Spreadsheet Phil misses a trick with the NS&I Bond

Maike Currie, investment director for personal investing at Fidelity International, comments:

Has Chancellor Hammond made an error in his infamous spreadsheet calculations for the NS&I Bond? A rate of 2.2% over a 3-year term barely covers the OBR’s inflation expectations.  

While this may a market-leading rate, anyone saving into the new investment bond will struggle to achieve a real return with OBR expectations for inflation to rise to 2.4% in 2017, 2.3% in 2018, before falling back to 2.0% in 2019.

To stand any chance of generating an inflation-beating return in the current environment,  you’re far better off looking further up the risk spectrum, investing in bonds issued by companies rather than the Government or moving into stocks and shares.

If anyone is unsure about the benefits of investing in the stock market over stashing cash under the mattress, our calculations show if you had invested £15,000 into the FTSE All Share index 20 years ago you would now be left with £53,974. If, however, you had invested £15,000 into the average UK savings account over the same period, you would be left with a paltry £19,877*. That’s a difference of £34,097 – too big for any sensible saver to ignore.

*Source: Fidelity International, March 2017 – Total returns from 28/02/1987 to 28/02/2017

Tax free dividend allowance – On balance, it’s bad news for the wealthiest shareholders, but good news for those able to make the most of their tax-free allowances

Ed Monk, associate director for personal investing at Fidelity International, comments:

The Chancellor’s moves to make the tax treatment of employed, self-employed and incorporated workers fairer will catch a few of the wealthiest investors in stocks and bonds as well. Taking a scalpel to the tax-free dividend allowance from £5,000 to £2000 from April 2018 is expected to net the Treasury £930m by 2021/22.

For the vast majority, though, the rise in the ISA allowance to £20,000, plus the boost of higher Personal Allowance for income,  means investing gains and income remains tax free. You’ll need £50,000 invested outside of ISAs before the lower Dividend Allowance bites, according to the Treasury.

On balance, it’s bad news for the wealthiest shareholders, but good news for those able to make the most of their tax-free allowances.”

It’s disappointing that a Chancellor who once worked for himself has announced such a tax blitz on the incomes of the self-employed.

Maike Currie, investment director for personal investing at Fidelity International comments on the Chancellor’s clampdown on the tax differential between the employed and the self-employed:

It’s disappointing that a Chancellor who once worked for himself has announced such a tax blitz on the incomes of the self-employed. A key driver behind the surge in self-employment was the 2008 financial crisis and the tough labour market left in its wake. Indeed, self-employment has accounted for one-third of all jobs created since 2010. Other factors driving the so-called ‘gig economy’ has been technological change and an aging population – the rise of the “silver entrepreneur” has accounted for half of the increase in self-employment since 2004, according to the Bank of England.

Working for yourself by definition means greater insecurity and the risk of falling incomes. As the saying goes: ‘the difference between self-employed and unemployed, is just one syllable.’ If you are part of the self-employed cohort, now more than you ever you need to have a firm grip on your personal finances. You will be paying more tax and not have the benefit of an employer pension scheme. A proactive way of putting something away towards your retirement is via a self-invested personal pension (SIPP). When you contribute to a SIPP you receive income tax relief upfront from the government. This means that a contribution of £10,000 made by a basic rate taxpayer only costs £8,000 after income tax relief. For a higher rate (40%) taxpayer, the net cost is £6,000.”

Author: Dylan Jones

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