Category: Analysis & comment

I’ve been paying close attention to equity markets over recent weeks, as I rebalance my portfolio to help me to buy a house.  I’m struck by how badly numerous stocks have done since their 2015 highs.

The major markets overall are essentially flat on a year ago (UK down 1%, US up 1%, Australia up 3%).

But calling 2015 flat ignores the fact that during the year we were treated to some significant gains, before sharp drops in August and December.  FTSE-100 breached 7100 (now at 5960), S&P got to 2130 (now 1923), ASX-200 rose 10% to almost 6000 (now 4925) and DAX reached 12,400 (now 10,000). Overall then the markets are 15-20% down from their peak. This decline is between a third and half of the declines experienced in 1987, 2000-2 and 2008-9 (the UK copped it worst in 2000 and the US’s worst bath was 2008-9).

Continue reading “Stock market bloodbath?” →

Today’s budget, Osborne’s first ‘pure’ budget, is a fascinating bundle of policy, politics and posturing.  For us FIRE eaters, there is plenty to think about.  But for me there is one unambiguous negative: the tax hike on dividends for those of us with sizeable investments.

Dividend taxes are notoriously difficult to understand.  I find the easiest way to understand it has been to consider the Government as wanting to tax (and I mean tax – they ignore National Insurance here) people the same whether they earn money as salary or whether they incorporate as a company and then pay themselves retained profits as dividends.   The system we’ve had for years has seen the Government do this as follows – taking £1000 of salary/profit as the starting point:

• Tax the company ~20% corporation tax.  Leaving £800 retained profit, payable by the company as a dividend to its shareholders.
• Give shareholders a tax credit with their £800 dividend, amounting to one ninth of their dividend.  This basically was a slight fudge, and said the government was treating £800 divi as being £889 paid gross, with £89 of it having already been collected as tax (even though actually £200 has been collected as tax, tut tut).
• Then tax dividends receivers at special rates (which was a quid pro quo for the slight fudge mentioned above).  Basic rate taxpayers paid 10% i.e. £89 which, hey presto, it turns out they have already paid, leaving no extra tax due.  Higher rate tax payers paid 32.5% on the £889, i.e. £200 extra, leaving them with £600.  This is, surprise surprise, what they’d have been left with net of tax if they’d received an extra £1000 of taxable salary.

Continue reading “Osborne’s dividend tax wedge catches FIRE” →