI confess that I quite like the cut of their jib on a lot of things, since it appears that I share some of the sovereignty issues 1, though I am nowhere near as worked up about them as they are, and weight the economic hit much greater which explains why I am still a pusillanimous Remoaner.  I also kinda like North’s descripton of blogging as a way to learn 😉

    In the search I came across all sorts fo flotsam and jetsam, I was tickled by this piece by an anti-fangirl of Jacob Rees-Mogg, as a cheerful interlude before we get on to what Peter North thinks Brexit will mean, as led on by the no deal wingnuts. In some ways people who voted Brexit seem almost more pissed off by the mess May and her crew is making than Remainers. At least the latter know they lost the fight.

    The phoenix must burn to emerge

    Bloody hell, and I thought it would be bad, and North is still a fan of the process.

    all JIT export manufacturing will fold inside a year… Across the board we will see prices rising… Britain is about to become a much more expensive pace to live. It will cause a spike in crime…  lot of engineering jobs to be axed since a lot of them are dependent on defence spending. It will kill off a number of parasitic resourcing firms and public sector suppliers. it will wipe out the cosseted lower middle class and remind them that they are just as dispensable as the rest of us. 

    major rationalisation of the NHS and what functions it will perform. It will be more of a skeleton service than ever… a lot of zombie projects will be culled and the things that survive on very slender justifications will fall. We can also expect banks to pull the plug in under-performing businesses. Unemployment will be back to where it was in the 80’s…. Anyone who considers themselves “Just about managing” right now will look upon this time as carefree prosperity. There are going to be a lot of very pissed off people.

    young people actually start doing surprising and reckless things again rather than […] tedious hipsters drinking energy drinks in pop-up cereal bar book shops or whatever it is they do these days. We’ll be back to the days when students had to be frugal and from their resourcefulness manage to produce interesting things and events.

    A few years in and we will then have started to rebuild EU relations […] we are looking at a ten year recession. Nothing ever experienced by those under 50.

    I really recommend you read the whole thing, I like his style, but I think he graduated at the Nietzschean school of dialectic, perhaps with coaching from Tim Gurner regarding da feckless yoof, who seem to have dropped some smashed avocado into his beer at some stage.

    That which does not kill us, makes us stronger.

    Mind you, I need to be careful what I say, I was/am part of the cosseted lower middle class and an engineer to boot, so already up against the wall in his world. He’s saying that the economic fallout from Brexit will blight a third of the amount of life I have left, statistically speaking. The bear case always sounds smarter. 2It’s poles apart from keep calm and carry on, and it’s a more dramatic story. But this narrative of woe comes from a fan of Brexit. Leave alliance has the most cogent takedown of the no-deal it’ll all be OK with WTO rules stance of the wingnuts – it’s not all about the tariffs guys. But in the end it’s for the Brexiteers to sort out what Brexit means, beyond the gnomic tautology of Brexit means Brexit.

    In the time we have left, is there a brace position?

    Foreign assets, basically. That FTSE World (ex UK) Index. There’s not enough time and I don’t have smarts enough to do anything better. It’s the world according to Lars  Kroijer but I get to atone for my seven years of nonchalance in not anticipating that my fellow countrymen would suddenly perform an act of economic hara-kiri with the ex-UK slant.

    I did have a look to see if I could buy that in a L&G ISA to get rid of Charles Stanley’s platform fee but sadly the L&G ISA index funds list doesn’t include the L&G fund I want. Go figure.

    It won’t be enough to compensate, but it may slow the fall a little bit. I will probably have to pay health insurance to make up for the fact the NHS will be eviscerated and life will be a bit more shit in many ways, but we will have taken back control. The same sort of control of the pilot taking a hammer to the autopilot and getting in a flat spin, but goddamn it, it’s his own flat spin till the crunch comes.

    OTOH it may well go all swimmingly, bluebirds will be tweeting and there will be the fine sound of leather against willow on a thousand village greens in the joyful sunlit summers that will come when the foul yoke of the EU superstate is thrown off.

    Fair enough – so what’s the worst that will happen out of my attempt to brace for Brexit if it all goes swimmingly? I will end up with a ISA that is more or less balanced according to the advice of Monevator’s tame ex-hedge fund manager, albeit oddly with the old HYP core. I guess there are worse things that could happen.

    Plus I increase my risk of devaluation due to a stock market crash, since valuations are high, but then I am almost guaranteed another value of cash sort of crash with Brexit, so I’m stuck between a rock and a hard place. A market crash usually comes good in a few years, whereas Brexit looks like it will hammer the pound for a decade – and that’s according to parts of the Brexit camp, they have so little faith in the competence of Her Majesty’s Government to know their arse from their elbow. I need to pay back my ISA from the cash from the house sale, pay this year’s 20k in and get me some Brexit ballsup insurance in the form of foreign assets while the pound is still worth more than a bucket of spit.

    There aren’t any good answers here. Unlike Rees-Mogg and his band of happy Brextremists I am not rich enough to come out of Brexit unscathed. I will go down with it, it’s a question of how much. I need some light relief. Let’s hear some Moggmentum from Madeleina Kay, JRM No 1 fan – not.

    Notes:

    1. I haven’t searched all the Leave Alliance, but I note they don’t really say much about immigration
    2. It seems to be a more general case in more than investing
    16 Oct 2017, 10:47pm
    personal finance rant:
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  • So what does all this Brexit baloney really mean then?

    Be careful what you wish for. You may just get it.

    King Midas, and the characters in The Monkey’s Paw

    Democracy is the theory that the common people know what they want, and deserve to get it good and hard.

    H.L.Mencken, 1915

    I have much sympathy with the view of Guy Verhofstedt that Brexit is the result of a catfight in the Conservative party that got out of hand. The more I see of how the Tory party prosecutes the aim of leaving the EU, the more Verhofstedt’s observation rings true.

    Very little of what I have seen since June 2016 has convinced me that I erred in voting remain. However, it is clear from the result of the referendum that there is considerable animus in the UK to what the EU does or how it does it. Added to that seems to be a terrific amount of projection of other issues the EU is not particularly responsible for, from the winds of globalisation and automation to the fact that Britain was a much more significant player on the world stage 40 or 50 years ago, and those of late middle age feel the ways of the world slipping away from them, and hearken to glories past.

    The tragedy of the referendum is that it was couched in the nihilistic terms of this or not-this. The problem is one of direction. A remain result would have been a clear result for a particular solution – the status quo in that case. A no result is a vote for ‘anywhere but here’. If I get in my car and set the sat-nav for London it can take me there. But I haven’t yet found the ‘get me the hell anywhere but here’ button.

    The Tory party is ripping itself apart like a bunch of rats in a sack, because it is not of one view on anywhere but here. We have the swivel-eyed nut jobs, step forward John Redwood, Bill Cash, Daniel Hannan 1, Jacob Rees-Mogg and others. Now to their credit they do deeply believe in Brexit, from a point of basically despising John Donne’s dictum that no man is an island – basically it’s everyone for themselves and let the devil take the hindmost. You can take that point of view as long as you are much richer than average, because you can buy your services and security on the open market. It’s Ayn Rand’s Objectivism, and Britain is Going Galt, 2 along with everyone in it.

    These Brextremists positively crave a no-deal Brexit, because any deal gives the EU a say in something, and that pisses them off. No price is too high to pay for purity, and anything that doesn’t give them what they want is always the other side’s fault. There is a mirror-image of this in the EU with the focus on the terms of process, but in the end the UK is the dumper rather than the dumpee, so we get the advantage of calling the what and when, but fewer rights in calling the how.

    We have the self-serving egotists – hello Boris Johnson, Gove et al, trimming their sails to whichever wind will blow them personal aggrandisement. The concept of living in a country run by BoJo is I suppose a little bit less bad than living in one run by Donald Trump, but the fundamental problem is the same – narcissist at the switch. BoJo is brighter than Trump, but has more of a tin ear, whereas I have a sneaking admiration for Trump’s ability to signal to his vote base via a barrage of what looks to others like random brain-farts.

    Cats will fight

    Then we have a whole bunch of non-extreme people that think a well-negotiated Brexit would work well for Britain, who seem to be AWOL on both sides, scared of the intensity of feeling of the nut-jobs. If we could kick out the swivel-eyed nut-jobs, then perhaps  the rest of Tory party could make a fist of it, but at the moment my greatest hope is that they rip themselves apart in the next few months. Cats will fight, and the buggers have been fighting about this for 40 years, it’s time that the fight goes all the way to death or dishonour for the sake of the rest of us. The endless yowling needs to stop, and Top Cat needs to stand on top of his dustbin lid.

    What does a successful Brexit look like?

    The trouble with the referendum is the nihilism of the No response leading to a lack of direction.

    It should have been more nuanced – for instance

    Should the UK remain a member of the EU or leave

    Remain a member of the EU

    Leave the EU

    If you voted Leave the EU, what are your primary concerns?

    The primacy of Parliament to determine life in Britain
    The effects of freedom of movement on the social fabric
    The effects of freedom of movement on wages
    The effects of freedom of movement on services

    It would have been useful to gauge which of the aspects of the EU concerned people the most.The obvious pushback is that it sets a leading question and favours the Leave side, and the government didn’t really want the No answer, but Cameron stupidly made it a manifesto promise hoping a Coalition would spike it.  Very little work was done on what a successful Brexit looked like. However, I saw the vile creepy grins 3 and the spring in the step of my fellow voters who were all of a certain age (I voted in the afternoon, like all retirees) and I was pretty sure they weren’t voting remain 😉

    Qualifying the issues people had would have informed what to prioritise afterwards. For instance, May and the wingnuts are making a hullabaloo about the ECJ, which probably doesn’t exercise people bothered about immigration, while the wingnuts frequently don’t even bother to mention immigration. I love Hannan’s disingenuity in asserting

    In the event, of course, things worked out differently. Britain appears to have grown more strongly in the six months following the vote than in the six months before it, and finished 2016 as the world’s most successful major economy. Unemployment, far from rising, has fallen consistently since the vote. British stocks are the best performing in Europe..

    Hannan, me old mucker, you may be a wingnut, but you’re not shit for brains. The result you wanted has devalued the pound by a lot. Obviously things measured in pounds will look bigger, in the same way as it takes you twice as many six-inch rulers to measure your carpet as 12-inch rulers.

    the pound has got about 10% smaller in IMF SDRs since the referendum

    A lot of those stock market gains you’re seeing aren’t real. The way unemployment is measured is deeply borked. I will be considered employed this year because I was working as self employed between April and May. We torture the genuinely unemployed with pettifogging rules and regulations; it’s not surprising that people claim to be employed but make no money and get tax credits. Look at the increasing number of rough sleepers and the use of food banks, which are also caused by the increasingly worthless pound among other things.

    rich Brexiters fuss about sovereignty, the poor about immigration

    It is of course possible as a remainer I have missed some aspect of the Leave debate, but of what I have heard, rich Brexiters tend to lie on the sovereignty axis, often not really giving a toss about freedom of movement, whereas poorer Brexiters have concerns about immigration, the effects of freedom of movement and the effect on their wages. The rich make sweeping assertions about Ricardian advantage and Schumpterian creative destruction, but when Tony Blair opened the UK to people from Eastern Europe the resulting influx had a negative impact on wages the lower end of the market. There is a very strong argument that the influx was good for the UK economy as a whole, which probably made people that took the sharp end of the stick feel even worse, seeing rich Londoners living it up on fine dining while they went to food banks.

    A ‘sleb leaving the Chiltern Firehouse. Observing the increase in London fine dining probably throws a hard light on the tribulations of the minimum wage slave on a zero hours contract

    If you’ve taken the shaft on minimum wage, voting Leave is not necessarily irrational even if it impoverishes the country.  It will be immigration that lights your fire. It is tragic that the effects of globalisation and automation are hurting these people too, and it is compounded by the wilful destruction of the welfare safety net in the last few years. The EU ended up shot for an awful lot of decisions that should have been laid at the door of UK politicians or the tides of capitalism and Schumpeterian destruction, as well as secular trends which aren’t going the way of unskilled labour. There’s some case for adapting the welfare system to ameliorate this shift from labour to capital, but it’s not really the theme of the current administration.

    Free movement of persons seems to be the main sticking point. Freedom of goods is OK – not that many people seem to have an an issue about driving German cars or eating Italian ham. Curiously enough nobody seems to have a beef with the free movement of capital, even if they don’t have any, though that also makes working a bit more crap than it used to as the capital chases the lowest labour costs offshore. Freedom to establish and provide services across the EU doesn’t exercise passions either – people rich and poor are happy to bank with Santander.

    The Ermine, sadly, is in the same camp as the swivel-eyed nut jobs in one aspect. I think the EEC jumped the shark with the treaty of Maastricht and the inception of the Euro. The change of name from European Economic Community to European Union showed the nature of the rot. I view the economic benefits of the EU as the reason for being in it, the political union as misbegotten, I’m not so keen on a United States of Europe, although it doesn’t exercise me with devastated dreams of Imperial derring-do of yesteryear, I’m not old enough to recall the pink of the British Empire maps.

    The British Empire in 1915, when the sun didn’t set on it.

    I don’t give a toss about freedom of movement, so that places me on the rich people side of the issues – with sovereignty. But I’m not rich enough to afford that sort of navel-gazing – in the end rubbing along with people in the world is about compromise. Britain secured specific opt-outs from the ever closer union and the Euro, which means what we had was better from a sovereignty point of view than what we would have if we left and rejoin once the old colonels dreaming of Empire days of glory die off and the interests of younger voters and the economic argument shifts the balance, as Verhofstadt carried on to say

    “I am also sure that, one day or another, there will be a young man or woman who will try again, who will lead Britain into the European family once again. A young generation that will see Brexit for what it really is – a catfight in the Conservative party that got out of hand, a loss of time, a waste of energy, stupidity.”

    […]

    Let’s not forget, Britain entered the union as the ‘sick man of Europe’ and thanks to the single market came out of the other side Europe made Britain also punch above its weight in terms of geopolitics, as in the heydays of the British empire.

    And we from our side must pay tribute to Britain’s immense contributions – a staunch, unmatched defender of free markets and civil liberties. Thank you for that. As a liberal, I tell you, I will miss that.”

    I am not rich enough to prize sovereignty above economics. I expect to be hit less than the poor by the economic fallout of Brexit, but I expect to be a lot poorer, and we will be the sick man of Europe once again. Looking at the swivel-eyed crew with their indifference to the economic costs, I am nowhere near as rich as they are, I would probably need to have much more than twice the wealth I have to share their insouciance about the economic fallout. I have no human capital left, so unlike the young who might be able to make it up by moving and working abroad – after all people worked in other European countries before 1973 – I will have to make my stand in the UK, stuck on a small island with these guys

    I will probably face the need for health insurance as the NHS is destroyed because we can’t afford it, I expect social unrest because we won’t be able to afford even the eroded welfare state that we have now. It’s not an attractive thought to grow old in. And in the event that Britain does leave and rejoin, we will have less sovereignty than we had before we left, though I can hope that the Euro explodes due to its internal inconsistencies before any of those events come to pass, which may trim some of the dream of ever closer union. Europe doesn’t even share a common language FFS, never mind a common culture, there is more history in any one European country than there is in the entire United States (born 1776) which is why the United States of America is a viable union of states in a way the United States of Europe isn’t.

    I do get some of this Brexit bollocks, from a sovereignty point of view, but nowhere near enough of it to think it’s a grand idea and vote for it. The EU had a lot wrong with it, but an awful lot more right, inherited from the old EEC, which was partly shaped by the UK, particularly the Single Market that the wingnuts are so keen to get away from. I find no conviction in the notion of a buccaneering Britain striking trade deals left, right and centre. The one with the United States will be ‘Here are our terms, you sign here for our GMO crops, chorinated chicken and antibiotic and hormone-pumped beef’. It’s been 60 years since Britain surrendered its Empire, the 1950s ain’t ever coming back, and Verhofstadt was wrong. Britain did perhaps punch above its weight in terms of geopolitics as part of the EEC, but not as it did  in the heydays of the British empire. Declinism is a disease of late middle age, and we are in peak Boomer time. I am one, but hey guys, we didn’t have to actually help the downswing come.

    Sic transit gloria mundi, guys. For a Matt-Ridley-esque counter strike, let’s hear it from the Spectator

    Brexit was a vote of confidence in our ability to shape our future as an independent democratic nation — a choice that few of our European neighbours feel they still have. We should not allow declinist panics to confuse the outcome.

    I think matey boy is barking, but I admire his chutzpah, and ability to sell a great story. I suspect it isn’t just me that doesn’t have any idea what this Brexit bollocks means. The only people that do have an idea are the wingnuts. It’s the usual problem

    The best lack all conviction, while the worst   
    Are full of passionate intensity.
    The wingnuts seem to be in the ascendant. Their no deal Brexit probably won’t be about immigration, bucanneering free market Britain will need all the lost cost hands it can get, and if that keeps the oiks in their place, well, all to the good if you’re Jacob Rees-Mogg and his ilk.

    The personal finance angle – what to do?

    Most of the last few years I have been allocating new spend towards foreign assets, with a bias ex-UK. As I accumulated stocks, I became lazier as I realised I wouldn’t have to eat an actuarial reduction on my pension, so I shifted towards the world according to Lars Kroijer. I didn’t sell my HYP but I bought a lot of a FTSE World ExUK index, to offset the fact my HYP was heavily UK biased. If you expect the UK to go titsup due to Brexit, it’s a good move.

    Against that one should set the fact that fund managers deeply hate the UK at the moment (H/T Monevator)

    When I see something stinking up the place like UK equities I want to go buy it – there’s now’t wrong with schizophrenic investment and so I am tempted to Buy Britain at the moment. Maybe a push on small/mid cap with about a quarter FTSE100, after all I should lean against my own prejudices every so often and I am too biased towards UK big fish. Brexit might turn out absolutely great, I find it hard to believe, but it’s possible. I may allocate half of this year’s £20k ISA allocation to Lars and half to the UK. If Brexit is a bastard the UK lot will go down the toilet, if it is a terrific success then it will save my ass for this year’s contributions. And vice versa for the L&G Lars option, which coincidentally is heavily weighted towards the US (because the US is the largest component of world equities by valuation) so I still remain contrarian. The US is also notably hated by the professional fund managers. I really can’t think why 😉

    I need to stoke my SIPP with £7200 this year and next. It will follow the rest of my small SIPP which is currently in a gold ETF, this is money I will call on in the next year or two and I don’t trust the £ across March 2019. I will be most  happy to eat the hit if Brexit is a roaring success and the pound soars 😉

     

     

     

    Notes:

    1. A measure of the hypocrisy of the scumbag Hannan and that of Nigel Farage is that they were MEPs sucking at the teat/gravy train of their supposed arch enemy FFS, Hannan since 1999
    2. Attempts to replicate Galt’s Gulch didn’t go very well “Ayn Rand’s Capitalist Paradise Is Now a Greedy Land-Grabbing Shitstorm” for the same reason communism didn’t work – human nature. Better luck with Seasteading, eh, chaps?
    3. I wish I had taken my camera with me, I saw an animation in people quite unlike any election before or since, and the turnout was huge
    5 Oct 2017, 5:30pm
    housing personal finance
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    21 comments

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  • Cheques checked the recipient’s name – BACS & CHAPS use untested numbers

    It’s a funny old world. Way back in 1979 when I got my first bank account I got issued with a thing called a cheque book. You could write out the recipient and how much you wanted to pay them and that was all you needed to do. In those days the cheques were open, so some thieving git could swipe it or steam open the letters, and pay the cheque to themselves or ask for it to be paid in cash over the counter. Fewer people had bank accounts then – when I started my first job I was paid by open cheque that I had to go to the bank over the road and exchange for cash.

    To forestall the hazard of dodgy geezers steaming the mail open they changed the system so you got to draw a couple of lines across the cheque and write A/C Payee, and they changed the law such that this happened

    Not if it is crossed ‘A/C Payee Only’ or ‘A/C Payee’. The Cheques Act 1992 and Section 81 of the Bills of Exchange Act 1882 give statutory power to the ‘A/C Payee’ and ‘A/C Payee Only’ crossing, when it is used. The legislation means that a cheque which bears the ‘A/C Payee’ or ‘A/C Payee Only’ crossing can only be paid into an account in the name of the receiver of the cheque exactly as it appears on the cheque.

    A cheque crossed A/C payee. Presumably the computer’s trained to ignore the * sign.

    Now in practice you could usually get away with paying in cheques in a different name if they were small, or if it was just the first name that was different. I presume if the payer kicked up a fuss then the bank would have clawed the money back, and if recipient had skipped to Rio then they’d have to refund the money. All in all a perfectly serviceable system, though because of all this possibility of fouling up you could only count on having the money after about five working days of paying the cheque in. When I bought my last house in the dog years of the 1990s, I had to make up the mahoosive amount of money I had lost on the previous one and pay even more because I was going upmarket from the two-up-two-down bachelor pad I had foolishly bought in 1989. To do that I went to my solicitor and paid them a cheque. There was never any issue of the secretary deciding she wanted a knees-up in Lanzarote with all her pals funded by running off with the cheque because she’d have had to change her name by deed poll to the solicitors and open a bank account in that name.

    Fast-forward 20 years and we don’t check the name any more

    Twenty years of technical progress passes, and I get to receive the proceeds of my old house. It all comes down to a six-digit number and an eight digit number. Sure, the payment system would like a name to put in the payee field, but it doesn’t matter if you put Mustela erminea, Beyonce or Beelzebub in there. The routeing system doesn’t give a damn. So criminals hack emails and change the details, because the humans look at the name and think it’s all okay but the transfer goes to a different account, which is then emptied and the bad guys scarper with the money. And you get to read newspaper articles like this, this and this

    Given all the usual delays involved in selling a house, there’s something to be said for the security of the good old crossed cheque. We were smart enough in the 1980s to realise that making the name matter was key to fixing this, but that wisdom has got lost in the search for expediency. Is it really too much to ask that 21st century money transfers meet the standards of the 20th century paper methods?

    This pathology also applies to the faster payments system – it doesn’t matter if you make the payment to your cat rather than the payee, it’s all about the six digit sort code and the eight digit account number. They could make these combinations testable by the same system used to catch mistyping of credit card numbers, but this isn’t done either. Update – this Ermine rant is not in fact correct – see David’s comment below. Despite this, some people still seem to be able to screw up in this way – presumably they err is more than one number.

    So you can easily mistype or transpose the numbers, sending your payment to the water company to Bill in Basildon, and you don’t get to know that until you start getting dunning letters from the water board. Bill doesn’t have to give you the money back – after all he’s done nothing wrong. He never claimed to be the water board, all he saw was a kind gift from an unknown benefactor come out of the blue, and he’s probably spent it now. As Faster Payments say on their website, it’s tough luck

    Faster Payments, once sent, cannot be cancelled.

    Whilst the vast majority of payments are made without issue, in rare cases problems can arise if the wrong information (e.g. sort code and account number), is entered – resulting in a payment being made to the wrong account.
    It’s vital to double check the sort code and account number before sending a payment: payments are processed only using these numbers and getting them wrong is like sending a letter with the wrong address and post code.

    The last statement is bullshit – if you send a letter using the wrong address and postcode there’s a much better chance of it getting to the right place because there’s some redundancy and there’s also local knowledge with the postman. And the name would help clarify matters, as it did with crossed cheques.

    Double checking doesn’t help with some conceptual errors, like transposing some digit pairs, for the same reason that it’s tough to proof-read your own writing. To err is human – we could do with helping people out a bit. This is why credit card numbers use the Luhn algorithm, to catch simple cock-ups like transposition and single digit errors.

    The six payment systems in the UK. More info from the BACS PDF

    How about BACS – this is the payments system 1 you use when you put money in, or take it out of NS&I. My solicitor was proposing to use that for the house money because it would save me the £30 transfer fee. I decided I was easy with paying £30 to know I’d got it on Friday afternoon rather than some unspecified time probably Wednesday the next week. If something goes wrong, time is absolutely of the essence to flag up that the crims have made off with the loot to at least try and freeze the receiving account before they empty it over the weekend 2.

    I was unable to determine if BACS checks the name, though the warnings from NS&I to get the right sort code and account number imply not. BACS gives you an automatic delay of three working days, as I found to my cost when I transferred money into NS&I using a debit card, and then got to ring them up to find out what black hole half a house worth of money had disappeared to. At least that made the three working delay between transferring out and receiving it a bit more understandable, though it still raised the blood pressure.

    We have implemented a system without number error checksums, casually tossed away the A/C payee name checking of the cheque era, and sped up the ability of the criminals to scarper with the money by an order of magnitude. This is not progress.

    Notes:

    1. BACS has a rather neat PDF describing the six inland money transfer systems in use in the UK
    2. This is why in an ideal world you should complete on any day other than Friday, particularly a Friday before a bank holiday weekend. Of course, everybody wants to move on Friday so they don’t have to take time off work, which suits the bad guys just fine
    2 Oct 2017, 5:07pm
    debt personal finance
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  • Toxic car finance could work out the best way to pay for a new car

    I pinched the headline straight from the Torygraph, and I have searched the page to see if it is an advertorial. 1. But no, this financial foolery is being prosyletised in the name of money/consumer affairs. The article goes into great length to find a financial edge case where you buy a brand new Mercedes E-Class saloon with an on-the-road value of £35,205 and if it all goes right then you pay £19,255 in depreciation if you pay cash and £18,404.24 using a PCP. Thus saving being ripped off less by a whopping £851 using PCP.

    If you need to borrow for a consumer good, you can’t afford it

    The rule was codifed by that Wilkins Micawber chap, and it’s good. It’s one of the deep tragedies about personal finance that if you are desperate enough to need to borrow the money, you usually can’t afford to buy what you want, with two exceptions, housing and education.

    How to decide if borrowing money to buy it is a good idea

    The most toxic thing about borrowing to buy a new car is that half the value of the car falls off it in three years, which is why buying new cars is a mug’s game. If you want to do that sort of conspicuous consumption of an expensive wasting asset you should be rich enough to pay cash, and face up to burning half of it in one go, rather than trying to stretch it out. If you need to ‘save’ £851 putzing about with PCP then you’re not rich enough to do it in the first place. As the lede says

    More and more drivers want to be driving the newest cars available

    Well, yeah, I’d like world peace and there to be half as many humans on it as there are now 2  so as we get to keep that peace, but what you wants is not what you gets, eh? They talk a good talk about PCP giving you a saving on £851, about 3% on the price. To be honest, if you are going to spunk 18 grand of capital depreciation to drive a car for three years, you’re not the type of person who is going to squeeze the lemon for that £851. If the PCP looks attractive to you it is telling you one thing only.

    You are not rich enough to piss away that much money on running a new car for three years.

    The reason you’re not rich enough is that Bad Shit can happen to you, you get to lose your job or get sick or any of the vicissitudes that can affect a fellow who spends more than you earn. All of a sudden some of the break clauses in the PCP contract come to bite you on the ass if you stop paying. Whereas if you really are rich enough to pay cash up front, paradoxically you can actually use the PCP to save yourself the 3%. If Bad Shit happens you just carry on paying the instalments from your vast wealth until the balloon payment is due and then you do whatever’s the best at the time. In that case knock yourself out and put the money to work.

    I understand the principle of what the Torygraph is saying, because I’ve done it. Many moons ago, in 1981, a young ermine bought a secondhand Audio Research preamplifier on an interest-free loan for half of his annual net salary, saved up over a while. In personal finance terms that was an extremely dumb thing to do, Mr Money Mustache would have reached back in time and punched me in the face, 3but I wanted it there and then, and there were fewer consumer gewgaws for youthful excess in those days than now. What made it less dumb was that I was rich enough to afford it, because I had saved up first. I paid the finance company on time each month until the principal was redeemed.

    A grizzled ermine sold that preamplifier on Ebay earlier this year for about half the nominal price, so it gave me good value for thirty-six years. So I do understand the principle – you can save money using finance, because I had the cash saved up when I bought it. I parked it with the Nationwide Building society and in those distant times you could earn interest on your saved money. It actually cost me less to take the interest free loan than if I’d bought it cash.

    Sad fact is, most people borrow money for consumer purchases because they haven’t got the money at the time of purchase. It is a rare consumer indeed who buys on credit to stooze the cash they saved up for the item beforehand. It was right up there in the credit card ads on the 1970s

    Access takes the waiting out of wanting

    If that’s you, you are about to borrow from your future self.

    To use PCP properly, have the cash to buy the car outright when you sign for the car loan

    And then you need to park that cash somewhere safe. Ideally earn interest on it 😉 Alternatively, you need to have at least the depreciation in cash, and have insurance against the sorts of events than would write the car off while you’re still potentially on the hook for the balloon payment, should the car get trashed. If you’re doing anything else, then you are driving more new car than you can afford. If you’re lucky, you’ll make it to the balloon payment without Bad Shit happening in your life. That’s the sting in the the tail. Driving more car than you can afford is a risk nobody needs to take. PCP conceals the downside in all the messy stuff in the small print that nobody thinks will happen to them.

    Micawber was right. Save up for you car first, even if you do use PCP 😉 In the edge case of people who are rich enough to be able to pay cash, toxic car finance is probably the best way to pay for a new car. For everybody else, PCP is just…toxic. Imagine listening to Britney on loop for three years 😉 That’s how toxic…

    Notes:

    1. If it were, it’s against Queensberry rules to take the piss, because the whole point of of an advert is to make you buy shit that you don’t need with money you don’t have to impress people you don’t like
    2. this was roughly the number of people on earth as when I was born
    3. MMM would tell me that had I invested the money at a 4.5% real terms ROI then as Monevator’s compound interest calculator tells me I would now be sitting on £25,000. I think the old Ermine would have socked him on the mush back because I had 36 years of enjoyment from that thing
    30 Sep 2017, 1:46am
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  • Michaelmas – a good time to get out of Britain’s favourite asset class

    The Ermine has lately been that pariah of the bien-pensant crew, a vile second homer. Not particularly because I wanted to oppress the young of some rural district but to give me some more time to move, and widen my options. As such I have been long residential property. When everyone else in the UK looks at residential property they see this

    but when I look at UK housing I see this

    Housing is a particularly evil asset class because you tend to be a forced buyer, initially when you get old enough to need to set up on your own or want to fire out kids. That’s basically a function of when you are born, then add about 30 years. There’s not much scope for riding out the market cycles which are very long with housing compared to the stock market.

    In our case although I was a free agent after retiring Mrs Ermine was very much connected with the location, but it started to get apparent that working in the open was starting to get physically demanding, and various things got in the way of even being able to get a field shelter. So it was time to move on, but the trouble was that just before we came to this conclusion, the good people of Britain decided they wanted the 1950’s back. I know that the protagonists say that dynamic Blighty is being held back by the sheet anchor of trading tariff-free with the EU and wanted to take back control, but the trouble with all that is none of them seem to have a clue. They don’t agree on what they want, and they have no idea of how to go about it. Brexit may mean Brexit but no bugger seems to be able to tell us how they plan to make it happen. Those that do major on bluster rather than substance, BoJo, I’m looking at you, while you’re not busy making our man in Myanmar’s toes curl by reciting Kipling in their temple, FFS. I know you want to recreate the glory of Empire, but not everyone is as fond of it as the Brexit brigade and as foreign secretary it behooves you to keep that in mind. Keep the Kipling for the Conservative Club, eh?

    The UK housing market seems to be in a strange place at the moment, puffed up by low interest rates. I wanted to go upmarket a bit, and there seems to be a strange effect of compressing prices. You seem to have to pay an awful lot to get anything at all, and not as much more to get a lot more house than when I last bought a house. We aren’t getting younger, so I wanted to do this before Brexit, not after, although people going upmarket want a housing crash. But I didn’t know if that compression would unwind, and in the end I don’t have enough time to sit out the cycle.

    So we bought the new place a couple of months ago and completed the sale of the old one recently. It’s good to be clear of it by Michaelmas – one of the old quarter days. The quarter days were traditionally days when debts were settled and when magistrates would visit outlying districts to administer their justice.

    “There is a principle of justice enshrined in this institution: debts and unresolved conflicts must not be allowed to linger on.

    However complex the case, however difficult to settle the debt, a reckoning has to be made and publicly recorded; for it is one of the oldest legal principles of this country that justice delayed is injustice”

    On the way to the Postmodern

    It is pure happenstance that this came good for me by Michaelmas, but I like the olde-worlde symbolism. Some commercial leases still cleave to the old quarter days for rent periods – I noticed some shops closed or moved in the last week or so, presumably when their rent period ended.

    I discovered that the trauma of the first house I bought runs very deep. Whenever I look at a house, in the back of my mind there is a siren going off which asks “yes but what happens if this falls by half in real terms” because that’s what happened to me. And there are parallels with 1989, cynics would say that to an Ermine every year has parallels with ’89 in housing – but:

    Prices were in the late 1980s Lawson boom because of government policy. Well, they’re high now because of government policy – 10 years of interest rates way below the long term average means people can ‘afford’ to pay stupidly high prices. I would hate to be bringing new money into this market – although we have bought ridiculously overpriced property we were selling overpriced property to buy it, and divesting ourselves of land which is a similar asset class.

    Then, in a couple of years, there was a recession in the early 1990s. Perhaps in a foretaste of Brexit we attempted to track the ERM and failed dismally in 1992. I was paying a mortgage rate of just shy of 15%. Unless you’re a rampant Brexit booster we have that recession coming our way, hell, we voted for it. If anybody wants to see what Britain’s free trade agreement with the US will be like, well, let’s see how it goes with Boeing and Bombardier, shall we? The Telegraph is steaming that May took dictation from the EU, but the US is the 900lb gorilla compared with the UK. It will be a case of “here are the terms, you sign here”.

    So we have high valuations, the only way for interest rates to move is up, and we have got a recession on the way. As the IPPR said in forever blowing bubbles

    In short, house price rises are particularly vulnerable to depart from fundamentals and are very hard to correct if they do. Meanwhile market actors are likely to suffer from momentum behaviour and have strong reasons to behave speculatively. So, we move from periodic bouts of fear of ‘missing the boat’, followed by the pain of negative equity and retrenchment.

    OK, so we haven’t heard much about negative equity for three decades. So it’s all different now and that will never happen again. Until it does. But at least I’m out of here. One bite of that damn cherry is enough for a lifetime.

    Buying a house is a lot more scary without a mortgage

    I last bought a house 20 years ago, with a mortgage for most of the capital. You never see most of the money, because a lot of it’s between the solicitors and the mortgage company. When you do it without a mortgage, massive amounts of money go flying in and out of your bank account – for starters the normal payment system seems to max out at £100k, so I had to go to the bank to initiate a CHAPS payment. Then of course there’s the  stress of trying to ensure thieving bastards don’t intercept email transactions, basically don’t let solicitors act on emails account details, face to face is the only way 😉

    You can borrow from your ISA under certain conditions

    I also learned that you can borrow from your ISA, this helped me capitalise some of the second house. To do that it must be a flexible ISA – not all ISAs are but it so happened that my Charles Stanley one was, although my TD Direct ISA wasn’t. I use the CS ISA for index fund investing, basically world according to Kroijer  with an L&G FTSE World ExUK tracker, to lean against the UK bias of my shares, matched with VGLS100. I sold a hefty chunk of this and took it out, as long as I put it back by the end of March I still have my entire 20k allowance for this year. Which is pretty neat. What borrowing from your ISA won’t help you with is if you need to borrow money across the April change in the tax year – in that case you lose the tax shelter.

    All this means my ISA is about 30% in cash now. I’m not in that much of a hurry to restore it to what it was before because the markets are at a high, but I am still regularly buying the two funds back.

    14 Jun 2017, 5:36pm
    economy personal finance
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  • workers will retire from five million jobs in the next 10 years

    Government figures tell us that over the next five years people will retire from 12.5 million jobs, and there will be only 7 million young people to fill them. Somehow the authors of the report also assume that another two million jobs will be created. Oh yes, and last year our blessed fellow countrymen decided that they didn’t want Johnny Foreigners coming over ‘ere and taking our jobs. The inference seems to be that we need to get our ageing baby boomers out of retirement to go fill these jobs.

    Now a cynical Ermine thinks to self firstly ‘when Hell freezes over’ and secondly – a number of things that are wrong with this scenario. It’s not just investments where past performance is not supposed to be a reliable guide to the future. I’d say there’s this problem with economic prognostications too.

    Let’s take a look at what’s been happening with jobs over the last few decades, shall we?

    Once upon a time, like when an Ermine first rocked up for work in the early 1980s, you could apply for a job, and you’d actually be working for the company on their payroll. That was the case whether you were a graduate engineer or if you were the toilet cleaner. Said firm would also invest in you – they would train you, which was of particular relevance if you had a generalist degree or the company worked in a technical specialism that had unusual quirks. They would also pay into your defined benefit pension – for The Firm at least this even applied to the janitors until the mid 1980s.

    The something called neoliberalism showed up, and communications and IT improved significantly. A whole bunch of blowhards like Peter Drucker came along and pretty much said that pitch everybody against everyone else, let the devil take the hindmost and may the best man win.

    As a result, CEO pay shot up as a multiple of the average employee’s wage, and that was after they hived off the janitors et al to supply services companies and drove wages down to the lowest levels, so the average employee is drawn from a smaller pool of higher qualified staff. That CEO ratio still shot up, not because CEOs add any more value to companies now, indeed looking at stock market returns they’re adding less than before the millennium, but because they are top dog and they can.

    A quick detour through Globalisation, BPO and All That

    Then in the 1990s and early 200s we had wave upon wave of business process outsourcing which sent anything you could send off to lower wage economies, this afflicted the English speaking world more than others because of a ready global pool of decent English speakers. This has very materially improved global pay and reduced global poverty in a big way, as the the right-wing nutjob Tim Worstall correctly opines. And repeats himself thusly. As do the not left-of-centre Adam Smith Institute.

    It isn’t true that everyone benefits from free trade and globalisation. The net effect on all humans is vastly positive, but there are still those that lose. And that’s a political problem, not an economic one. For the people who don’t win are, largely speaking, those below median incomes in the already rich countries.

    Now Tim’s probably rich enough not to give a shit, I figure TW is well over the median income in a rich country. So was (and possibly am) I, but I am far closer to the edge than him, so I am more twitchy. None of these fellows are wrong. All other things being equal, for the sum total of humanity globalisation delivers the goods in the way Bob Geldof and so-called aid just didn’t. It probably wasn’t Sir Bob’s fault – the sort of corruption and baksheesh that aid generates is remarkable, there are many problems in the world that helicoptered money just can’t fix. But even the distorted version of free market capitalism that goes now left all that do-gooding in the dust when it came to alleviating global poverty.

    Globalisation also needed a population explosion because it needs growth.

    There is some argument to be made that it also enabled a shocking population explosion which has made a lot of things like food, water and climate change a lot tougher to nail in future than they were when I was at school, when there were half as many people in the world. I suspect globalisation only works when there is economic growth, and to have economic growth you need growth in the number of consumers, but I am not smart enough to say that is categorically the case. At the moment the score is Oxfam-nil:Globalisation-1

    Communism was also a great idea in theory. Trouble was it went against the grain of human nature. So the trouble with globalisation is that people don’t care evenly about humanity in general. They care about the humanity that is closest to them. Within rich countries we have institutions that sort of temper this instinct, but when the people who are getting the uplift are far away, then the people below median incomes in rich countries who are drifting backwards economically get really, really, pissed off. They let people know, through Brexit and Donald Trump among others. In general they want to put a spanner in the works, because nothing pisses people off more than not getting ahead while seeing other people are.

    The effect of globalisation on First World Jobs

    It makes lovely jobs lovely, and pretty much the rest of them shit. Q: What’s worse than a zero-hours contract job? A: A ZHC job where you get fined £250 a day if you can’t find a replacement if you’re sick. Or only £150. Welcome to the lousy jobs. I am glad that I had my career while the Iron Curtain was still down – true, we had to watch films like Threads and worry about being nuked in four minutes but at least I wasn’t competing with Vladimir and 1 billion in India, and I was working in an analogue world where the cost of replication was higher than now. That suited me very well, because while I am on the right hand side of the bell curve I am not that far to the right of it, and I am an introvert which is maladapted to the interconnected and always-on world of work now. Collaboration and teamwork – meh. You get ahead by having an edge, and you get an edge by spending time understanding what is going on IMO. Chatter on SMS and social media is for gossip, and meetings aren’t much better 😉

    Back to the original premise – a deficit of 7 million jobs?

    Well they’re not going to be getting old gits like me back out of retirement to go into the bear-pit of zero hours contracts, are they? The second word would the -off. Because all in all, working is increasingly a pretty shit proposal, and it’s particularly crap compared to my experience of working in the past. Fortunately, a whole different bunch of guys is telling us that Humans Need Not Apply and that the robots will be doing all these shit jobs. Hopefully this deficit of people desperate for crap jobs is going to do some good then, and people will automate the crap jobs they can’t get the retired baby boomers to fill. This will finally lift capital productivity in Britain although possibly not per-capita productivity. Pret a Manger say that 1 in 50 of their workers in British. Well, tough luck – Londoners are going to have to pay more of their bonuses for their coffee and snacks or brown-bag it, and some teenagers in London are going to get breaks they couldn’t get before, until the robots come. Or they will set up camp somewhere outside the citadel and bus in the serfs. I am not so sure I find that such a terrible thing.

    There, Mr Government and your hired guns. Fixed that for you. Taking 7 million shit jobs out of the economy is A Very Good Thing in this humble Ermine’s opinion. There’s now’t wrong with encouraging those old gits to punch their cards one last time and clear off, even if there aren’t enough worker drones to fill their shoes. The balance had been swinging from Labour to Capital ever since the 1970s. There are too many crap jobs in the UK, and retirement of the Baby Boomers could be just what the workplace needs at the bottom end.

     

    26 Apr 2017, 8:27pm
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  • HMRC decide the Ermine’s gone to work for Goldman Sachs, taxes accordingly

    Flexible drawdown is great but it’s easy to get suckered for huge amounts of tax. Although I originally planned to draw my DC pension under the tax threshold over five years, paying zero tax, there is of course a problem with the best laid plans of mice and men, which is that things change. My original computation was imagining running down the cash saved into the SIPP, and I had invested it conservatively, with a fair lump in gold, some in VWRL and some in cash. Then Brexit happened and lifted the nominal value of the stocks and the gold, by destroying 20% of the real value of the pound. So I get to pay tax anyway where otherwise I might not have.

    In more change I am looking to buy a house, raising the cost of the new one before selling the old, and because I am a poverty-stricken bum under the railway arches according to the finance system’s favourite metric, income, nobody will lend me anything. I need to raise that in cash. So I paid more tax, drawing just short of the HRT threshold in a lump sum and then nothing for the rest of the year. It’ll only buy me half a used Lamborghini, perhaps a cut’n’shut.

     

    The ermine’s new place of work in HMRCs eyes – as teaboy, runner or floor sweeper. People at GS seem very coy about their pay, claiming it averages 64k for an analyst. In which case perhaps the Ermine gets a corner office, on nearly 10x that. I’ve even doing okay on FireVLondon’s pay ranges. Shame it’s an HMRC cockup and not real, eh?

    HMRC, on the other hand, seeing £43k come out have decided I am now working for GS as a teaboy and earning half a million pounds, arrived at by multiplying 43 by 12. Yeah, I wish, guys. What I told Hargreaves Lansdown is to can all monthly payments this year and pay out 43k, whereupon HMRC help themselves to 40% of it. Cheeky barstewards.

    I had been warmed up to this by the Telegraph (H/T Monevator). Although that article says this only applies if your pension provider has an emergency code 1 this isn’t true in this case. I went through that bunfight year before last as they still had me working for The Firm in 2015, despite the fact I hadn’t earned from there since 2012. But I never did anything with the P45 because I had no new employer to give it to. In fairness to them they did get it sorted out within a month and refunded the excess tax.

    So it’s time to do that all over again, via this link. Even if you fill in the form online it’s worth reading the print off and post form first, because the explanation of the form fields is much better on that. In particular I suspect I screwed up because I declared 43k as total amount of income I expect to get. Which is correct, but probably should have been zero, because the next box asks

    Details of pension flexibility payments paid as lump sums

    and I guess mine might be construed as a lump sum, although it’s not against the law to be paid one’s income annually in advance. But in the end 43k is the total amount of income I expect to get from that source.

    They also ask if you are contributing to the pension, and getting savings income and self employment income. In theory if you get all this right they will repay the overpaid tax. Which is over 10k – they helped themselves to £17,734 which is slightly over 40% of the total. Whereas they should have taken (43,000 – 11500)*20%=6300.

    Still, on the upside, once I have gone through this I will be able to run this SIPP down tax-free. I only have another 5400 in it. I will add £3600 this year and another 3600 next year, take my £1800 PCLS on the new money, leaving me with 10800 to run out tax-free in 2017/18. Unless, of course, the stock market takes a hissy fit which will probably jack up the price of the gold. If, of course, Brexit is the stupendous success that Barry Blimp tells us it will be I will take a bath on that gold and my ISA, guess that’s the price of being a saboteur and Volksverräter.

    There’s a lot to be said for being paid annually early in the tax year from a SIPP

    On reflection, although last year I drew from the SIPP on a monthly basis, that’s probably not the smartest way to do it, if you know how much you’ll be drawing that year. Drawing it all at the beginning of the tax year lets me get the money to work for me earlier – Hargreaves Lansdown don’t pay a particularly exciting interest rate on cash in a SIPP, so I may as well pull a large lump sum as soon as I can and get it working for me rather than funding Peter Hargreaves Brexit ambitions. I went monthly because of the warm fuzzy feeling of it being a simulacrum of my old employment income, but what the hell, I coasted for three years on investment income and savings and didn’t overspend.

    I should have behaved like a grown up and made this work for me being paid up front, even if I had to fill in a P55 form every April. Ain’t hindsight a marvellous thing? After this one it will never apply to me again, because I have too little left in the SIPP. Unless they pull the same stunt when I take £10k next year, and assume I will be earning £120k.

     

    Notes:

    1. ie they assume you earn at least the personal allowance elsewhere and tax you at 20% on everything
    18 Apr 2017, 11:24am
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  • Fear and loathing in Britain’s favourite asset class

    On a small island with a lot of people, there is one type of asset that has become a national religion for Britons, and that is residential housing. You can’t lose with bricks and mortar, is written through the national psyche like the lettering on a stick of rock. It runs so deep within the national character that we have the common spectacle of well-off people preying on the poor by buying up houses to rent to others on a onesy-twosy basis, using the terrible security of tenure in British rental housing facilitated in the Housing Act 1996 to extract cash from those who can’t get a mortgage because they are too poor.

    Thatcher handing something over that wasn’t hers to give – an early RTB house deeds

    So rich people use their better creditworthiness to borrow money to buy houses to let, renting them out to poor people who can’t borrow money to buy houses, and making a tidy profit. They even claimed back the tax on the mortgage interest, a privilege denied to the poor saps who are buying a house on a mortgage to live it it. I am pleased to say that this nasty little anomaly has been canned now 😉 Britain has too few houses as it is for people who want to buy-to-live, they don’t need BTL (buy-to-let) middlemen inserting their money funnel into the punters’ wage packets sponsored on the government’s dime.

    When the Ermine was a child, this job of landlording to families was largely done by the councils and the poor and even the modestly well-to-do had the option of renting with an adequate security of tenure, but those days were lost when Thatcher bought the votes of the sitting council tenants by selling the council housing stock to them at a knock-down price. The official version of this is of course a roaring success

    the policy of giving tenants the Right to Buy on advantageous terms their council houses gave immense pleasure to many who had never imagined being able to possess a place of their own and pass it on to their children. People were ecstatic.

    Well, they would be. You always make friends dishing out free money, and it was the discounts (a.k.a. free money) given with Right to Buy that made the impact

     the Right to Buy had benefited a large number of individual households but it has also had an uneven impact spatially and socially, has added to residualisation in social renting and has had an adverse strategic impact on housing. The discounts provided under the Right to Buy had inflated the demand for home ownership. In the longer term transfers to private renting further diverted resources to meet higher rents in the private sector rather than providing additional or affordable housing.

    […]

    Looking back over the history of RTB it is apparent that, rather than the symbolism associated with a legal Right, it was the manipulation of levels of discount that were key to the operation of the policy. The Right to Buy with lower discounts would have had much less impact.

    Which is how we got from my London grammar school days when about half the kids lived in council houses, including some of the ones whose parents were white-collar workers, to today where almost half of all local authorities in England no longer have any significant council housing.

    Housing is to the Ermine as Moscow was to Napoleon

    Rule 1, on page 1 of the book of war, is: “Do not march on Moscow”. Various people have tried it, Napoleon and Hitler, and it is no good.

    Monty

    So it is with the Ermine – the greatest personal finance error I have ever made was buying a house in 1989. I have never managed to beat that level of numbskullery despite greater resources. Now I hope that this is an indication of actually using the intervening 30 times round the sun to improve the art of being human, but let’s face it, the bar was set very low for the depths of financial folly I needed to avoid plumbing again. I moved once since that first house, because a two-up-two down was okay for a bachelor Ermine but when DxGF moved in it was time to get some more space, which is the entirely average three-bed semi I am in now.

    When I bought it in the dog days of the dotcom boom, I bought the new house before completing on the old house. That sort of thing makes moving a lot easier, and you can get decoration and rewiring done much easier in an empty house. I hate being a function of other people, so housing chains rub my fur up the wrong way and make me snarl. The amount I had lost on the old house meant I could carry the old house with a combination of savings and a hefty 0% interest loan on a credit card, I had a 90% mortgage on the new house.

    I am looking at moving again, and it is a significant distance across country. Retiring is a good time to think about where you want to live, as the limitations placed by working are lifted. It’s not necessary to move, but I find the the dreary journey halfway round the M25 to get past the carbuncle of London more and more irritating, now I have the time and the money to travel more. On the other hand, a retiree needs to think about the human setting, so we want to move to an area where we already know a number of people, so in our case that is westwards but not particularly northwards.

    Stoney Littleton Long barrow. One of the many megalithic sites that draw me westwards as a retiree. No, I’m not planning to live in it 😉

    We own this house outright, and have stocks and non-residential land assets, the combination is considerably more than the sort of house we are looking at buying.If I put the stocks together with the proceeds from the land assets and cash I hold, I have enough to buy a house of the sort I want before selling the current house. Trouble is all the stocks are in my ISA. Some of the cash is with NS&I ILSCs, ideally I would prefer not to sell that either. Some of it is in my SIPP, had I jumped to it I would have drawn out to just below the higher rate tax threshold last month, but I failed to engage brain there.

    I get to do that this month, drawing ~43k gross, and pay £7k in tax. I can chill about that because I would have paid 41% in tax had I not used the SIPP when I earned the money. So I am still 21% better off, and indeed I got the Brexit boost on that last year since it was in some international exUK index fund.

    I started to sell out of some of the ISA, though of course keeping the cash in the wrapper until the last moment. I started with the crap, the sorts of things one acquires in a HYP but turned out to be a really bad idea. Many years ago I came to the conclusion that while I may do okay on buying, I have no talent for selling, which is why in the HYP I don’t sell out of the crap. Some of it even came good – dogs like RSA eventually crossed the loss to breakeven to profit mark simply by paying dividends. Some didn’t, I followed Warren Buffett into Tesco, and, well, ’nuff said, eh? At least I had illustrious company in the cock-up. I paid less than WB 1, but he bailed faster. As Buffett said (p18)

    In the world of business, bad news often surfaces serially: You see a cockroach in your kitchen; as the days go by, you meet his relatives.

    I ain’t got Buffett’s talent, I was far too trigger-happy as a seller, so I needed to stop that. That trigger-happiness shows even in my actions here – although I believed I was going to liquidate the entire ISA to raise the cash at the time, I started shooting dogs first. A different way of looking at reversion to the mean might have started to liquidate from the top, after all those are the greatest gains to be crystallised. Once a mutt’s lost > 50% most of the damage has been done 😉

    you had it coming to you, bud. There is a school of thought that says you should actively seek out dogs, but I’ve waited many years for my ISA mutts to turn, they aren’t just last year’s disreputable hounds

    Shooting the dogs was easy. Most of them I’ve had for a long time and they’ve never come good. Now a fifth of my ISA is cash, and I’ve run out of hounds to put up against the wall.I had about a twentieth of the ISA as mutts, I sold about a twentieth of good stuff before I just couldn’t do it any more, and a tenth I carry in cash because you never know when buying opportunities may show up.

    exchanging equities for housing felt that I was marching to Moscow. No good would come of it…

    Look at the housing market now. It is up in the sky 2. We have the economic damage 3  of Brexit coming down the pike, inflation is lifting which may bode rising interest rates and the market is softening. That’s not necessarily a bad thing for me, as I am looking to move upmarket. I’m not carrying any debt once all is settled so rising interest rates don’t trouble me, but they sure as hell will trouble others in the market carrying a huge mortgage based on affordability at 2%. Which will depress prices, because if they can’t pay they won’t pay.

    This play by Dario Fo was big in the early 1970s inflationary oil shock. The title could be the anthem for Britain’s overstretched mortgagees as Brexit inflation starts to bite and interest rates rise. According to Wikipedia, Pluto Press was a division of the Socialist Workers Party when this was published.

    I looked at what I have left in the ISA and I simply couldn’t bring myself to press the sell button, and exchange stocks, something of value, for housing, because I loathe the housing asset class. Couldn’t do it even on a temporary basis, as I searched for something else to sell from the ISA and would have had to mine the good stuff I began to feel sick, and an old recording started to play out in the back of my mind. A recording first made in 1990 through to 1992, when I froze in that first house to save money for the mortgage and subsisted on peas, economy bean soup mix 4 and rice while I watched one neighbour get repossessed and the other side jump before that happened. Interest rates came within a hair’s-breadth of 15% p.a. Intellectually I can tell myself that things are really different this time because I am not buying as a leveraged buyer with a mortgage, but it’s no good. I drank the water from that polluted well before and was sick for ten years. Sure, I’ve taken losses in the stock market, but never got to lose more than I had to start with…

    Repairing the ISA

    I need to go fix the damage I did to my ISA estate by trying and failing to convince myself I was going to liquidate it to bridge the housing purchase. I can’t honestly say I am that sad to see the back of the dogs, though they did of course serve as a sort of memento mori reproaching me to the tune of “Self, you aren’t such a fantastic hot-handed stock-picker – I am TSCO and I remind you that you had absolutely no ‘king idea of what you were doing trying to slipstream Warren Buffett, so don’t get so full of cock”. I have a limit order on some gold that should go through this week, because God knows what the pound will do over the next couple of years, and it’ll bring down the cash to 10% where I’m easy with it. There is a case to be made that a fellow with no unwrapped holdings any more should hold his gold outside tax wrappers, because I don’t have so much that CGT would be a hassle, and gold doesn’t pay dividends which are troublesome outside a tax shelter nowadays. But I just need to get it to a holding position for now. And my Charles Stanley ISA needs to go back into VWRL and L&G Dev World ExUK where it was, so I get to eat a load of transaction costs for my thumb-sucking indecision. Bummer. Still beats the hell out of losing all that ISA tax sheltering. At least I stepped back from the brink. Obviously I’m not putting my £20k new contribution into the ISA while I need short-term float, because I have till nearly this time next year to get round to that.

    There’s the smell of decay in the air on housing

    A grizzled snout sniffs the air, and I smell the sickly scent of putrefaction in the housing market, the scent the youthful Ermine  insouciantly ignored. One of the things that puzzles me about housing now is the shocking compression of prices. When I was buying my first house 5 on the  terraced places were about £45k, and semis were about £60k 6. Where I am looking Zoopla tell me terraced houses are about £214k and semis are £248k. It’s as if the entry-level prices have been skyrocketed proportionally, whereas the incremental costs to get something better has reduced. The terrace to semi ratio was  1.3 in the late 1980s and has fallen to 1.16 – you get a lot more for a little bit extra, and this still sort of holds going up to detached places, which command less of a premium than I expected. It is as if first-time buyers are flattening themselves, artificially boosting the crummy end of the housing market. Looking at my existing area this ratio is about 1.2. Only another 10% on my house would get me a detached house over the road. Of course Zoopla could be full of crap, but these differentials seem very squeezed to me.

    The Ermine’s twitchy snout has picked up the last ten of the one real housing recessions we’ve had this millennium, so I am prone to false alarms, that early experience of housing is a distorting lens through which I look at Britain’s favourite asset class. It’s why I am not a BTL landlord, and property is a lot less than half my net worth. This is not because fundamentally I have a beautiful nature full of compassion for my fellow man, after all if I am not a BTLer then some other person will step into the breach. I am not a BTLer because I am shit scared of the asset class, it’s hateful because of what it did to me, it’s illiquid, it depreciates much faster with a tenant than an owner-occupier, and there seems a shedload of miscellaneous aggravation that goes with the whole patch.

    Everything is vile about buying and selling houses in England. I haven’t done it for almost twenty years, and while the experience wasn’t great then, many things seem to have become worse. For starters, exactly what reason does an estate agent have to exist in the 21st century? The cheeky blighters seem to want to see proof of capital assets before taking an offer to a vendor, which is not easy in a distant town with ratty internet connections 7 and no printer. This was an absolute blinder on me and was definitely not the case 20 years ago. I suspect there was also some subtle discrimination too, if I had shiny shoes and dressed in a sharp suit I might have been given the benefit of the doubt. But seriously, WTF is the point of an estate agent? I use rightmove to search 8, the days of receiving endless offers of places 200% overbudget through the post aren’t something I want to go back to. Rightmove and other Internet sites actually listen and don’t show things that are overbudget. I would have thought the Internet would have fixed the problem of estate agents by eating their lunch by now, but it appears not.

    I’m also unlucky enough to be selling into a gently softening market sector in Suffolk and a slightly appreciating one where I want to go. Some of that is because of who I am and what I want to buy. I want a detached place because I don’t want to hear people’s kids, pets and domestics, we want more garden, and stairs if any only in a straight line. I don’t want to see children’s trampolines and plastic toys, or people fixing cars in their front gardens. I don’t want to hear traffic from main roads, and I have no interest in new houses, which are tiny and too close together. I don’t want a ‘period property’ which is a maintenance and energy efficiency hazard. I don’t want anything near a river or less than 40m above sea level because of flooding amplified by climate change, low-lying parts of the target region has had problems with this in recent years. Something built from the late 1950s to 1970 is probably about right.

    I am competing with old gits like me who have a working life behind them, and what I am selling is a 3 bed semi which is a typical family home. Families made hay with all the child-friendly largesse Labour showered them with in the times of plenty, and are feeling the draught now.  Hence the softening market my end. Countering that I am looking to move somewhere where there appears to be zero professional work to be had for forty miles 9 which tends to be the way for attractive places because work is usually a blot on the landscape.

    The design of the conveyancing system in England is foul, where there is no commitment from the buyer and seller until exchange of contracts; something done so much better in Scotland and probably just about any other First World country. The English way brings out the worst in both the buyers and sellers, making evil shits of us all. Requiring a 10% escrowed deposit forfeited if either side welch on the deal would improve that no end. Hopefully being a cash buyer will help the power balance for me there, and not having a chain will help with selling. Time will show.

    How about joining my fellow countrymen on the never-never?

    How about borrowing? It’s all the rage on this septic isle, I hear. I can breeze way past the average UK household non-mortgage debt of £13,000 and lift the old stats a bit. Normally the Ermine has the same attitude to debt as a vampire has to sunlight, but:

    I have the cash, but it’s tax-embargoed in my ISA and SIPP. Unlike the rest of the country, with their rising credit card debt, PCP car loans and whatnot in need of government help to bail them out of their fiscal stupidity, I actually have the money to back the loan. As long as I pay less than 20% over the life of the loan I am better off borrowing the money than paying the extra 40% tax on it taking it from my SIPP, which I need to clear down to £3600 10 before reaching normal retirement age for my main pension.

    I can’t get a mortgage, because I am too old and mortgage affordability is all about income. I would have thought a DB pension payable in three years time would be good enough as an income but it has to already be in the process of being drawn, and the SIPP doesn’t count because I draw in variable amounts a year according to need. The credit card company won’t give me an increase in credit limit to use the balance transfer stunt that worked when I bought my first house, because I am poor in their eyes, under the railway arches poor..

    MBNA to Ermine – “Swivel on this, bud. You may, of course, beg us on bended knee and we may graciously reconsider your request”. Ermine thinks to self “well up yours too then”. There are other ways to skin this cat.

    In 1989 two credit card firms loaned me £15k, the equivalent of £34,000 today at 0% interest to reduce my mortgage LTV. And they got paid back on time. In those far-off days you didn’t have to declare anything other than income on a mortgage application and there were no credit reference agencies. The 20-something year old Ermine doing the most gormless thing in his financial life with no capital was deemed a better risk than the grizzled mustelid of today who actually has capital assets several times the putative loan. No. I’m not bitter and twisted. Really I’m not 😉

    I have been a small-time ~5k Zopa lender since 2013 until now when I recalled that to build up reserves, and curiously enough Zopa offered me a decent amount for five years at 3.4%. They had a much better repayment structure too. You have the take the loan for a long term, so that the repayments aren’t too high, but for a part bridging loan I don’t need to keep the loan for the term. Normally if you take a loan for five years, you don’t save any interest repaying it early. With Zopa it seems there is a fixed fee of .6% you pay if you have the loan for a microsecond or all the way to five years, plus 3.2% p.a. As such carrying the loan for six months would cost 2.2% of the loan – much less than a normal five year loan for that APR.

    I liked Zopa, though in the end their 25k lending limit isn’t really enough to put much of a dent in the ISA. But I’ve often had the odd tax, ISA filling or CGT need to defer liquidating unwrapped shares from one tax year to another and I wish I’d thought of them before. I’ve used credit card 0% offers for these applications, but the trouble is one has to borrow about twice as much as needed (and pay the arrangement fee of ~2% of the total) because of the requirement to pay down the loan at 5% of the residual a month. Zopa is a much better match for that sort of thing.

    In the end I raised the loan privately. It seems commercial lending to punters is axiomatically all about income, so it will always be mismatched to FI/RE folk. The takeaway from that when interest rates are low is don’t pay off your mortgage early – you will often need flexibility as you thread your way in early stages of FI/RE, particularly before you reach your DC pension age (55 at the moment). That mortgage gives you flexibility, and the tax-free pension commencement lump sum is a good fit to paying down the capital – effectively you redeem the capital with deferred pre-tax income.

    BTL-ers score several hits on the Ermine by proxy

    BTL owners are bad news for owner occupiers, for different reasons than why they are bad for tenants and for first-time buyers. As an owner-occupier you want to move away from such areas. BTLers are strapped for cash, and they aren’t there in person to deal with the consequences of their or their tenants’ actions. It slightly disturbs me that all the regions I used to live have gone downhill. My parents’ place in SE London used to be an owner-occupied zone where they were among the poorer on the block, over nearly 50 years it became a dump where Stephen Lawrence was murdered, I had a pushbike locked to itself half-inched from their drive in the 1990s, they got robbed in the early 2000s. I wouldn’t dream of living there if you paid me and provided an armed guard. And it’s gone BTL, because, well, it’s London.

    Two places I had a bedsits in west London seemed to have descended into high streets of dirty chicken shops, betting joints and fast food retail. I guess the areas were already fully landlorded, but landlords in those days used to really own the places they rented, tending to be on a professional and larger scale. The blight of BTL mortgages started in 1996, around the time the AST was enacted, so BTL landlords could know that they could kick tenants out on reasonably short order. The area I bought my first house in Ipswich in ’89 has become a BTL rental dump with frequent mattresses on the street and much multiple occupation, and towards the end I had a pushbike nicked from my own back garden – not particularly to do with the BTL-ers but bike thieves prey on studenty neighbourhoods and BTL had made it studenty, so it was worth doing over for bikes. I’m beginning to suspect this downhill drift is a curse on me, but at least so far I’ve jumped in time…

    Hopefully the BTL thing will be reined it a bit by not letting the BTLers squeeze real people who couldn’t get tax relief on mortgage interest payments, the poor devils are so desperate that first time buyers sometimes try to masquerade as BTL buyers to get round the way the system is stacked in favour of BTL buyers. I’m going to watch carefully for the presence of BTL in the next place I go.

    BTLers have other adverse effects on housing – the market has slowed after being pumped because the buy-to-let brigade are finally getting soaked on tax on the same basis as real people who actually live in the houses they buy. It is perhaps a reason for the softening where I am, I’ve noticed more To Let signs and when you look on Zoopla they have been recent sales , so BTL was over this area like a rash a couple of years ago.

    And finally I take an incidental hit in needing to front the extra BTL secondary home ownership stamp duty tax for the time I have two houses. I have zero ambition to become a BTL landlord, but I have to drum up an extra £10k because of the guilt by association and presumably have to fight HMRC to get it back.

    But UK property is hopelessly overpriced?

    Yes. It’s a foul asset class that has screwed me royally before. It will no doubt screw me royally again, at least to the tune of the difference between what I sell my current house for 11 and the price of what I buy. But for the bulk of the transaction I will be selling a hopelessly overvalued asset to buy a similarly hopelessly overvalued asset. I have another 20-30 years of healthspan if I am lucky. Waiting another two years for the existential clusterfuck that is Brexit to make all of us poorer may save me money if there’s a housepricecrash, 12 but it is 10% of that healthspan. The gimlet-eyed older Ermine is more able to take the hit than the fresh-faced twenty-year old Ermine who was shafted by the 1989 housing market. In theory a softening market is good for someone going upmarket, but the devil is in the detail, and there is always devil in anything to do with UK residential property.

    Notes:

    1. I bought into some of the suckouts, which reduced more my overall cost of acquisition. But TSCO was still a falling knife, and WB is still a better investor than me
    2. Equities are also up in the sky now, although some of that is the Brexit effect making them look higher. But they’ve been tracking up since 2009… However, the tax sheltering of my ISA has a separate value of its own, I would be in deep shit with the changes to dividend taxation if I had to hold it unwrapped
    3. or short-term adjustment to liberation pains if you are a Brexit booster
    4. I just took a look for bean soup mix and I’m chuffed that they still do this, though the price looks astronomical to me. This stuff explodes in volume when you cook it so the young Ermine could stretch a packet of it a very long way, more than a week ISTR. Note that it’s a lot cheaper if you buy the parts from your local store catering to local Asian consumers and mix ’em up yourself rather than buying from Sainsbury’s
    5. Although it was a similar time of excessive valuations, the distorting factor then was couples were rushing to buy to get dual MIRAS tax-relief on 60k rather than 30k, I presume they were targeting the semidetached sector with a view to having kids, whereas now the focus is on get anything
    6. this was in 1989, the 2016 inflation adjusted amounts are £102740 and £137000 respectively
    7. in the usual way, everything a mobile phone does, like providing a tethered data connection works, but badly and only a ghost of what it should be
    8. I do appreciate the irony of using something owned by a bunch of estate agents, but at least they follow my limit and requirement instructions properly
    9. I am, of course, looking at this with the jaded eyes of an ex-big company careerist, not the dynamic go-getting entrepreneurial sort that the powers that be hope will drag Britain out of the shit in the years to come
    10. which is the amount non-earners can put in a pension
    11. when owning two houses there is the risk of the market running against me over the difference. Although every other Briton believes you can’t go wrong with property I know from experience you can, and the current falling trend in the housing market is against me if I buy first and sell later, so I will try and minimize that period. Being a cash buyer and chainless seller has some value in the transactions, which may compensate a little for what I lose across the gap.
    12. HPC’s wishful thinking gives them an even worse house price prediction crystal ball than the Ermine, they predict a perma-status of impending house price crash, pretty much the last 100 of the one retrenchments we’ve had
    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
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