What’s Happened on Markets in the Last Week?

The Roller Coaster continued and on foot of the governmental stimulus packages, especially the expected sign off by President Trump of the US package, markets recovered some of the falls by Friday’s close. Despite this individual stock markets are still significantly down on their opening values of 1st January.

As I write this update at 5.30 pm Irish time, the  US  Markets  have added  another  2% gain  by  this  stage having  been followed, somewhat meekly, by Europe. Australia has had its rebound today which was just mimicking that of the US and Europe on Friday which happened after hours for them. In the meantime, South Africa has finished in positive territory.

An Update on the Medical Situation

As the infection and mortality rates gather considerable pace, each country’s population has a heightened awareness of its own statistics. Nevertheless it’s   worth thinking about the possible projected figures for the US by Dr Tony   Fauci, especially in the light of its importance in the global economy. Dr Fauci is a leading American immunologist  who, amongst other roles, serves as a member of the White House Coronavirus Task Force, and has been the one      to correct many of President Trump’s “mis-statements” on Covid-19. In his estimate issued over the past weekend,  the US could experience as many as 200,000 deaths due to the virus. The UK for its part, based on its similar lack of initial urgency in dealing with the problem, could possibly see over 40,000 deaths on a proportionate population calculation.

To put that into perspective the number of “Winter Flu” deaths in the US over a 6 month period would normally be circa 62,000 while the total deaths of US military in its 17 year involvement in the Vietnam conflict came to 58,318 (with over 150,000 wounded that required hospital care).

In terms of managing the impact of the virus  if a large percentage of your population hasn’t had the virus, but you  still have people who are infected that aren’t identified or isolated, then the virus will continue to  spread.  In the short term, lockdown measures will most likely increase in severity in most countries and even when the worst may have appeared to have passed in terms of infections and deaths, the need for social distancing will restrict the broad economy, especially in tourism and hospitality. All this means is that a “back to work” strategy is probably going to have to co-exist with distancing measures for far longer than anyone and any country might want.

What’s The Economic Impact, Now And Going Forward?

Oil has now fallen to $20 a barrel (partly due to a disagreement between OPEC and Russia about reducing production) and there is now a genuine concern that oil producers will run out of storage space for oil which cannot now be put to direct use due to closures of factories as well as global travel restrictions. The price of copper has fallen 27% year to date underlining, if it was ever needed, the major slowdown in global economic activity which is becoming more obvious as each day passes.

The US economy is now entering recession and with it all the other economies in the world. Initial jobless claims (a measure of the number of new filings to receive unemployment benefits) rose to 3.283 million for the week ending   21 March. The speed and magnitude of the move higher highlights how US businesses have had to let staff go in the face of the sudden coronavirus shutdown. There were, up to recently, 29 million people employed in travel, leisure and hospitality in the US, so the jobless numbers are going to soar in the next few days and weeks. Similar statistics are also appearing globally with similar proportionate numbers for each country. As a point of reference, the US unemployment rate in the 1930s Depression period was 25% of the workforce.

In recognising the gravity of the situation, the world’s central banks have been full-on in their support of liquidity and borrowing. This is, as was the case in the Global Financial Crisis, a knee jerk reaction to keep economies afloat where the cost of providing business supports and “helicopter money” has stored up problems for the long term as far as each country’s debt is concerned. The reality is that the cost of servicing all these debts is being handed down to several generations to come.

One of the major impacts from Covid-19 is likely to be in the area of globalisation. Goods made cheaply in the Far East may be re-categorised in terms of their importance to each country’s economy. It is likely that we will see less reliance on, in particular, the Chinese supply of goods as products are sourced closer to home or even made at home. This will bring, over the long term, changes in product innovation and employment as well as investment opportunities.

What Should Investors And Pension Holders Do Now?

Nobody knows  how the economic situation will play  out  in the coming year and, by extension, we  don’t  know  how stock markets will play out. The likely scenario of a major death rate in the US, while already known, is most likely  not fully  priced into markets. I expect that the fear and uncertainty  of health at an individual level will      most   likely spill over, in the short term, to further falls in stockmarkets in the coming weeks. This, in itself, will    lead to a major investing opportunity for  those who  have cash  holdings  or  new monies  awaiting investment either personally or in their pension funds.

Of course, some people who might have switched out a few weeks ago at the start of this recent problem may decide to wait for a lot longer before they dip their toe back in. In my experience when people switch into cash they often stay in cash for years afraid to come back into the market and therefore miss the upswing.

And finally, I repeat my previous advice :

• If you are invested already, keep the faith even riding out a likely further downward movement of the next month. If you are considering selling out with a view to coming back in at a lower price, don’t! These markets move far too fast to be certain of not missing the upside when it comes.
• If you are continuing to make, say, monthly contributions to your pension fund then the next few months will be an opportunity to invest at cheaper fund prices than in the past.
• Clients who are nearing retirement, but who intend to avail of an Approved Retirement Fund option upon retirement, should remember that your investment horizon is not time limited to the date of your retirement. Rather it extends to the length of your lifespan and most  likely that of your partner also, in which case maintaining equity exposure to achieve real returns above inflation over time continues to be as important as ever.
• If you have funds held in cash or “new money” pending investment then prepare for an opportunity to invest at a heavy discount to the January 2020 market.

Block B, Maynooth Business Campus Maynooth, Co Kildare

Tel 01-541 3702

www.waypoint.ie

Colm Nolan & Associates Limited is a private company limited by shares registered in Ireland 653843

The following is a summary of the tax changes announced by the Minister for Finance and Public Expenditure and Reform. Changes are effective from 1^st January 2018 unless stated otherwise.

Income Tax

The tax credits and tax bands changes are in bold.

Tax Credit

Tax Rates and Tax Bands                                                                                   

 The exemption limits for persons aged 65 years and over remain unchanged:

The above exemption limits are increased by €575 for

each of the first two dependent children and by €830 for the third and subsequent children.

Marginal Relief may apply, subject to an income limit of twice the relevant exemption limit.

Mortgage Interest Relief

Relief is extended to existing recipients for a further three years on a tapered basis. Qualifying interest applies for each of the three years at the following rates:

The interest ceilings are also reduced for each of the three years as follows

No relief will be available from 1 January 2021.

Key Employment Engagement Programme (KEEP)

 A new share option scheme will be introduced for employees of unquoted Small and Medium Enterprises with effect from 1st January 2018, subject to EU approval. Under this new scheme, any gain realised on the exercise of a qualifying share option, granted in the period

1st January 2018 to 31st December 2023, will be exempt from Income Tax, USC and PRSI, provided certain conditions are met.

Any gain on the subsequent disposal of the shares acquired under KEEP will be subject to Capital Gains Tax (CGT) in the normal way.

Pre-letting Expenses – Rented Residential Property

A new deduction is being introduced for pre-letting expenses of a revenue nature incurred on a property that has been vacant for a period of 12 months or more. The expenditure must be incurred within the 12 -month period before it is let as a rented residential premises.

A cap on allowable expenses of €5,000 per property will apply, and the relief will be subject to claw back if the property is withdrawn from the rental market within four years. The relief will be available for qualifying expenses incurred up to the end of 2021.

Universal Social Charge (USC)

Standard Rates of USC

 Reduced Rates of USC

 Note 1. ‘Aggregate’ income for USC purposes does not include payments from the Dept. of Employment Affairs and Social Protection.

Note 2. A ‘GP only’ card is not considered a full medical card for USC purposes.

Exempt Categories remain unchanged.

3% Surcharge (non-PAYE income)

The surcharge of 3% on individuals who have non-PAYE income that exceeds €100,000 in a year remains unchanged.

 PRSI Contribution Rates

• B1 employee rate increases to 4% for income > €1,443 per week.

Value Added Tax (VAT)

Sunbed Services

The VAT rate on sunbed services will be increased from 13.5% to 23% with effect from 1 January 2018.

Charities

A compensation scheme is being introduced for charities which are unable to reclaim VAT on inputs. A capped amount will apply to the scheme, with pro-rata payments made where the amount claimed exceeds the amount available. Details of the scheme will be made available when complete.

Corporation Tax (CT)

Accelerated capital allowances for energy-efficient equipment

The accelerated capital allowances scheme for energy- efficient equipment is being extended for a further three years until 31st December 2020.

Capital allowances for intangible assets

A cap of 80% will apply in respect of the amount of capital allowances for an intangible asset, and any related interest expense, that may be deducted from relevant trading income arising from the intangible asset in an accounting period.

The cap applies in respect of expenditure incurred on intangible assets on or after 11th October 2017.

Details will be included in the Finance Bill.

Excise

 Sugar Sweetened Drinks Tax (SSDT)

Subject to formal approval by the European Commission, the SSDT will be introduced, in April 2018. It will apply to first supplies in the State of water and juice based drinks with added sugar and a total sugar content of 5g or more per 100 millilitres.

Drinks supplied in concentrated form will be assessed on the basis of the sugar content of the drink at the dilution level intended for consumption.

Capital Gains Tax (CGT)

CGT incentive for land and buildings held for minimum period of seven years

An amendment will be made to section 604A of the Taxes Consolidation Act 1997.

The amendment will provide that gains in respect of land or buildings that were acquired between 7 December 2011 and 31 December 2014 will be exempt from CGT if they are sold after four years and within seven years from the date they were acquired.

Capital Acquisitions Tax (CAT) / CGT

Leasing of agricultural land for solar energy production – CAT agricultural relief and CGT retirement relief

Amendments will be made to CAT agricultural relief and CGT retirement relief so that the leasing of agricultural land for the production of solar energy will not affect entitlement to the reliefs, where the area of the land which is leased for that purpose does not exceed 50% of the total area of the land concerned.

Further details will be included in the Finance Bill.

Exempt Class Thresholds

Despite expectations that the CAT thresholds would be increased, no change was announced in the Budget, so therefore the current thresholds will apply unchanged for 2018:

The CAT rate stays the same at 33%.

Stamp Duty

 Transfer or conveyances of non-residential property

The stamp duty on the purchase or transfer of non- residential property (including land) is increased from 2% to 6%. The new rate takes effect for conveyances or transfers of such property that are executed on or after

11 October 2017. Stamp duty is payable by the purchaser.

A stamp duty refund scheme will be introduced in relation to commercial land purchased for the development of housing. Developers will need to have commenced the relevant development within 30 months of the land purchase to qualify for the refund.

Consanguinity relief and agricultural property

The consanguinity (blood relative) rate of stamp duty was due to expire on 31 December 2017 but is to be extended for another three years. On or after 11 October 2017, it is to be charged at 1% of the consideration instead of being set at half the rate of stamp duty that applies to non-residential property. This means that the amount of stamp duty payable will remain unchanged.

This relief applies to transfers of agricultural property between certain blood relatives where the transferee is a young trained farmer who intends to farm the land or lease the land to someone who farms the land for a period of six years.

Benefit in Kind – electric cars & vans

From 1st January 2018 to 31st December 2018, where an employer provides an employee or director with an electric car or van, no taxable benefit will arise for them.

This exemption is limited to cars or vans which derive their motive power solely from electricity (no exemption is available in respect of hybrid cars or vans).

DIRT

Last year’s Budget provided for a phased reduction in the DIRT rate from 41% in 2016 to 33% by 2020:

DIRT Rates

2016    2017       2018       2019       2020

41%     39%        37%        35%        33%

In 2018 the DIRT rate will therefore fall to 37%.

Exit tax

The Budget speech made no mention of a reduction in the exit tax rate from its current 41%.

Social Welfare

State Pension increases by €5 pw from end March 2018

There is a general €5 pw increase to all Social Welfare pensions, including the State Pensions (Contributory and Non-Contributory) from the end of March 2018.

The new maximum State Pension (Contributory) from March 2018 will be €243.30 pw, or €12,695 pa.

Pensions

The Minister made no reference to changes in private pension tax reliefs or taxation of benefits despite significant discussions in recent weeks.

Income Tax Relief on Personal Contributions

• The 30% limit above also applies to certain professional sportspeople (e.g. professional golfers) under 50 in relation to their income from their sports occupation.

Finance Bill 2017

The Finance Bill will be published on 19^th October 2017.

Preparing for the Voyage

From September to December every year, yachtsmen gather in the Canary Islands, awaiting the right trade winds, allowing them to begin their epic voyage across the Atlantic.

Destination; The islands of the Caribbean.

As the crew are busily stocking the yachts with supplies to last them on their three-week voyage, the skipper concentrates on the passage plan. Equipped with compass, dividers and chart plotter, he or she is responsible for ensuring they reach their goal – the islands of the Caribbean. The best course is carefully planned.

Waypoints

Along the chartered route, at various intervals, the skipper inserts essential reference points called Waypoints. These markers ensure the yacht is still on course to reach its destination and act as strategic points that direct it around navigational dangers.

Waypoints avert surprises and ensure the crew don’t wait until day 21 to discover that there is no land in sight.

With the sails set, and the trade winds from the east, crews set sail on their 2,700 nautical mile journey. All things going well, they should reach the Caribbean in about 21 days without any adjustment to their course.

However, the probability is they will encounter unforeseen events of some kind along the way; equipment may break or an Atlantic storm may blow up. Either way, the yacht may drift off course. The chart plotter will clearly show the error of the course. The Waypoint will identify just how far off course they have gone, and the skipper and crew will re-evaluate the course, and make the necessary adjustments.

Knowing your Destinations

Life is just like this. Our starting point is where we are now, and our destination is where we want to be in five, ten or twenty years time. But, we can’t know our destination unless we recognise what exactly are our goals, dreams and aspirations. Once we have done a certain amount of soul-searching, and established what it is we want out of life, and when, then we can set about planning our life journey. But, we also need Waypoints; points along the way where we stop and take stock to ensure we are on track.

Case Study

What surprises me most in my role as Financial Planner is when I ask a client what these goals are, very often they don’t know the answer. In the case of a married couple, though they may be blissfully happily married, they are surprised to discover that they each want different things.  That’s ok, if both know and can plan for their goals.

Take for example a couple we recently met, let’s call them Joan and Martin. Both are in their 50’s, and together for nearly 15 years. Joan runs her own business and Martin is in the medical sector. They asked to meet us to discuss how best to invest €200,000 Martin had recently inherited from his parents’ estate.

Their first question to us was “Where should we invest?”.  They expected us to launch into a spiel on the different investment products they should consider, and were more than a little surprised to be asked instead “What goals in your life would you love this money help you achieve?”
There was a long pause while each looked to the other. It transpired Joan actually wanted to expand her business with a long term view. Martin wanted to move to a house closer to the city, and was quite definite about retiring in the next five years.

Happily, through our comprehensive financial planning process, we examined their goals in greater detail, and prepared with them a comprehensive cash flow, tax ,retirement and investment strategy.
We helped then to devise their plan, provided a route to follow and they are now on track to achieve their combined individual goals. A review every year will ensure that they stay on track .
Their plan is not a rigid strait jacket but rather it has been designed to achieve their goals whilst ensuring they can maintain the lifestyle that they want in the meantime.

Life is not a dress rehearsal and whilst achieving their future goals is important to them, so too is enjoying the journey life has ahead of them.

Life is a Journey

So, what makes you happy? Where do you want to be in 10 years’ time? How is money important to you?  Are you an entrepreneur itching to set up your own business? Or are you wasting time counting down the years to your retirement? Have you a dream of buying that house by the sea? Or an ambition to go back to university to get the degree you never go the opportunity to complete? The list is endless, but it is YOUR list.

To go through life without identifying your goals could be compared to a yacht drifting aimlessly in the ocean.

The Importance of Waypoint Financial Planning to Your Journey

At Waypoint Financial Planning we are uniquely positioned to help you identify and achieve your goals, while you get on with your life. We have the blend of professional skills to offer a personal approach and bespoke solutions.  All our advisers are Certified Financial Planners with experience in taxation, business consultancy, investing, retirement planning and banking.

Your job is to decide upon your goals; our job will be to help you achieve them while enjoying life along the way.