Half my deathbed’s ISA has disappeared

This post is late.

More than six months late.

The UK’s tax-free savings accounts (ISAs) operate on an annual cycle. Each tax year, starting 6 April, a UK tax payer gets another £20k annual allowance. ISAs are the tax wrappers that administer this allowance. Any account in an ISA wrapper sees all its gains and income become tax free – not even disclosable on a tax return. You can put most type of investment into ISA accounts, certainly including UK/US/EU listed securities. That makes a “stocks & shares” ISA account the number one fundamental of UK taxpayers’ investing, aside from (in some cases) a pension.

£20k might not sound like that much, but if you have £20k to play with as a 20 year old, and you invest it in equities under an ISA, and always reinvest returns, you can expect your investment to appreciate very significantly. At 7% average return it will double every ten years. So by the age of 60, four doubles later, that original sum would be worth £320k (before taking into account inflation). Now imagine that at age 21 you have a fresh £20k to play with. And at age 22. And so on.

I only realised how imperative ISAs were about 15 years ago. But since then I have made topping up my ISA accounts for both myself and Mrs FvL an annual imperative. I try to do this as early in the tax year as I can – in fact I usually start hoarding cash a few months before the start of the tax year in April. And I typically publish a blog post when I achieve it. This tax year, this is that blog post. It has taken me until December to scrape up the £40k readies.

Continue reading “Half my deathbed’s ISA has disappeared”

Nov ’22: Inflation may have peaked

We ended November in the UK with the same prime minister that we started with. That makes a change on October and September. Moreover, our chancellor of the exchequer (Finance Minister, in any other country!) remained in place too. A sigh of relief at these green shoots of stability could be felt all over the place – not least the political podcasts and Op Ed columns.

The UK government released its well signposted ‘Autumn Statement’, having successfully previewed almost every key measure in it. Bankers bonuses remain uncapped, but almost all the other moves from Truss/Kwarteng have been reversed. Notional tax rates are unchanged, but thresholds are either fixed or have been reduced, so there is a bit more tax to pay all round.

The main changes for me are the drop in the 45% tax threshold by £25k, and the corporation tax staying ‘high’ at 25%. The reduced 45% tax threshold adds 5% x £25k i.e. £1250 of tax to my annual tax bill, and corporation tax being 6% higher than it might have been will cost me considerably more than that.

Input prices are falling

Meanwhile, elsewhere in the markets there was a distinct sound of air coming out of the inflation balloon. Some key input prices have dropped significantly in recent weeks:

  • Oil prices are down below pre-Ukraine levels, and about 25% down from peak.

Avg monthly Brent oil price, Oct 20 to Oct 22

  • Freight costs from Asia have dropped 66-85%
Container freight rates, October 2022
Continue reading “Nov ’22: Inflation may have peaked”

Oct ’22: Hunt and Sunak take over

October has been one of those months where I wonder whether I should be doing weekly updates, not monthly ones.

But rather than subject you all to 20k words, I feel like it has been such a blur I can’t even do it justice. The end result is that we have a new PM (a billionaire mews dweller, no less – probably the only one in the country!), a new chancellor, and long term interest rates/etc are back where they were two months ago. Energy prices appear to be dropping, through no fault of our government. Short term rates are up – at the time of writing they have just jumped 0.75% to 3.0%.

The UK’s new prime minister, mewsing

The difference from two months ago is that our £40bn-£50bn fiscal hole now actually matters. That stray £10bn between £40bn and £50bn is caused because the government now accepts it needs to tighten policy, and thus reduce growth, which ups the deficit from £40bn to £50bn. But in the meantime energy prices have dropped enough that much of that £10bn is clawed back as a smaller subsidy under the Kwarteng Energy Price Guarantee.

I became disillusioned, last month, with index-linked gilts. This train of thought continued in October leading to me becoming quite enamoured of individual gilts. I have repurposed one of my subaccounts into a fixed-income-only account. And I have even been buying some government bonds – both in the UK and in the USA – reasoning that yields of 4%+ over 30 years don’t sound too bad, I don’t trust the ETF’s pseudo-index process to get me that yield, and IB gives me very good margin arrangements for these bond holdings (much better than the Lyxor fixed income ETFs, at any rate). The good news is that I am already 10% up on one of these investments; the bad news it that the holding in question is less than 0.1% of my portfolio, and yields are now about 3% which doesn’t feel like such a tasty proposition to continue topping up.

The pound recovered somewhat in October, after its mauling in September. Likewise UK bonds rose 4% too as the ‘moron premium’ faded, reducing yields / increasing bond values. Equities rose everywhere, particularly in the USA. The markets I’m exposed to rose 5.6% in October; currencies then pulled my non-UK values down 2.3%. Which left the markets up, in GBP, by 3.2%. (As a bit of small print – some of my monthly figures are rather approximate because the iShares website doesn’t seem to have updated since 20 October).

Market movements in October, in constant currencies
Continue reading “Oct ’22: Hunt and Sunak take over”