Business Matters – Issue 2


COVID consequences

How the pandemic could affect your retirement income

Greener grass

A new CGT precedent for homeowners with larger gardens?

The rollercoaster to retirement

The ups and downs of a woman’s financial life journey

Light at the end of the tunnel?

How the vaccine announcements will shape 2021 for investors

Lockdown 2.0

There’s no business like COVID business

COVID consequences

How the pandemic could affect your retirement income

We’ll experience several periods of coronavirus-like market volatility in our lifetimes – if you’re taking income from your retirement pot, it’s important to reconsider your withdrawal strategy during these downturns. Here’s why.

Sequencing risk

Sequencing risk is the risk that the timing of withdrawals from a retirement account will damage the overall value of your retirement pot. In short, taking money from your pension during a market downturn is more costly than withdrawing during a strong market.

In a period of prolonged volatility – such as the current one caused by the coronavirus pandemic – you may end up taking an unsustainably high amount of cash out of a pot that’s steadily dwindling. When this downturn coincides with the beginning of your retirement, it’s when you’re most vulnerable because you’re no longer working, and you have all your retirement years yet to fund.


Pound-cost ravaging

Although this is related to sequencing risk, pound-cost ravaging can be a problem at any point in retirement – not just the early stages. When you’re withdrawing retirement income in a declining market, because the unit price of your investments falls, you have to cash in more of your pot to maintain the same level of income as before.

If you continue to withdraw the same level of income during market downturns, when your fund may be falling in value, you’ll need to cash in more of your pot to maintain your income over the longer term.


Managing the risks

The good news, however, is there are several ways to help mitigate the impacts of sequencing risk and pound-cost ravaging.

Sequencing risk is only an issue when you’re taking income from the fund, so you could look at drawing from other sources, or managing your income levels during market volatility early on, to help protect your fund.

You could consider having a cash fund to draw down from in times of volatility, so that equity investments are allowed to fluctuate and potentially weather the storm. While this provides stability, however, any money held in cash will lose its value in real terms due to inflation. Another option is to take only ‘natural income’ – such as dividends – rather than drawing from the capital. This will mean that what you have to spend is variable and will be less when markets are depressed.

The most important approach is to be flexible. The time and effort you spend now on planning could pay dividends later down the line – in terms of potential financial reward, and also in the peace of mind that comes with knowing you’re on track for a more comfortable retirement.

The importance of advice

As we’ve seen, the market fluctuations triggered by the coronavirus outbreak and its impact on the global economy have particular implications for investors taking income from their retirement pots.

The pandemic has forced many of us to refocus on our financial well-being, re-prioritise goals, and renew our approach to achieving them. The art of managing market downturns in retirement is knowing exactly what to do and when – and that’s where financial advisers really earn their stripes.

A professional adviser can help you monitor, adjust and maintain your retirement strategy with the risks in mind. At Wellesley, our experienced advisers will take a broad view of your retirement strategy, and can advise on other sources of drawing income. They can also equip you with the information you need in order to put a plan in place to mitigate the various risks.

If you’re worried about the effects of market volatility on your retirement income, or you want to understand more about making withdrawals during this period of uncertainty, just ask.

Greener grass

A new CGT precedent for homeowners with larger gardens?

A recent FTT ruling could be good news for sellers of properties with big outdoor areas – here’s why.

The benefits of having a garden have come to the fore in 2020, as many people discovered their green fingers (and optimum outdoor reading spots) during the first UK lockdown. However, in October, a garden hit the headlines for a different reason.

Capital Gains Tax (CGT) has been a thorn in the side of sellers throughout the decades. More and more people are being trapped by this complicated tax – which applies to the profit when you sell something that has increased in value. Many individuals end up paying CGT unnecessarily or, worse still, face fines due to incorrect disclosure – as one couple recently discovered.

Capital Gains Tax on properties

When it comes to selling a property, CGT may be payable on gains made, unless it qualifies as your principal private residence (PPR) for the entire period of ownership – in which case, PPR relief will apply and the gain will therefore be tax free, subject to certain rules. The relief applies to garden or grounds up to a permitted area – half a hectare (1.23 acres), which is deemed ‘required for the reasonable enjoyment of the dwelling-house’.

This rule is potentially problematic for rural dwellers with large gardens – however, a recent case shows there might now be precedent for PPR relief to apply to properties with larger gardens. In October, the First-tier Tax Tribunal (FTT) voided a CGT bill on home with large garden. The full details can be found in the case, Phillips v HMRC, 2020 UKFTT 381 TC, but here’s a summary of the case and what it means for people looking to sell in the future.

Phillips v HMRC

The property in question was purchased by Leslie and Catherine Phillips in 1997, and included five bedrooms, three bathrooms, a garage for three cars, a one-bedroom cottage and a swimming pool, with grounds amounting to 2.3 acres (just under one hectare). Due to a housing developer acquiring the adjoining fields and preparing to build on it, the couple made the decision to move, and sold their home to the developer. As it was their principal private residence, they didn’t declare the sale for CGT purposes.

However, while investigating stamp duty records in 2017, HMRC noticed that the size of the plot exceeded the threshold beyond which CGT can sometimes be charged, and decided that the property was not of a size and character that required a garden of more than 0.5 hectare. In 2018, it issued discovery assessments to Mr and Mrs Phillips for £162,820, representing CGT on the part of the purchase price attributable to 0.44 of a hectare. The couple appealed against this assessment, arguing that the whole of their plot was required for the ‘reasonable enjoyment’ of the property.

While investigating the case, the FTT had to determine the meaning of ‘required’ in ‘required for the reasonable enjoyment’. Judges also took into account comparable properties (a factor used by HMRC in previous cases), and also looked at the size and value of the house and buildings themselves, and the nature of the property’s location.

The FFT concluded that the whole of the area was required for the reasonable enjoyment of the dwelling-house and so falls within the permitted area qualifying for PPR relief – therefore quashing the CGT bill.


What this means for future property sales

This case offers further interpretation of CGT legislation, and provides a usual case study on applying the various factors to the circumstances. The FTT noted that the Phillips’ house was large and was set in a rural area – and it would therefore appeal to somebody who was looking for a larger house and more space around it for privacy.

Property owners in rural settings will find it particularly reassuring to see that there might now be precedent for PPR relief to apply to larger gardens, although the specifics of each case would need to be considered. With statistics showing that more city-dwellers are looking to move to the countryside, this ruling takes on even more significance.

Once again, the value of advice cannot be understated – an experienced financial adviser can help you navigate the rules of CGT and therefore help you avoid a conflict with HRMC!


The rollercoaster to retirement

The ups and downs of a woman’s financial life journey

The journey to retirement often has a few twists and turns along the way – but, while everyone can face unexpected events in their lifetime, women can encounter a number of financial obstacles that men rarely have to contend with.
In our latest article, we crunch the numbers, and reveal how early planning and savings strategies can help mitigate the impact of these ‘bumps in the road’.

They say a picture paints a thousand words, and the below infographic shows the sheer volume of obstacles to financial security that women face throughout their lives.

An apt depiction of the so-called ‘rollercoaster of life’, there are any number of physical, emotional and social demands placed on women throughout their lifetime that come with short-term financial ‘penalties’ and longer-term consequences. Penalties that, in some cases, aren’t faced by men.

2014 seems like a lifetime ago, so you would be forgiven for forgetting the detail of George Osborne’s pensions flexibility Budget, announced in March that year.

In the first consultation paper on those reforms, we saw the following statement:

“The government…proposes to increase the age at which an individual can take their private pension savings at the same rate as the increase in the State Pension age. It is important people have the opportunity to plan properly for this change and so the government proposes to wait until 2028 (when the State Pension age will rise to 67) to fully implement this change.”

However, this proposed two-year jump in the normal minimum pension age (NMPA) has been in ‘no man’s land’ ever since, with no official legislation. This has led many savers and industry experts to question whether the change would actually go ahead.

The silence was broken on 3rd September, when John Glen, the Economic Secretary to the Treasury, confirmed in a written parliamentary answer that the NMPA will rise to 57 from 2028, with the changes to be legislated for ‘in due course’.


What will the change mean?

The change will have significant implications for pension freedoms, which were introduced by the government in 2015 – they currently allow savers aged 55 and over who pay into a personal pension, either directly or one arranged through their workplace, to access their personal pension pots however they like. These rules around flexible withdrawals will stay the same – but the age at which people can access their pots is changing.

Although no specific date has emerged, it appears likely that the change will take effect from 6th April 2028, catching anyone born after 5th April 1973. The people most affected by the change will therefore be workers who will turn 55 after the cut-off date in 2028 (those currently aged 47 and under).

Information is key

There have been mixed reactions across the industry – with some experts saying that it’s a ‘kick in the teeth’ to workers on top of the COVID-19 crisis, while others have commented that the extra years will give people time to put more into their pension pots – and is therefore a positive.

One thing everyone agrees on, however, is that the government needs to provide full details of how this change will work. Experts have quoted the state pension age blunder for women born in the 1950s (where many discovered too late that their state pension age was increasing from 60 to 65 – an issue that is still going through the Court of Appeal) as an example of a government communication failure.

Although Glen has said that the initial 2014 announcement has enabled those affected by the rise in NMPA to make financial plans ‘well in advance’, it is clear that more information is needed to help savers look ahead.

Refining your retirement strategy

Although Glen’s announcement may come at a difficult time, it is arguably long overdue – and since many of us are already reassessing our future plans due to COVID-19, it gives us chance to take this change in NMPA into account. While we need more details from the government, savers in the affected age group still have a chance to think about their options going forward.

Those who had planned to access their pension(s) at 55 but can’t do for a further two-year period should now look at other options. There plenty of possibilities for creating a retirement income strategy that works for you – and, arguably, your pension shouldn’t be your first port-of-call as it is Inheritance-Tax-friendly.

Saving enough for a comfortable retirement has undoubtedly become more of a challenge – however, with careful pensions planning, you can get firmly on track to reach these goals, while being flexible if your situation changes or unexpected events occur. An experienced financial adviser can help you create and maintain the right pension strategy, while offering the providing guidance, support and stability required to help you stay on course.

If you have a question about planning for retirement or would like more information about our services, please contact Wellesley Wealth Advisory today.

Light at the end of the tunnel?

How the vaccine announcements will shape 2021 for investors

We were treated to a double dose of positive news in November, with two vaccine companies announcing promising results, and several more in the pipeline. While the news has fuelled short-term optimism for global economic recovery, what does the prospect of an imminent vaccine rollout mean for investors? And what are the implications for business owners?

It’s been a winter of discontent for investors, with a turbulent US election, more missed Brexit deadlines and the second wave of COVID-19 to contend with. So, it was very welcome news indeed on 9 November when Pfizer and BioNTech announced that their vaccine was 90% effective against the virus.

Since then, Moderna have also publicised a successful vaccine (with 94.5% efficacy), with others hot on their heels – including one being manufactured by AstraZeneca in Oxford, which is showing promising immune responses in older people. The speed of the creation of these vaccines is unprecedented – the process typically takes years.

In their press release, Pfizer and BioNTech described the results of their vaccine as a “great day for science and humanity” – but the question on investors’ lips is: will it mark a turning point for the economy, too?

Indeed, the world has been eagerly awaiting such an announcement – and, while investors can now see a path to normality that looks a little clearer, what does it mean for their long-term strategies? And what about business owners, who have gone through the phrase of survival and are now looking to thrive in 2021?

A welcome boost

The reactions to Pfizer’s announcement were immediate – economic forecasts were upgraded, many risk assets saw rallies, and there have been a series of successive daily gains on the FTSE 100. Following Moderna’s announcement on 16 November, the FTSE 100 surged 104.9 points to its highest levels since June.1 On the same day, a flurry of global takeover deals added to the excitement, with $40 billion of deals being announced.2

Shares in the businesses most affected by social distancing, such as those in the hospitality and travel sectors, finally enjoyed some time in the sun. British Airways owner IAG, which had been struggling, saw its share price rocket by 40% throughout the week following Pfizer’s announcement.

Hande Küçük, Deputy Director of Macroeconomic Modelling and Forecasting at the National Institute for Economic and Social Research (NIESR), told the Guardian:

“The economic impact of COVID-19 not only comes from lockdowns and restrictions but from voluntary social distancing. If vaccines reduce the fear of being infected it might have a big impact on the recovery.”3


A reverse in fortunes?

Some market observers are now arguing that we’re at the start of a major market ‘rotation’, where out-of-favour sectors take a larger share of the good fortune.

In this scenario, strong performers during the pandemic (such as high-flying technology companies whose revenues have grown in 2020 thanks to more people shopping online and working from home) would begin to lag behind stocks that benefit more directly from economic recovery, such as banks and energy companies – plus the aforementioned hospitality and travel sectors.

This idea was supported by the divergence in how different types of stocks performed following the vaccine news. Some of the “stay-at-home” stocks that have been beneficiaries of the pandemic saw their share prices decline – Zoom, for example, took a heavy hit.


The bigger picture

Although the recent vaccine breakthroughs represent a huge leap in the right direction, it’s important to look at the long-term picture. Even once a successful vaccine has the green light, widespread adoption is some way off. A mass rollout will face logistical challenges and could take longer than the market is expecting.

It will also take some time to recover from the wounds COVID-19 has inflicted on the global economy. Estimates from the International Monetary Fund (IMF) projected the global economy to shrink 4.4% for 2020 – the worst performance since the Great Depression in the 1930s.4 Many world leaders have also downplayed the possibility of an immediate change to economic forecasts.

The spread of the virus is still weighing on markets – in mid-November, enthusiasm about the vaccines was dampened by evidence that COVID-19 cases were still on the rise in many areas. In the US, for example, new cases reached a record high at 184,000 per day – perhaps aptly on Friday 13th.


How should investors react?

While encouraging, Capital Economics believes the vaccine is unlikely to boost economic activity until next year. So, even though last week’s announcement is undeniably positive news, the best stance for investors to adopt is probably one of cautious optimism.

There might well be a major market rotation – but given how difficult it is to time such an event, the best course of action is to maintain a diversified set of investments that includes assets on both sides of the rotation.

Investors should therefore resist the urge to change their approach on the back of major vaccine announcements like Pfizer or Moderna’s. One of the benefits of diversification is that it ensures portfolios aren’t too reliant on, or susceptible to, any single event. This approach will also help you ride out any short-term peaks and troughs.

A financial adviser can help you ensure you have a diversified portfolio, and can give you advice on when is best to ‘sit tight’ through periods of volatility.

Schroders’ Johanna Kyrklund comments:

“As fund managers, we like to pretend that we have a crystal ball, but in reality, to build a portfolio, you need to consider a range of potential scenarios. You seek to make investments that can cope with multiple outcomes.”

And as for investing in pharmaceutical companies or ‘reopening sectors’, it is worth taking professional advice. Pharmaceutical stocks, for example, can expect a short-term boost. But in the long-term, investors need to look at the value and cashflow over time – for example, whether the vaccine will be a one-off or whether we will need a vaccine booster every year, like the flu jab.


Should business owners change their strategies?

The vaccine news will have no doubt been met with optimism from many companies, which have confronted several challenges during the pandemic, and are now facing the prospect of the end of the furlough scheme and certain tax breaks on 31 March 2021.

Some experts believe this vaccine news will encourage governments to keep such support in place, now that the end of coronavirus’s rampage is in sight. The importance of preventing job losses and bankruptcies was again highlighted this month – on 19 November, the ONS revealed that one in seven UK companies fear they will not last until next spring, with hospitality firms particularly worried.5

On the flip side of the coin, for companies in a strong position, now might be the perfect time to invest in your business. As we saw, $40 billion of deals were announced on 16th November, showing company bosses’ confidence in the future. What’s more, the Bank of England Chief Economist, Andy Haldane, is urging entrepreneurs to invest in their businesses now to be in a strong position for when the COVID-19 crisis passes – he recently argued in The Times that it is counter-productive for business leaders to hold back on investing in their enterprises.

Cautious optimism

To conclude, then, it’s clear there has been a huge change in outlook since the news of at least two successful vaccine candidates, bolstering optimism for the revival of global economic health – and, in short, better times!

When it comes to investment, we’d recommend an approach of ‘cautious optimism’ and maintaining a long-term view with a diversified portfolio. We’re not out of the woods yet, so it’s important to not make any hasty decisions, and to shelter your investments from any market turbulence created by COVID-19 (or other events).

Similarly, if you’re a business owner who is (understandably) laser-focused on your business, you might not be paying enough attention to your own finances – and might therefore be in need of a review to ensure your portfolio is protected from any volatility. When it comes to your business, it is worth keeping an eye of the government’s moves, for example, whether they extend any support schemes following the vaccine news. It might also be the time to start investing in the future – once again, a professional adviser can help your plan ahead!

If you have a question about what a coronavirus vaccine could mean for your investments or business, or would like more information about our services, get in touch today on 01444 244551.



5ONS, 19 November 2020

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations.

Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

Lockdown 2.0

There’s no business like COVID business

The current UK lockdown is set to end on 2nd December; however, the government only this week admitted that there’s no promise that restrictions will actually be fully lifted for life to revert to the ‘new normal’. This means that, yet again, business owners stand in the face of uncertainty for what happens in the final month of 2020 and beyond. What changes can you get creative with and actually control?

It’s been a stop-start time for all of us as 2020 has unravelled; no two ways about it. Business owners across the UK are again keeping a watchful eye on the post-lockdown market, having already had to overhaul their business and personal plans as the coronavirus has continued to permeate our everyday lives. Can any lessons of hope be learned from the previous lockdown?

Small and medium enterprise (SME) owners have been treading water as best they can throughout the year – focusing solely on survival. In about a fortnight’s time, restrictions are set to ease once again and trading will recommence; at least, that’s the expectation.

Back in the summer, Martin Brown, CEO of business adviser Elephant’s Child, seemed largely positive about the ensuing months, stating: “We’ve seen a shift. Businesses are stabilising, and there’s now a sentiment of optimism. Owners are beginning to think about how to grow again.” However, are companies truly feeling as hopeful at this particular juncture?

When COVID-19 first broke out in the UK, crisis management was understandably the priority for many companies – evaluating whether their business was urgently under threat, accessing government support and getting short-term contingency plans in place to cover all bases.

This time around, the situation feels less clear-cut. Yes, all being well, the UK lockdown will lift on 2nd December, yet Chancellor Rishi Sunak has extended the furlough period until the end of March 2021 (to be reviewed in January). How are business owners to know when to release their employees from furlough, therefore? Does their strategy or budget need amending if they want to scale their business? And if they were thinking about, or are in the process of, leaving the protection of the government support schemes, how has the pandemic changed operations for the future?

Be the change

Brown believes that businesses should get into the headspace of a start-up. Why? Because SMEs are more agile than their more established peers and can take advantage of flexibility and a structure that allows for creative problem-solving or immediate changes to ways of working.

Many companies have already actioned changes to their business models, to keep their heads above water. Restaurants now offer takeaway services, events businesses have moved online, and a huge amount of people are now rather au fait with the likes of Zoom and Skype.

If, as a business owner, you haven’t yet adapted your business strategy in line with COVID, it’s never too late to innovate. Is there a niche market that has previously gone unnoticed? Are there ways of bolstering your brand without leaving a huge dent in your bank balance?

Brown points out: “Although some companies are likely to disappear, others are seeing this time as an opportunity – a period when their businesses can really take off.”

Let’s be realistic. With the best will in the world of COVID, for most firms it won’t be a case of returning to ‘business as usual’ after lockdown 2.0. A decline in footfall and, no doubt, continued social distancing measures for some time to come require an attuned company response.

Could this effectively bring about some more practical changes? “We should be cutting commuting time,” Brown says. “Do we really want staff travelling and wasting hours every day? There’s also the very big question of whether we even need the offices.”

These uncertain times should galvanise business owners into action. After all, this is an opportunity to really drill down and unpick what does and doesn’t work, across the board.

Sounds like a plan

Lockdown has, on both occasions, presented many of us with some veritable time for no-holds-barred reflection. Effecting changes within any kind of business calls for a lot of careful, creative planning in order to have a hope of going with the future flow.

“The past few months have led a lot of us to reflect on what we really want. Business owners may need to reassess their own aspirations, ambitions and purpose,” Brown says. Let’s not forget, though, that actions speak louder than words.

During this rollercoaster-ride-of-a-pandemic, it may pay for owners to keep tabs on liquidity and cashflow in every aspect of their business. A 90-day rolling strategy that can be evaluated and amended when needed will support business owners to remain versatile while the virus is still weighing heavy on our lives.

In the long-term, an annual operating plan and longer-term approach may be more appropriate as the situation pans out and we move towards some stability. The purpose of this is that business owners can assess whether their strategy continues to meet all requirements and reset goals as appropriate.

Twists and turns, lessons learned

One potent positive from this year’s lockdowns is that the vastly reduced road and air traffic levels have seen pollution take a nose-dive. Could this finally force us to realise that a shift towards a more sustainable economy is essential, rather than desirable?

“Business owners really should be thinking about doing their part in making the planet sustainable, and now seems a great time to do so,” Brown says. “Those who don’t will struggle to attract the best clients and staff in the future, as sustainability will only grow as an issue of importance.”

SMEs are more malleable than their larger counterparts and are therefore able to readily implement sustainability measures. Why waste your time travelling and clock up emissions when you can simply hop on a video conference call? How about benefitting from the cycle-to-work scheme to boost your health and fitness and make for a greener commute? Could your company invest in renewables or make plans to have a more environmentally sensitive supply chain? The options are out there if you look for them.

SME owners across the land will, once more, be key to reigniting the economy – and the planet – to return to the ‘new normal’ – a healthier normal. There’s no time like the present to plan, plan, plan to ensure you can not only survive, but thrive, when this is all ‘over’.

The opinions expressed by third parties are their own and are not necessarily shared by St. James’s Place Wealth Management or Wellesley Wealth Advisory.