Investing in Uncertain Times

February 2019
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While the Brexit stalemate dominates debate at Westminster, how can investors protect themselves against political uncertainty?

No Deal Brexit

It is difficult to assess the impact of a no-deal Brexit upon one’s personal finances. Expert opinion on the likely impact is deeply divided.

In preparing our investment portfolios we have sought to balance investments which would benefit in these circumstances, as well as those which could achieve a ‘Brexit bounce’, if an orderly withdrawal is achieved.

In the event of no deal, we would expect sterling to weaken further and global large cap companies, whose business is largely outside the UK to benefit.

If a last-minute deal can be reached, or no deal does not result in chaos, then domestically focussed smaller companies are likely to be beneficiaries.

So, looking for balance in a portfolio of investments to provide all weather protection is key.

Investors should also take a longer-term view and unless funds are needed for immediate spending, staying invested is likely to be the better long-term strategy. To some extent, stock markets are already priced for disruption and slower growth, so keeping calm and continuing to invest, is likely to be beneficial over the long term.

Investing little and often through regular saving, rather than investing lump sums can help smooth short-term market volatility. Yet those who have not yet used their tax-free ISA savings allowance need to do so before the end of the tax year or lose the opportunity to tax shelter savings. Some ISA providers will phase in the investment, so investors can pay in up to £20,000 before 5 April, but have it invested in shares over a longer time frame. This could avoid sharp losses if no deal is achieved but could miss out on any rise should a smooth exit be the outcome.

Change of Direction

If investors are concerned about uncertainty due to a change of government, then higher taxes may be foremost in their thoughts. Labour has been clear it will increase taxes on the rich, which they define as income of £80,000 and above.

Anyone with income in the higher rate tax bracket (£46,350 or £43,430 in Scotland) may wish to use up tax allowances for pension saving. For most people this is the lower of 100% of earned income or £40,000. Higher earners may also wish to mop up any pension savings allowance unused in the 3 previous years and maximise employer matching contributions, just in case higher rate tax relief reduces in future.

Capital gains tax (CGT) could also be a target for reform for any incoming government. With a top rate of 20% on investments and 28% on property, it is one of our lowest tax rates.

Realising gains within the CGT tax free allowance of £11,700 before 5 April reduces the potential tax payable. If not used each year this allowance is lost.

Over the past year, many investors in shares may also have had some losses, realising these too can be beneficial. Losses can be offset against other gains and carried forward indefinitely to offset against future gains.

Kay Ingram
Director of Public Policy, LEBC

Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment or product for your circumstances, please contact an adviser. All investments can fall as well as rise in value, so you could get back less than you invest. All information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation, are subject to change. Taxation advice is not regulated by the FCA.

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