Save Tax - Invest for success

Good morning and welcome to the 15th of February Smart TV review of the weekend papers.

A couple of things this week, it looks increasing likely that the VAT rate is going to be increased to 20% over the next election. This is not a great surprise, the increase from 17.5 to 20% is expected to generate something between 20-30 billion pounds of additional revenue, and it has historically been seen to be easy revenue to take, because it is only revenue when people actually choose to spend their money, as opposed to income tax or national insurance which would be taken before you even had the ability to save your money. So I think that is an absolute nailed on certainty.

What there has been less talk about, is any potential increases in the capital gains tax, I am absolutely certain that the capital gains tax will be increased after the next election. So if there is anything you have that you would be looking to dispose of over the next few months, I would very much encourage for you to get the process going and make plans sooner rather than later, because the 18% rate that we have at the moment is completely incompatible with the VAT rate of 20%, with the basic rate of income tax at 20%, a higher rate of income tax at 40%, and a super rate a 50%. So I would very much cash those chips in now, and take advantage of paying tax at the lowest rate.

Another thing that caught my attention and it always happens at this time of year, is the ISA season nonsense. This is where the talking heads of the investment industry describe to you what they think you should be investing your money in. Now if you’ve followed our Smart TV updates in the past you will by now probably understand that I don’t have much regard for these people, and don’t think very much of the recommendations and I’m absolutely certain that if in general you follow them you will end up probably worse off than if you hadn’t done anything at all, because of the rational that they take to what they recommend.

There’s two fabulous examples this week in the Sunday Times, Justin Urquhart Stewart, who is a high profile stock broker, the marketing director of a company called Seven Investment Management, and generally seen as a really good guy, has made a couple of recommendations.

These are as follows:

He recommends the Scottish Mortgage investment trust or the JP Morgan overseas investment trust.

• The Scottish Mortgage investment trust is up 45% in the last year
• And the JP Morgan Overseas investment trust is up 55% in the last year

Now I don’t know about you, but something that is up 45% / 55% in the last year suggests to me that the magic return has been and that somebody else has got it. It suggests to me that the probability is, that you guys are going to be the suckers that provide the money to let the people who invested over the last year get out and capitalize their profits. So if ever you were looking for an example of something not to invest in, the thing that has been the best performer over the last year is the place to run a mile from. You can be absolutely certain that it is not going to do the same this year.

As you’re probably all aware, we believe very much in the long-term and diversified portfolio of funds, we would not ever be in a position of picking one random fund to recommend to the marketplace in order to put it in a newspaper, we wouldn’t pick two and we certainly wouldn’t get our pen and paper out, and try and discover what the best performing one had been over the last year and recommend that. This is absolutely a recipe for disaster.

If you want to make ISA savings and I would encourage you to do so and if you’ve read our newsletter we are bringing to your attention, the fact that if you are over 50, you can do £10,200 into an ISA before the end of the tax year, and for everybody after the start of the 2010-2011 tax year, they can do £10,200 into their ISA, I would recommend that you apply a sensible approach, that you look at the risk you are prepared to take with your investments, you look at the rest of the investments that you already have in place and you make sensible long-term investments based upon that. You do not run around trying to work out where was the best place to be last year, and get involved with that kind of fund.

That is it from us for this week; I look forward to seeing you next week.

Steve Martin CFP, is the Managing Director and a Certified Financial Planner (CFP) / Independent Financial Adviser (IFA) at Smart Financial Planning