There’s no another tax that gets people talking quite like inheritance tax does. It’s easy to understand why; the idea of the taxman chasing us to the grave is pretty dark. A group of MPs has proposed a drastic shake-up of the IHT rules, which could see the headline tax rate slashed from 40% to 10%.
While that move will no doubt be met with a resounding cheer up and down the country, it is likely to come at cost. Perks such as the annual tax-free gifting allowance could be scrapped, before anyone gets accused of being too generous. I wonder also if the tax-free threshold of £325,000 would be reduced under such a regime. For all that people moan about IHT, currently only around 5% of estates are actually liable for the tax – overhauling the whole system could suddenly widen the net.
And what about the people who have been carefully planning for years how they will pass their wealth on to their loved ones – what if the entire system changes and undoes all that hard work? Property wealth may need to be addressed separately too – no amount of tax-rate tinkering can make the exponential house growth those in London and the South East have enjoyed in recent decades fair.
There are so many problems with the headache-inducingly complex IHT system that it really does need someone to tear it up, trample over it and start fresh on a clean sheet of Basildon Bond. But it’s never going to please everyone.
Diversification Dilemma
Everything about diversification sounds sensible, it’s something we apply to most parts of our lives: eat a balanced diet, hedge your bets, don’t put all your eggs in one basket.
But what if spreading our risk is actually bringing about poorer results? We know that placing an each-way bet on a horse means less winnings if it comes in first place than if you’d have backed the beast outright. And it seems the same is true of investment. If you spread your money across hundreds of different stocks, even if some of those perform incredibly well, they can’t have a meaningful impact on your overall returns because they make up such a small amount of the portfolio.
In our investigation we found funds that had hundreds upon hundreds of holdings (lord knows how the managers monitor them all), and all of them were struggling to beat their category average.
A concentrated portfolio is, in so many ways, a riskier proposition – if you have 10% of your money in one stock and it falls, that’s going to make a dent. If you have 0.5% of your money in the same company, you’ll barely notice. But you’ll also barely notice if it shoots the lights out. And when you’re paying a manager to make these choices, that seems a bit like a waste of time.
Business as Usual
Today is Brexit day. It feels a little like waking up on the morning of a milestone birthday – so much anticipation and planning, but nothing actually feels any different. The two are also similar in that you suspect there could soon be a dreadful hangover to deal with.
With little yet decided, it's business as usual for most industries. Indeed, the Financial Conduct Authority put out a reminder to firms this week that EU law continues to apply until until the transition period completes at the end of the year.
There's bound to be lots of negativity about the UK's prospects over the coming months, but there's an army of investors rubbing their hands with glee at the chance to pick up some stocks at cheap prices while it all plays out. Among them, Richard Buxton, who's looking to opportunities in travel, Killik & Co's Rachel Winter, who is looking to the defence sector for opportunities, and Jupiter's John Chatfeild-Roberts, who is investing in UK income and value funds.
So even if it is Brexit day, and you sense a hangover is on its way, keep calm and keep investing.
