Weekly News Bulletin - 20/12/2021

Savings

ISAs remain super stars of UK's tax saving options

ISAs will save Britons £3.7bn in income tax alone this year, according to new ONS data. The objective of ISAs is to encourage individuals to save over time by removing the tax liability for savings income. The cost of ISAs has increased across time, the ONS said. The limit was increased to £15,240 for the 2015 to 2016 tax year and £20,000 in 2017 to 2018. The annual income tax saving on ISAs has risen 42% over the past five years, as the allowance increased, investments and savings grew and more money was accumulated over longer periods. Yahoo News

Lending Works exits P2P lending

Founded in 2014, the business was fully acquired by asset manager Intrivia at the end of 2020 and has been increasingly focusing on institutional capital to fund its embedded lending in recent years. Nick Harding, CEO and founder of Lending Works, says the dynamics of the P2P market have changed markedly in recent years, with retail investor participation steadily waning. “As a result, we’ve decided to close our retail investor product and move into a “run-off” process. For investors, this means Lending Works will no longer be accepting new money from retail investors. Those who already have money invested in loan will continue to receive repayments from their loans until their balance is fully repaid, the firm says. AltFi

Britons urged to take advantage of charity tax relief

Figures from the Charities Aid Foundation show people in the UK gave £11.3bn to charity in 2020, £700m more than in 2019. But experts say the number of people claiming tax relief on their charitable donations is falling, particularly among higher-rate taxpayers. Recent data from HMRC estimated £530m was reclaimed by higher rate taxpayers during 2020/21, down from £540m in 2019/20 and £560m in 2018/19. Sean McCann, Chartered Financial Planner at NFU Mutual, says many higher rate taxpayers, particularly those paid via PAYE are missing out by failing to reclaim 20% of any donation made using Gift Aid. McCann also notes that when a person leaves at least 10% of their net estate to charity on death, the rate of inheritance tax paid on the remainder is reduced from 40% to 36%. Daily Express

Pensions

Savers could increase pensions by trimming Christmas spending

Analysis by PensionBee has suggested that Brits could be as much as £1,442 better off by the time they reach retirement if they diverted half of the money they are forecast to spend this Christmas to their pension. The analysis was based on a recent study from Statistica, which revealed that average spending per head during the 2021 Christmas period is expected to reach £1,131 across the UK, with a low of £994 in the North East and a high of £1,746 in London. In light of this, PensionBee suggested that if Brits were to save a quarter of the average amount predicted to be spent, around £283, they could add between £423 and £721 to their savings, depending on how far from retirement they are. Pensions Age

Over a quarter of people unsure of pension contribution levels

Research by Hargreaves Lansdown has found that more than a quarter (26%) of people do not know how much they and their employer are contributing to their pension. A fifth (20%) of respondents stated that their total pension contribution was less than £100 per month, with 13% of men stating this was the case compared to 28% of women. Hargreaves Lansdown senior pensions and retirement analyst, Helen Morrissey, commented: “While many employers only pay in the minimum they need to under auto-enrolment there are others who are willing to pay in more if you do and this will further boost your pension – it is always worth asking your employer if they do this – it could really improve your standard of living in retirement.” Pensions Age

Property

Bank of England plans to ease mortgage lending rules

The Bank of England has announced plans to ease mortgage lending rules in a move that could help first-time buyers get on to the property ladder. The Bank's Financial Policy Committee said that it was "minded" to withdraw the rule that forces banks to check that potential borrowers could afford a 3 percentage-point rise in their mortgage interest rate above the lender's standard variable rate. Scrapping the requirement could help 1% of renters in Britain currently not able to meet the affordability test. A further 6% of mortgage borrowers would also have been able to secure a bigger loan if the rule had not been in place. The Bank said a rule limiting some new mortgages to 4.5 times a borrowers' income, as well as separate affordability criteria set by the Financial Conduct Authority, were sufficient to guard against excessive risks in the mortgage market. It will consult on the change in the first half of 2022. Daily Mail | The Daily Telegraph | The Times | Guardian

Number of homes for sale at record low

The number of homes for sale has fallen to the lowest level on record in a sharp slowdown from the pandemic high, according to figures from Rightmove. Estate agents have an average of 14 properties on their books, half the level of a year ago, research from the online platform shows. Tim Bannister, Rightmove's director of property data, said: "While the pandemic is still having an ever-changing impact on society as we head into the new year, we expect a housing market moving closer to normal during the course of 2022." Valuation requests by homeowners have risen 19% compared with a year ago, suggesting more properties will come to market in the new year. Across Britain, the average asking price is £340,167, a fall of £2,234 compared with November, Rightmove said. Asking prices for December are 6.3% higher than a year ago and Rightmove predicts that they could rise by a further 5% next year. Increasingly stretched buyer affordability and a wider choice of properties for sale will take the edge off sellers' "pricing power", Rightmove said. The Times | The Guardian | The Sun | Daily Express | Daily Mail | London Evening Standard

UK house prices go in reverse as market enters ‘new normal’

House prices have entered a ‘new normal’ after dropping 1.1 per cent between the end of the stamp duty holiday in September and October of this year. However, prices are 10.2 per cent higher year on year, marking the third month where annual growth has hit double figures. Year-over-year growth dropped from 12.3 per cent in September. After a buying frenzy over the summer and into the early autumn, real estate experts said today’s figures from the Office for National Statistics (ONS) signify a “new normal”. Economists have forecast that prices will flatten off in the first half of next year. Prices have typically “struggled” when CPI inflation has been high, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said. Inflation leaped to 5.1 per cent in November, up from 4.2 per cent in October, thanks to soaring prices in transport and retail. City A.M.

Inheritance Tax

Tips to avoid IHT traps

The Government has issued new guidance on how much Britons can gift before incurring inheritance tax to help people get it right this Christmas. Geoffrey Todd, partner at Boodle Hatfield explained: “Hundreds of people are being unnecessarily caught out each year when passing assets along to the next generation. On average, they are throwing away more than a quarter of a million pounds each by falling into an avoidable trap.” He said there are a number of ways in which homeowners can reduce the IHT bill on their estates without falling into the 'gifts with reservation of benefit' trap, such as: giving the property to family members but paying a full market rent for their continued use of the property; selling the property, buying a smaller one and gifting the net proceeds to one’s children; giving a share of the property to family members and living in the property together and making use of a lifetime mortgage or equity release to gift cash to their children. Daily Express

A trusted means to reduce IHT

The Sunday Express looks at how families could reduce their IHT bill by shifting life insurance policies into a trust. Tom Skinner, founder of Barnaby Cecil Financial Planning, said parents often buy life cover worth hundreds of thousands of pounds to protect dependents such as children. “The IHT threshold has been frozen at £325,000 since 2009, so many of these life policies could incur the 40% tax." One in four estates that incur an IHT bill include money from life insurance policies, HMRC figures show. Sean McCann, chartered financial planner at NFU Mutual, says putting life insurance policies into trust is relatively straightforward but could save families huge sums. Sunday Express

Economy

Bank of England defies expectations and hikes rates for first time in three years

The Bank of England today defied the City’s expectations and hiked interest rates for the first time in three years. The Bank’s rate setting committee voted 8-1 in favour, including governor Andrew Bailey, of lifting rates 15 basis points from a record low 0.1 per cent to 0.25 per cent, making it the first major central bank to lift borrowing costs since the onset of the Covid-19 crisis. The Bank said there was now “a strong case for tightening monetary policy now, given the strength of current underlying inflationary pressures and in order to maintain price stability in the medium term”. City A.M.

Inflation hits a ten year high of 5.1%

Figures from the Office for National Statistics (ONS) show that inflation hit a 10-year-high of 5.1% in the 12 months to November, exceeding forecasts of a 4.7% increase and driving the rate further beyond the Bank of England’s (BoE) 2% target. The rate compares to the 4.2% recorded a month earlier. ONS chief economist Grant Fitzner said: "A wide range of price rises contributed to another steep rise in inflation... Clothing costs - which increased after falling this time last year - along with price rises for food, second-hand cars and increased tobacco duty all helped drive up inflation this month." The Retail Prices Index also soared to a 30-year high of 7.1%. The increase in inflation will intensify debate over a rise in interest rates, with the BoE’s Monetary Policy Committee meeting today to decide whether to increase rates from a record low. While the Bank is expected to hold rates static while it gauges the impact of the Omicron coronavirus variant, the International Monetary Fund has warned it against “inaction bias”. BBC News | The Daily Telegraph | The Times | City A.M. | Daily Express | Daily Mail | The Guardian | The Independent | Sky News