Winter 2022 Newsletter
- Mark Young Dip PFS
- Dec 15, 2022
- 5 min read
Updated: Apr 11, 2023
Issue 28
Dear All,
As we approach the end of a turbulent and difficult 2022 it is definitely a year to forget in many respects. The problems accumulated during the, once in a lifetime pandemic, really came home to roost. One of the most damaging incidents has been the Chinese zero Covid policy putting pressure on supply lines and subsequently global inflation. There is however signs of hope this is being relaxed as we end the year, providing this continues it will be a major boost to global markets and economies in 2023 and indeed ease the pressure on inflation which in turn will reduce the need for further interest rate rises. However, UK interest rates are likely to rise further to peak at 4% before any likely reversal occurs. The same situation applies in the US where the federal reserve has already announced they do not expect to raise interest rates as much as expected.
The Asian and global emerging markets have been negative for over 2 years which has badly affected portfolio values. The change in the Chinese strategy should be the catalyst for a change in this sector, in fact a number of fund managers have recently increased exposure to China on this basis. This is a good sign that some hope for 2023 is on the horizon. One concern that remains is the change in sentiment towards China where a number of Chinese ownership of UK companies has been thwarted by the government in 2022. In addition, the Chinese investment in the Suffolk nuclear plant has been terminated and repaid which is a clear sign the UK do not want exposure in our companies, the US have a similar stance which in fact was instigated during the Trump regime. This is a concern for Chinese recovery however their markets are worldwide and far spread in addition to domestic sales, so a recovery is still on the horizon.
Naturally the other major issue of 2022 is the Russian invasion of Ukraine which simply added to the already growing supply chain issues. Notwithstanding the terrible human tragedy that has occurred the unnecessary destruction of property, the impact on global warming and the terrible cost of a war it has simply been a situation that should not be happening in the 21st century. It is difficult to predict a conclusion to this, but a number of unknown outcomes are possible. Whatever the conclusion the Russia/west relations are damaged for decades. Alternative energy supplies have already been sourced in most cases. The US of course is almost self sufficient. The short term problem is Russia is still selling to India and China thus retaining income to fund the war. Russia as an economy will suffer for years once the China/India sales subside, again it is difficult to predict timings but there is no doubt a major shift in long term relations and trade has occurred. The west will adjust.
In addition to equities falling the bond and gilt markets have also crashed in 2022 mainly due to interest rate rises. This has resulted in even further pain for portfolios with all sectors falling except possibly commercial property. This has made investing incredibly difficult no matter how large or small the business because collective portfolios always have asset allocations on similar lines.
All in all head winds remain but 2023 looks more hopeful once we have been through the winter of discontent and the pending house price falls. It is important to remember the markets are always ahead of the economy, and thus by the time the good news has arrived markets have already reacted which is why most investors miss the first phases of recovery.
We have not made significant changes to portfolios in 2022 due to the volatility because sometimes it is better to let things unfold before making changes. It is easy to react too quickly. The growth funds will bounce once the recovery starts and value funds will almost certainly stagnate, the question is when this will happen.
Thank you for your continued support and a happy Christmas and New Year from all the team at Padstone Financial Management Ltd.
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Mini Budget 2022
Hunt's mini-budget changes 2022: how the U-turn affects your tax and finances
Here's what you need to know about the mini-budget announcement and the U-turn from Jeremy Hunt that followed. With a new budget expected by the end of this month, find out what this means for the tax and National Insurance you pay, and how it affects your pension and savings.
On 23 September 2022, Kwasi Kwarteng set out a number of changes in his mini-budget, including some major tax cuts. However, the negative market response to this has caused the government to rethink many of these plans. Just three weeks later, the new Chancellor, Jeremy Hunt, announced the reversal of almost all of them in a bid to stabilise markets. Here’s a recap of what you need to know when it comes to your tax and finances.
Key changes from the U-turn announcement:
- Jeremy Hunt has announced the reversal of almost all of the tax cuts previously announced in the mini-budget - The changes to National Insurance and stamp duty will go ahead - The current support package for energy bills is only guaranteed to continue until April 2023
How have income tax rates and tax-free personal allowances changed?
Income tax rates
In short, there will be no longer be any changes to income tax rates. Kwasi Kwarteng had previously announced that the 45% additional-rate band would be scrapped, and the basic rate of income tax would be reduced from 20% to 19%. Jeremy Hunt has now announced that these changes will not go ahead. The 45% and 20% rates of income tax will remain. Keep in mind that income tax rates are currently different in Scotland. The income tax rates in Wales currently match those in England and Northern Ireland, but this could change in the future.
Tax-free personal allowance
There have been no changes announced to the tax-free personal allowance. The standard UK-wide tax-free personal allowance remains at £12,570 for the 2022-23 tax year, which started on 6 April. In the Budget of March last year, the Chancellor announced that it will be frozen at this level until 2025-2026. Most people will only pay tax on anything they earn above this personal allowance threshold. If you have income of over £100,000, this allowance may be reduced or lost completely.
What are the changes to National Insurance?
You pay National Insurance contributions to qualify for certain benefits and the State Pension.
In April 2022, the rates of NI contributions were increased by 1.25%. This was introduced as a way to increase spending on health and social care, and was due to be replaced in April 2023 by a new Health and Social Care Levy.
On 23 September 2022, Kwasi Kwarteng announced this 1.25% increase will be reversed from 6 November 2022. The Health and Social Care Levy will also be cancelled. These changes are still due to go ahead
What are the main changes to stamp duty?
The changes announced to stamp duty on 23 September 2022 will go ahead. Kwasi Kwarteng had announced several changes to stamp duty that will affect some buyers in England and Northern Ireland. These changes came into effect on 23 September 2022.
The amount at which you pay stamp duty has doubled from £125,000 to £250,000. This means that you won’t need to pay stamp duty on properties that are worth less than £250,000.
The stamp duty threshold for first-time buyers has increased from £300,000 to £425,000. And the maximum value of a property on which first-time buyers' relief can be claimed has also increased from £500,000 to £625,000.
These changes only apply in England and Northern Ireland. Property is taxed differently in Scotland and Wales.
What are the changes to the energy support package?
Shortly after becoming Prime Minister, Liz Truss announced new measures to support people with their energy bills; including an energy bill price cap, and a one-off fuel bill discount.
The cap meant that a typical household would pay no more than £2,500 in energy bills for the next two years, from 1 October 2022. Before this, typical household energy bills were due to rise to £3,549 a year from 1 October 2022, and then again in January 2023. She also confirmed a one-off £400 fuel bill discount payment for households.
Jeremy Hunt has now announced that this support will only be guaranteed until April 2023. How households will be supported with their energy bills after this is under review.
What are the changes to Universal Credit?
As announced in the mini-budget, the rules are tightening for those receiving Universal Credit. In a nutshell, people currently on Universal Credit will be asked to take steps to look for more, or better-paid, work. If they don’t, they could have their benefits reduced. The government will provide more time with work coaches to help people achieve this.
Not sure if you’re entitled to Universal Credit or other benefits? Find out how to check if you can claim any benefits in our recent article. https://www.standardlife.co.uk/articles/article-page/help-with-rising-costs
How do the announcements affect my personal or workplace pension?
Neither announcements held any major changes when it comes to pensions, so savers can plan with confidence when it comes to their pension benefits and allowances. Here’s a recap of everything you need to know about from other recent announcements.
What is the pension annual allowance for 2022-23?
Your pension annual allowance remains the same for 2022-23. This is the total amount that you, your employer and any third party can normally pay into your pension plans in a tax year, without paying a tax charge. The limit remains at £40,000 or 100% of your earnings in a tax year, whichever is lower, although it could be less if you’re a higher or non-earner, or if you’ve already started taking money from your pension savings. You can find out more about the pension annual allowance in our guide.
Lifetime allowance frozen until 2026
Lifetime allowance will remain at its current level of £1,073,100 until April 2026. This is the total amount of pension benefits that you can build up during your lifetime across all pension schemes before an additional tax charge applies. You can read more in our pension lifetime allowance guide.
The State Pension rose
The State Pension rose by 3.1% in April 2022, as confirmed in the Autumn 2021 Budget. This will affect you whether you’re eligible for the new flat-rate State Pension, which was introduced in April 2016, or the older basic State Pension.
From April 2022, those qualifying for a full new State Pension started to receive £185.15 a week (up from £179.60). And those who reached State Pension age before April 2016, who are on the older basic State Pension, now receive £141.85 – up from £137.60. You can check your own State Pension forecast on the Government’s website. For more about the State Pension read our article Changes to State Pension - here is what you need to know.
Were there any changes to the triple lock?
The triple lock is used to decide how much the State Pension rises. Normally, the State Pension would rise in line with whichever is the highest of these three measures:
A flat 2.5%
Average wage growth
The rate of inflation
The triple lock was suspended for the 2022-23 tax year because average wages were rising by over 8%. So sticking with the triple lock would mean the State Pension would have to rise by this amount too. By suspending it, the government aimed to ensure fairness for pensioners and taxpayers.
It’s suspected that the government will reinstate the triple lock at some point. This would be welcome news for those receiving the State Pension, but this hasn't yet been confirmed.
How much are ISA allowances for 2022-23?
The ISA (Individual Savings Account) allowance in 2022-23 will remain at £20,000. That means you can save up to £20,000 in a Cash or Stocks & Shares ISA, or a combination of both. The Junior ISA (JISA) allowance stays at the current level too, which is £9,000.
Pensions and Stocks & Shares ISAs are investments. They can go down as well as up in value and may be worth less than what was paid in.
Tax rules and legislation may change and your individual circumstances and where you live in the UK will have an impact on the tax you pay.
The information here is based on our understanding in October 2022 and should not be taken as financial advice. If you’re unsure please speak to a financial adviser. There is likely to be a charge for this.
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We cannot be held responsible for the accuracy of the information contained herein. This newsletter is designed to provide information on topical events which have an impact on financial services. You should seek advice before taking any action relating to the content of this document. This letter is not a recommendation to invest.
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