2011 is likely to go down in history as the year that everything happened. Inflationary fears took centre stage as the year began, with food prices outpacing their 2008 highs and oil prices tipping the $100/barrel mark. As the first quarter continued, though, three major events shook the world: firstly, a devastating earthquake in Japan, and its subsequent nuclear crisis; secondly, the evident beginning of the ‘Arab Spring’ in the Middle East; and thirdly, not only did the EU deal on a Greek bailout package fail to calm market fears, but the Portuguese government fell, prompting all out fear over the European sovereign crisis. Throughout the spring, most economic data points were weaker than expected, in part due to supply chain disruptions resulting from the Japanese earthquake, but probably also owing to the ongoing Chinese slowdown. Market focus gradually moved back towards the outlook for monetary and fiscal policy: the US debt ceiling was reached on 16th May, tensions escalated between ECB officials and EU leaders about a possible Greek debt restructuring, and Spanish and Italian ruling parties suffered massive losses at regional elections.

The summer months were then characterised by global market mayhem, as escalating US political tensions saw a lack of agreement on the debt ceiling and threats of debt downgrades from rating agencies, while in Europe a series of bailouts – direct and indirect – attempted to calm the chaos. China witnessed further rate hikes, while Japan and Switzerland enacted currency interventions, and it became clear that global growth was slowing.

The European soap opera held the market’s attention throughout autumn, and after much stalling and fanfare, a broad framework devised by euro zone leaders – including a debt haircut of 50% for private investors, recapitalisation of banks, and a three-year €489 billion ECB bank liquidity programme – had a more positive market impact than many predicted. There were new leaders for the ECB, Italy, Greece and Spain, and an alarming rise in most euro zone government bond yields. Elsewhere in Europe, the Bank of England introduced a new, four-month £75 billion cycle of quantitative easing. In the emerging markets there was a general loosening of monetary policy, while the US witnessed the rebirth of Operation Twist (last seen in 1961) with a $400bn plan to buy bonds, but started to see more reasonable macroeconomic activity and data, regarding housing in particular.

As the year drew to a close, a divergent world appears to be emerging, with signs of improvement in the US, Europe in recession, and the emerging world facing a softer landing than some had feared.

2012 will of course hold extreme austerity across Europe, and problems are also arising in emerging economies, with Chinese inflation back to 2008 levels and the Indian economy slowing fast. However, there is some optimism to be found on the horizon. The EU (minus the UK) is showing some unity at last, and the ESM (a new primary bailout mechanism with €500bn firepower) is set to be available by July 2012. The US is witnessing signs of decent components for recovery, particularly in auto, housing and manufacturing. Demand is resilient consumers are spending, and initial jobless claims are at their lowest since May 2008, signalling employment growth. GDP expectations for 2012 are also improving slightly, pointing to a brighter new year.

So not all doom and gloom but given the over-arching uncertainty surrounding the global economy, it is likely that the volatility seen in 2011 will continue to blur the story in 2012.

Local financial advisers, Profile Financial Management have seen a surge in enquires and new business from people seeking independent financial advice. With a loss of confidence in the banking sector and a well publicised Which? report reflecting poor investment advice amongst bank and building society advisers, this has pushed many people to seek impartial and personal advice from local experts they feel they can trust.

An undercover investigation undertaken recently by consumer watchdog Which? had discovered a number of bank and building society advisers had given substandard advice. Only five out of 37 advisers gave good advice about investments after visiting branches of seven leading banks and three building societies.

Which? claimed that the majority of advisers demonstrated a “poor understanding of the risks of investing, and made misleading statements about the features and costs of available products”

The research also revealed that 18 of the advisers claimed their advice was free. However, banks and building societies make money through commission paid for the products they recommend – but only a handful of advisers admitted this.

Interestingly, at the end of 2012, financial advisers will be banned from receiving commissions from firms for recommending their investment products, under rules designed to stamp out mis-selling to consumers.

The investigation showed that “the high street isn’t the best place to go for investment advice” and states that “if in doubt, consumers should always talk to an independent financial adviser.”*

With this in mind Profile Financial Management has recently expanded its team and has grown into larger premises. The firm now occupies the charming “Honeysuckle Cottage” that was the original visitor centre for the Lilliput Lane ceramic firm at Skirsgill Business Park near Penrith.

Richard Utting Director of Profile explains: “The Financial Service Ombudsman 9/10 review* shows that 98% of all complaints have been against large financial institutions such as; banks & building societies (63%), insurance companies (27%), investment houses, mortgage brokers & stockbrokers’ (7%). Only 2% of complaints during were against Independent Financial Advisers.”

These numbers clearly show that customers want a more personal and individual approach to managing their finances. As a result, Profile Financial Management has seen a significant surge in interest in their services and have expanded their operation in the past 12 months.

Profile has refurbished the interior of Honeysuckle Cottage to create a relaxed and informal atmosphere for clients. In addition, Profile has also created a presentation and seminar room to provide local customers with events and seminars of general interest as well as offering this as a function room for local businesses.

Richard explains: “We wanted to create a place where our customers feel comfortable and relaxed. The surroundings of Honeysuckle Cottage provide an informal and unusual environment that you wouldn’t expect to find in a financial services company. Everyone really enjoys visiting our offices.”

Profile Financial Management was one of the first financial services company in Cumbria to stop taking commissions on products and introduce a fee-based approach to financial services. At the heart of the company’s impartial and independent service is a highly respected financial planning method using cash-flow modelling. This approach allows the company to create an integrated financial plan, from which informed decisions can be made. Once created the plan is reviewed and updated annually to ensure it continues to meet the aims and objectives of the client. In this way Profile can provide financial planning to people who require long term proactive advice about their finances.

With growing uncertainty in economic markets recently, the trend for growing complaints within the financial services industry is not going to go away. The ethos of Profile is about doing things differently, taking a personal approach and ensuring customers feel secure in their financial choices. They work to simplify people’s financial life; managing risk, consolidating debt and giving them a secure future. Profile Financial Management offers some relief to consumers during this turbulent time; providing a relaxed environment, trustworthy independent advice and somewhere to turn for people with any financial worries.

As you will be aware The Chancellor, George Osborne, delivered his Autumn Statement last week in which he confirmed a range of measures designed to stimulate economic growth.

Even though it has been forecast by the independent Office for Budget Responsibility that the UK would not enter recession next year, as had been predicted by the OECD, our economic destiny remains firmly in the hands of Europe.

However there was some good news with motorists seeing the 3p fuel duty increase planned for January scrapped and commuters will see regulated rail fares increase by 1% over inflation, rather than the planned 3%.

There is some long-term pain with the state pension age due to increase to 67 by 2026, eight years earlier than previously planned. In the short-term, the value of the state pension will increase by £5.30 a week in April 2012.

The key theme of the Autumn Statement was investment in infrastructure and enterprise. It seems that two groups of UK pension funds will help to fund investment in infrastructure projects over the course of the next decade. Generous income tax relief will be available to investors in Enterprise Investment Schemes, aimed at providing funding to start-ups.

However as you will appreciate with every Budget and Autumn Statement, the devil is often in the detail. As more details come to light, we will add blogs on specific planning topics to our website at www.profilefm.co.uk

Do call us on 01768 840000, email info@profilefm.co.uk, or follow us on Twitter @profile_fm.

We look forward to hearing from you.

At the end of last year we invited Justin Urquhart Stewart, TV and Radio financial pundit, to come to Profile to meet local professionals and business people of Penrith.

The intention was for him to come in the spring but unfortunately, due to an operation on his leg in March of this year (which incidentally has made him 2 inches taller), he was unable to attend. However after some discussion he was able to make it last week (22nd November).

And what a day we had…

Following a presentation to local accountants and solicitors at Honeysuckle Cottage at lunchtime in which he highlighted areas of the Trustee Act and answered general questions from the floor, Justin went on to do two radio interviews, one with ourselves on our new local radio station Eden FM and one with Radio Cumbria.

In the evening he went on to do a presentation to members of the Penrith Chamber of Trade and Commerce which was sponsored by Profile Financial Management.

Justin touched on many areas of the world economy particularly the UK. What he did portray, as he had all day, was a very much more positive picture of the economy than one would hear on the BBC.

Justin is a truly inspirational speaker who has endeared himself to the public and media alike, as he did in Penrith last week. His no-nonsense and prolific views on the complex world of personal finance are a breath of fresh air and we hope that he will visit Penrith again in the not too distant future.

See pictures from the event here

Record numbers of women are saving adequately for their retirement, according to a recent Scottish Widows report, with half putting aside sufficient amounts, compared to 43% last year.

The findings, from the ‘Scottish Widows Women and Pensions Report 201’1, show that women are putting aside on average 12.9% of their income, including employer contributions, compared to the 12.6% men contribute, according to The Telegraph.

But men’s higher average salary of £28,091 compared to £22,490 for women helped them save more for retirement. The report also warned than more women than men – 23% versus 17% – were not saving for retirement at all.

For more information on saving for retirement contact us here at Honeysuckle.

Although it’s too late to do much about tax for 2010-2011, now is the time to start to think about mitigating your tax liability for 2011-2012.

Family budgets are being squeezed, and with the starting threshold for 40% income tax falling from £37,400 of taxable income to £35,000, more couples will have one partner paying a higher rate of tax. There is scope for tax mitigation by transferring assets to the lower rate taxpayer: every £1,000 of investment income transferred from a 40% taxpayer to their spouse who is a non-taxpayer saves £400 a year in tax.

1. Restructuring investment holdings

If one partner receives all the investment income it is possible to utilise the other partner’s personal tax allowance of £7,475 and lower tax band to reduce the overall tax bill for a couple.

The rates paid on dividends for the 2011-2012 tax year are the 10% dividend ordinary rate deducted at source, 32.5% dividend upper rate for those in the 40% tax bracket, and the 42.5% dividend additional rate for 50% taxpayers. There is scope for reducing taxable income by transferring assets to the lower rate taxpayer or a non-taxpaying partner.

HMRC usually treats income from property held jointly as if it were equally held by the two parties. Income tax is charged on each partner on half of the income. If you want to be taxed on your actual shares, you will need to provide evidence that your beneficial interests in the property are unequal, for example by a declaration or deed of trust and completed HMRC form 17.

This also applies to bank and building society accounts that are held jointly as well as property, and you must file the form 17 within 60 days of the declaration of trust, or it is not valid for tax purposes. Assets transferred between husbands and wives and civil partners are free from capital gains tax (CGT) until sold, when the acquisition price used in the CGT calculation is that paid by the first partner.

2. Mitigating ‘clawback’

Older taxpayers who are up against the £24,000-a-year income level where ‘clawback’ of the higher personal tax allowances takes effect may be able to avoid clawback by transferring assets between spouses or moving taxed income from investments into a tax free ISA.

The same applies to those who are up against the £100,000 income threshold, where ‘clawback’ of personal allowances takes place so that at an income of £114,950 (2011-2012) they receive no tax allowance. Making pension contributions can reduce liability and help restore tax allowances.

For every £2 of taxable income over the threshold of £100,000 (£24,000 for a pensioner) £1 of personal allowance is clawed back. In the case of pensioners the personal allowance is never reduced below the standard level of £7,475, so they are back to standard allowances once their income hits £28,930.

3. Tax-free investments

Remember to use your full ISA allowance of £10,680 per person in 2011-2012. You can also contribute up to £50,000 a year or 100% of income, whichever is less, to a pension scheme and get tax relief at your highest rate paid.

There have been recent changes to the Enterprise Investment Scheme (EIS) that make it more attractive as a tax saver. Companies may now obtain 30% tax relief on their investment, as well as doubling the annual investor limit to £1 million.

However investors need specialist advice to take advantage of this tax break.

4. Capital gains tax

Couples who have profits to realise may find it worthwhile restructuring holdings so that both CGT allowances (£10,600 for 2011-2012) are utilised as well as making use of the fact that a basic rate taxpayer pays CGT at 18% while a higher rate taxpayer is liable for 28%. You can also save by switching investments on which income could be taxed at up to 50% to growth stocks, where you will pay a maximum of 28% CGT.

After a dreadful year in the stock market many will be sitting on losses, and now is a good time to review your portfolio. Losses can be carried forward if they are realised and set against future gains or used to offset against gains made in the current tax year. You may want to use cash realised to take up any unused ISA allowance or to make pension contributions into a SIPP.

5. Inheritance tax

Assets such as shares or mutual funds on which you are showing a loss are also prime candidates for gifting to mitigate inheritance tax. You will have no CGT liability when you gift them to the beneficiary – but you will have incurred losses to set against future gains.

You can also make gifts of £3,000 a year (£6,000 for a couple) and any number of small gifts of £250 to a variety of different beneficiaries. If you have not used last year’s allowances you need to do so before April 2012 or they will be lost, and they can only be carried forward for one year.

Perhaps the most valuable inheritance-tax mitigation scheme is making regular payments out of income, such as a unit trust regular saving scheme written in trust for a grandchild or godchild. Provided the loss of income does not affect your standard of living, then the gifts are immediately outside your estate for inheritance-tax purposes.

For more information on this and other financial planning areas please do not hesitate to contact us.

From 1st November this year Junior ISA’s (Junior Individual Savings Accounts) are to become available. These will offer a simple and transparent way to save for your child or grandchild’s future.  A Tax Free Junior ISA has all the benefits of a regular ISA in that your child will not pay any income tax on any return / interest earned by the savings account.  Junior Individual Savings Accounts are a great way to create a nest egg & help provide some financial backup for your child when they reach adulthood and can be used to pay for their university fee’s or even help them set a foot on the property ladder.

The same limitations, benefits and rules that apply to a regular ISA also apply to a Junior ISA’s for children which include:

• Once you have deposited money into a Junior ISA and provided it stays there, it will be tax free year upon year.

• Once your child has reached adulthood (currently 18 years of age) they are able to withdraw their cash whenever they want without losing any tax benefits. Management of the account will pass onto the child once they reach 16 years of age.

• Tax Free Junior ISA’s are covered by the FSCS / Financial Services Compensation Scheme so you can be sure your investment is safe.

• The annual Junior ISA Tax Allowance will be £3,600 per year.

• Parents, grandparents, friends and anyone else with an interest in the child’s financial future can contribute to their Junior ISA (provided the total amount is no more than the annual limit).

There are two types of Junior ISA: A cash Junior ISA and an Investment Junior ISA (in effect a Stocks and shares Junior ISA) and each child will be able to hold one of each account with different providers should they wish but the total combined investment allowance between the two accounts remains at £3600 per tax year.

Junior ISAs are available to any child born on or after 3rd January 2011 and any child under 18 years of age born before September 2002.

For more information on this or any other investment or financial planning matter, contact us at honeysuckle Cottage on 01768 840000.

You can hardly pick up a paper or turn on the TV at the moment and not be aware that we are in the midst of, what seems to be, an element of financial turmoil.

A mixture of low growth, high unemployment and sizeable debt (to name but a few) in the Eurozone (particularly Greece and Italy) and in America is unnerving the markets which sees the financial markets literally move up and down on an hourly basis.

However we have seen these times before and whilst market conditions are challenging, it can be easy to lose sight of long term investment goals. It would be easy to jump out of markets but you should :

Stay invested for the long term

• When market conditions look uncertain it is important to remember that equity investing is for the long term
• Always review your investments in the context of your financial goals, not short-term performance
• Stay committed to your personal financial plan

Time not timing is key

• Don’t let uncertainty affect your investment strategy
• It is usually better to stay invested through good times and bad – history and time are on your side
• Market timing is a high risk strategy and too easy to miss the gains

Benefit from diversification

• Spread your money across different types of investment such as cash, bonds and shares
• Invest in a range of different countries outside your home market
• Invest in small, medium-sized and large companies
• Consider investing in a range of sectors or industries

Why cash can be a risk

• Cash may not be a good option for long-term investing
• The purchasing power of cash is eroded over the years by inflation
• Investing in cash ISAs for many years could mean your portfolio is overweight in cash and unbalanced

See the opportunity in volatility

• Regular savings plans and drip feeding your investment can help smooth out the effects of a volatile market

For clients of Profile Financial Management, you would have heard us ‘banging on’ about these messages before but they are as pertinent now as they have always been.

Don’t lose sight of your long term goals – we are here to support you in this regard, now, and into the future.

However, for clients of Profile, if you do have concerns about your investments please free to contact us.

Richard Utting (Director)

From new figures issued by the Office for National Statistics (ONS) it is the banks who are largely to blame.  The ONS figures show, for the 2.8% fall in the size of the UK economy since it peaked in March 2008, banks are responsible for 1% of this GDP contraction.  The impact of the banking sector on this economic fall is disproportionate to the size of the banking sector as a whole.

Whilst the banking sector is responsible for 5.1% of economic output in the UK, they are responsible for around 35% of the economic decline since March 2008.  This analysis excludes the impact of tighter lending criteria from banks on the contribution to economic growth from small businesses and consumers.

The banking sector has already shrunk by 2.6% this year, following a 5.1% slump last year and 7% drop in 2009.  As we all know the banking sector has become something of a national whipping boy in recent years, with taxpayers having to bailout the sector following the global financial crisis.  Reports say members of the British Banking Association feel victimised by tighter regulations for the sector expected to be proposed by the Independent Commission on Banking are unlikely to be met with much sympathy.

We all might dislike the banks but perhaps harsher regulation should be temporarily postponed until we see better economic recovery and the sector is able to do less damage to the state of the national finances.  What we do need to do is have a less risky banking sector which will not expose taxpayers to the sorts of costs they have already experienced to rescue this troubled industry.

Balancing the need for economic recovery with the need to properly regulate the banks will be a real challenge for government when the Independent Commission on Banking publishes its final recommendations this autumn.

With low interest rates, high price inflation and low wage inflation, there is, without doubt, growing pressure on household budgets.  New research from financial information company Markit has found that nearly 40% of households saw their finances deteriorate between July and August this year.  In essence this means that finances worsened at their fastest pace since the middle of the last recession in February 2009.  Only 6% of households experienced an improvement in their finances during this time.  The Household Finances Index monitored by Markit had fallen for the third month in succession and now stands at its lowest level since it was created at the start of 2009.

With the UK economy struggling to recover, consumer sentiment is likely to remain poor for some time given this continued squeeze on household budgets.  Financial Planning can help to identify areas for savings and steer a path through an uncertain economic environment.