The integrity of a sandwich

Dominic Thomas
Nov 2023  •  3 min read

The integrity of a sandwich

We all remember the credit crunch and the general ill-feeling towards bankers, perhaps you missed the story of the credit munch? Whilst the Credit Crunch lasted, well…truthfully the long term ramifications are still with us, but it really ‘started’ (became apparent) in 2007. The credit munch took place in July 2022 and lasted about a year.

A financial crime analyst with Citibank was on a business trip to Amsterdam. It appears that Mr Fekete forgot (see what I did there?) to declare that his partner joined him on the trip. They put a very modest sandwich lunch on business expenses, claiming £86.70 of the £100 daily allowance.

Mr Fekete’s managing supervisor queried his submission and wondered whether Mr Fekete had indeed really consumed two sandwiches and coffees. Here I must claim that my own personal battle with a good sandwich does not immediately conclude that such an appetite is implausible; but merely a little excessive… mea culpa! Anyhow, Mr Fekete didn’t confess that it wasn’t simply him and that he had in fact shared lunch with his partner. He was dismissed for breaking company policy of claiming expenses for his partner as though his own. In essence, Citibank concluded that he was dishonest.

A series of emails providing some “optimistic circumstantial rationale” for his forgetfulness was not accepted by a judge, as Mr Fekete took his employer to an employment tribunal for unfair dismissal. It seems that the judge agreed with Citibank that the employee should have owned up when challenged and then been given the opportunity to correct his error of judgement.

The judge said “I am satisfied that even if the expense claim had been filed under a misunderstanding, there was an obligation upon the claimant to own up and rectify the position at the first opportunity. I accept that the respondent requires a commitment to honesty from its employees.”

So, it seems that Citibank are holding their employees accountable and expect honesty from them. Perhaps this is a sea-change at the Bank and within the sector. After all, it was only last year that Citigroup were fined £12.5m for failing to properly implement market abuse regulation (which was a discount of 30% for admitting failure). In the context of all the ills of Banking, I  suspect you will agree that this all seems rather trivial in comparison to a Credit Crunch, LIBOR fixing and so on. However it does speak to a culture of integrity and when your employed job is upholding it, it is hard to fathom why on earth Fekete didn’t simply own up.

I’m reminded of Richard III shouting “A horse, a horse! my kingdom for a horse!”. How little it takes to lose everything. That was some meal deal.

The integrity of a sandwich2023-12-04T12:15:11+00:00

Death of inheritance tax?

Dominic Thomas
Oct 2023  •  3 min read

Death of inheritance tax?

There are a number of elections around the world – the pontifications, point-scoring, own goals and blotted copybooks are all about to garner increased scrutiny. Whispers of good news into ears in attempts to win over voters. The next UK election has to be held by 28th January 2025 and we all tend to suspect that the current bunch will continue to attempt to restore a modicum of decency and sound policy before announcing one.

The rumours of the death of inheritance tax appear to have gained some traction, this is of course all largely leaked hearsay, or in other words think tank testing popular opinion. The conundrum of taxes is simply that we all know that they are needed, but few of us can see that the money is used wisely. Some of our fellow humans seem to enjoy paying tax, able to clearly see the collective value in how, what and why it is deployed. Here in the UK, we may get a standardised pie chart of where it went, but the numbers are invariably so vast that they have very little connection with us.

Inheritance tax is one of the most loathed taxes. This is probably because most of us (the middle classes) have earned income, which has already been taxed. Savings or investments, entrepreneurial or retail have had taxes applied, albeit with some allowances granted. IHT is a bit like being given a tax bill again, once you have done all the sensible things and have something left to leave your family or beneficiaries.

A tax rate of 40% also seems fairly high (by tax rate standards) much higher than capital gains taxes and higher than most people pay as income tax. It was seven Chancellors ago when a certain George Osborne who last messed around with IHT, adding an allowance for those who had a home and children to inherit it. The Main Residence Relief was ushered into existence from 6th April 2017, now granting an extra £175,000 of exemption (in addition to the £325,000 nil rate band that everyone gets). It would be too easy to have simply increased the latter to £500,000, instead, this is the making of the Humphrey Appleby’s where what you appear to have can be withdrawn in the wrong or right circumstances, depending how you count and what you count.

So the latest whispers of the abolition of inheritance tax, garner a keen ear and of course the intention is that those convert into votes. Taxes as bribes? It was ever thus. IHT has been raising substantial sums for HMRC over the years and each year the sums tend to increase. The latest data April to August 2023 showed IHT receipts of £3.2bn, up £0.3bn. In the tax year ending 2022-23 £7.1bn of the total £786.69bn HMRC received from all sources. I make that about 1% in round numbers.

Combined with this potential good news is a classic ‘Humphreyism’ in that the current inheritance tax exemption on pension funds may be … well, challenged. There already are possible taxes, depending on how conveniently you can arrange your death before age 75 or how the money is taken. However, this appears to be within the range of the ministry of misinformation and may well be that classic case of rearranging the deckchairs on the Titanic.

We will keep you posted with facts as they arise, assuming they are clearly disclosed by Humphrey and his chums.

For the record:

Osborne, Hammond, Javid, Sunak, Zahawi, Kwarteng, Hunt.

Death of inheritance tax?2023-12-04T12:14:36+00:00

Good news for Equitable

Good News for Equitable Life

There is finally some good news for anyone that is still alive and has an Equitable Life policy. The company that came under serious financial and legal pressure some years ago having attempted to reverse its promises, is now planning to provide an additional payment to policyholders.  The Equitable has built up some reserves and now intends to distribute these to policyholders, all to be approved at the AGM on 31 May.

There is no news about how much, simply that there will be some payment, which is nothing to do with compensation (for which there was a report in 2008 for it to be “speedy”). The company closed to new business in December 2000, so your policy will be at least 17 years old. Equitable will be writing to policyholders in due course. It would seem likely that this only relates to people with holdings in their “with-profits” fund.

Good news for Equitable2023-12-01T12:18:13+00:00

The Wealth Inequality

What is the Wealth Inequality?

I risk sounding ever so political and I am well aware that there are no easy answers. However, as I provide financial planning advice to people in Wimbledon (and wider afield) I imagine that bringing information to your attention about money and wealth is probably important and in particular the wealth inequality. On a global scale most of Britain is wealthy. My clients are all wealthy in terms of the UK, some very wealthy, however I don’t currently advise the mega wealthy (£10m+).

What is the market value of the US?

So have a look at this video, it takes US opinion and US data, but in practice the same phenomena is happening in most nations. To give a little more background, at the end of 2012 the US stockmarket was worth about 46% of the total world stockmarket at £10,540 billion (the UK worth 7% at £1,717 billion). This does not include the value of property or all assets, just the stockmarket capitalisation values. The video mentions 312 million Americans so 1% of this number is 3.12million Americans actually own 40% of the US wealth (and therefore 18.4% of all wealth). It is estimated that the world population is now 7 billion.

How does the wealth inequality impact tax policy?

The problem for politicians is that due to the disproportionate amount of wealth that is owned by the top 1%, there is a fear that changing tax policy would mean that this wealth would leave the country. Increasingly I am of the view that this is the basic fear now underlies most economic policy and why the middle classes in particular are paying far more tax (proportionally) than anyone else. The top 1% has greater access to offshore tax regimes and can afford to risk very large sums of money on tax avoidance schemes that may not work. All of my clients can make use of legitimate tax avoiding and tax reducing schemes, but not on the same scale or with the same degree of cavalier attitude.

You don’t see hearses with luggage racks

I risk offending the wealthy or even putting them off appointing me as their adviser which I don’t mean to do in the sense of a personal attack, but merely to raise the huge problem of inequality. Certainly our politicians misuse our taxes, we need wealth to create jobs and security, however unless I have missed something, when you die, you don’t get to take it with you. Great financial planning is about working out what it takes to support your chosen lifestyle and is not simply about amassing more.

Dominic Thomas: Solomons IFA

The Wealth Inequality2023-12-01T12:38:29+00:00

UK Pension rules are a post-modern farce

The state of the UK pension system, supposedly one of the best in the world, is a shambles. It is high time this Government got its act together and decided that either we should all be saving and encourage us to do so, or give up. The bureaucrats at Whitehall are the only winners in the pensions mess, with endless tinkering with the rules that are gradually constricting the life out of a system that is supposed to encourage and reward savers and employers alike.

You may recall that the last Government decided to draw a line under pension rules and adopt a new approach called “pensions simplification”. Well intended it may have been, but it has been a shambles. The current administration are just as bad. Pension simplification was meant to give everyone a maximum pension fund allowance (the lifetime allowance). Not easy when you consider that a lot of pensions are not real money – a final salary scheme, such as the NHS or Civil Service are not investment based pensions, but service based. Irrespective of what the employee contributes the end result is assured based upon a proportion of final salary. For the record, this has also been messed around with. Anyhow, these schemes were given a formula. Let’s keep it simple and suppose you have built a pension of £25,000 a year and the lump sum would be 3x times  this amount. The formula was 2ox pension + LS. in other words £575,000 in this instance. Then this needs to be checked against the lifetime allowance, originally £1.5m – so in this case fine. The problem comes if your pension is worth £65,000 a year – which is not unreasonable in 2013 for a Consultant with 40 years of NHS service. Those with more than £1.5m at A-Day (when the new rules came in on 6 April 2006) could protect their existing funds by applying for enhanced or primary protection, essentially agreeing not to pay more in.

The Lifetime allowance has been increased and then decreased and heading to £1.25m from 6 April 2014. The amount that you can contribute has also been restricted. Severe tax penalties apply for anything over the limit. In essence there is an incentive to restrict growth and payments. Don’t forget that “the other side” of retirement, when you actually take your pension, this is taxable income. Argh! yes there are new levels of protection too, just to meet the problems of a reducing lifetime allowance and the latest raft of rules published by HMRC are out for consultation until 2nd September. These outline two more forms of protection Individual Protection (IP14) and Fixed Protection 2014 (FP14).

All of this needs very careful advice. But just in case anyone from central or any far off field of Government is bothering to listen. Here’s a question for you. Can YOU tell me what your pension is worth today? (all of them) and can you tell me what it will be worth when you retire? can you even tell me who your pensions are with? and are you aware of the potential problems for those with “workplace pension” or “auto enrolment” for those with large pension pots? No, like most people, you attempt to understand the mass of paper that may or may not arrive each year outlining the income that you might get if XYZ does something useful with your money.

If anyone in Government had a modicum of common sense the only restriction on a pension should be the amount that can be paid in that qualifies for tax relief. That is all. Have this as a fixed percentage of income – just one level, not dozens based on your age. Make it attractive. Don’t mess with it, leave it alone. YOU will get your tax relief back anyway in the form of income tax, reduced reliance upon the state and eventually in some cases inheritance tax. Here’s my suggestion after 20+ years of dealing with pensions and handling everything from the very basic questions to the most complex. Offer tax relief of 25% at source, with no need to reclaim it. Only allow those that pay income tax to receive the tax relief and restrict the amount to 25% of taxable income (in total from employer and employee). Oh, and keep the ability to have tax free cash of 25% of the fund at retirement, but no more. It bet that in 2 days you will still be able to remember my suggested fantasy rules. As for the more complex issues – allow carry back to only the last tax year and for non earners, or non taxpayers frankly there are likely to be more pressing matters for their money and a myriad of alternative forms of saving vehicles.

I wait in anticipation of the revolution that puts investors/savers/ the UK public first…. no I am not a member of UKIP.

 

Dominic Thomas – Solomons IFA

 

UK Pension rules are a post-modern farce2023-12-01T12:23:42+00:00
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