March News Round Up
13th March 2019
Younger investors go in search of unicorns
Uber and Airbnb were part of an early generation of tech start-ups that quickly reached $1 billion in value. The up-and-coming generation is looking very different. Technology start-ups worth $1 billion, once as rare as unicorns, are now plentiful enough and old enough that there’s a new generation behind them — one that looks very different. Silicon Valley’s current crop of highly valued tech start-ups, which include now-household names like Uber and Airbnb, all benefited from the spread of smartphones and cheap cloud computing. Many of these companies built global empires by simply taking existing businesses — like taxis, food delivery and hotels — and making them mobile. Some of the start-ups became giants: Uber, for instance, may reach a $120 billion valuation this year. But as those companies have matured and prepare to go public, the easy opportunities for disrupting old-line industries are drying up. Now, many of the up-and-coming start-ups that may become the next unicorns have names like Benchling and Blend. And they largely focus on software for specific industries like farms, banks and life sciences companies.
The £90,000 dividend tax trap
The value of shares you can hold outside an Isa before paying dividend tax has shrunk from £135,000 to £46,500, according to new research. In April last year, the dividend allowance fell from £5,000 to £2,000. Assuming a dividend yield of 4.3% (the current yield on the FTSE All Share ex Investment Companies), this shrinks the amount you can hold outside an ISA or pension without facing dividend tax by £90,000. The best way to avoid paying tax on dividends is to hold shares in an Isa. For dividends on shares held outside an Isa, basic rate taxpayers are taxed at 7.5% on the excess, higher rate taxpayers at 32.5% and additional rate taxpayers at 38.1%. Rising dividends yields or further cuts in the allowance could see investors facing dividend tax in future. As such it is worth trying to channel as much of your savings as possible into a tax-sheltered product.
Loan charge fallout
The 2019 loan charge means ill-advised IT and NHS contractors face staggering bills from HMRC.
It is turning into one of the ugliest, most emotional and turbulent battles ever fought between the tax authorities and alleged tax avoiders. The battle is over the innocuously named 2019 Loan Charge. This measure is designed to claw back unpaid taxes by people who, HMRC says, used so-called disguised remuneration schemes since April 1999 – with the demands for repayment kicking in from this April. MPs have now urged the City watchdog to explain why HM Revenue & Customs has asked tens of thousands of self-employed workers to consider re-mortgaging their homes or take out loans to settle huge tax bills. A cross-party group of MPs objected to letters that HMRC has sent to about 50,000 individuals facing the loan charge — a new law that will tax up to 20 years of income received via “disguised remuneration schemes” in one year. Letters sent by HMRC and seen by the Financial Times state: “It is expected that you use every means to meet your obligations and pay the tax and interest liabilities that are due. This may include raising a loan or selling other assets.”
Spring Statement: what to expect
Significant tax changes are not expected, but we might see new consultations in the digital economy, taxes for the self-employed as well as environmental taxes, according to auditor PwC.
This year's Spring Statement will also be impacted by the outcome of Theresa May's meaningful vote, which is expected to take place on or before March 12. Treasury insiders have earlier said they cannot make big fiscal moves before they know if Britain is leaving the EU without a deal - given the huge gulf in economic forecasts between that scenario and getting a deal. Either way, the chancellor will have more freedom because of a record tax haul in January, which put Treasury £15billion in the black. It meant government borrowing in the first ten months of the 2018-2019 financial year fell to £21.2billion — the lowest for 17 years. At the time, experts said it was a huge boost for the Chancellor ahead of the Spring Statement, but they also warned he would have to cut growth forecasts in the update. Mr Hammond has already agreed to spend an extra £20bn a year on the NHS by 2023, so other public services are expected to be given a smaller share.
Landlords in cheap buy-to-let race
Buy-to-let landlords can now choose from more than 2,000 mortgages according to a financial information website Moneyfacts. In October 2007 there were 3,305 buy-to-let products on the market, but the 2008 crash changed the face of the mortgage industry. The buy-to-let sector has born the brunt of tax and rule changes in recent years, but finally, things are looking up. Today, landlords can choose from 2,162 mortgages, including 467 for limited company landlords not using special purpose vehicles; the highest number available in over a decade. There might be more deals to choose from, but the rates for buy-to-let mortgages are not falling, as Moneyfacts confirms an increase in the average two–year fixed rate of 0.20% since September 2018 and a steady increase over the past 18 months. However, rates may be on an upward move, but lenders, it seems are using lower deposit mortgages to tempt landlords onto their books. Vida Homeloans are now offering an 85% loan-to-value (LTV) buy-to-let mortgages and is one of the highest LTV products on the market. Vida joins both Kent Reliance and Kensington Building Society which both offer 85% LTV buy-to-let mortgages. Lower deposits mean that existing landlords can look to expand their portfolios without having to stump up the hefty 25% down payment.