March 2025

Mar 27

The benefits of regular investment

By FAS | Investments

One of the simplest ways of investing for the longer term without committing a lump sum is to regularly invest over a period of time. In fact, many of us do this without thinking, as employer and employee contributions are paid into personal pension plans on a monthly basis via payroll.

Each monthly contribution buys units in an investment fund or strategy, with the quantity of units received from each contribution based on the prevailing price of the selected fund at the time of investment. Since fund prices fluctuate over time, the number of units acquired each month varies accordingly. When markets are performing well, fund prices are generally higher, resulting in fewer units being purchased with each contribution. Conversely, during market downturns, lower fund prices allow investors to buy more units with the same amount of money.

A regular investment approach benefits from a theory known as “Pound Cost Averaging”, which helps smooth out market fluctuations over time. By undertaking regular investment, the purchase price paid will vary from month to month leading to an average entry point over the longer term. This helps smooth out the volatility which is inherent in global equity markets.

Investing regularly can help remove the emotional aspect of the decision on when to invest, which can be particularly helpful during periods when market volatility and risk are elevated. For a long-term investor, the timing of market entry can be less relevant, as investment returns over an extended period are largely dictated by the amount of time an investment is held; however, making the decision to invest in a market downturn can be challenging, particularly for investors who have not experienced such conditions previously.

Regular investment can be a very sensible way of building wealth over the long term. Saving a set amount each month promotes financial discipline and if funds are collected automatically, as is the case with pension contributions, the commitment is made before the funds reach your bank account. The same approach can, however, be used to regularly invest for other financial targets, such as building a sum of money to help children and grandchildren through higher education, or towards a deposit for their first home.

For those without the funds to make a lump sum investment, regular investment into a plan can improve accessibility to investment markets. Most investment plans offer the ability to accept regular savings, which can usually be set up via a direct bank payment each month. Whilst this automates the investment process, it is important to remember that the savings plan can be adapted to reflect changes in circumstances. For example, the amount saved each month could increase as funds allow, or contributions could be temporarily suspended if funds are needed for other financial commitments.

Regular investment with a lump sum

While regular investing is an effective way to build wealth gradually, the same approach can be adopted for those with a lump sum available for investment. Conventional investment wisdom suggests that the longer an investment remains in the market, the greater the potential for growth. A rational investor might, therefore, opt to invest a lump sum immediately to maximize market exposure and potential returns. Historical data supports this strategy, particularly during stable or rising markets.

While investing a lump sum immediately may be beneficial in a rising market, in periods when market volatility is elevated, adopting a regular investment approach may be beneficial. This process is known as “phasing” and divides the lump sum investment into smaller portions which are invested at regular intervals over a set period, such as three, six, or twelve months.

As demonstrated in the example below, an investor with a lump sum of £150,000 to invest could choose to allocate £25,000 per month over six months instead of investing the entire amount upfront. The first payment of £25,000 is made in month one, with the balance of £125,000 being held on cash deposit. Each consecutive month, a further £25,000 is invested until the full investment has been made.

If markets decline during this period (as is the case in the first three months of the example) each investment purchases a greater number of units at lower prices, ultimately enhancing the overall investment position; however, if markets rise steadily, phased investing could lead to fewer units being purchased over time, resulting in a lower return than if the funds are invested immediately. Whilst this would place the investor in a worst position than if the investment was made in one tranche, it would, however, reduce the risk of making the full investment in a single transaction.

Getting the right advice

The decision to phase an investment needs careful consideration of the outlook for investment markets, time horizon for investment, and needs and objectives of the investor. For example, an investor seeking income from an investment may well have to contend with lower natural income in the early stages if an investment is phased, as only a proportion of the investment is committed to the chosen strategy.

Independent financial advice can add significant value in reaching this decision. At FAS, we tailor investment strategies to each client’s unique situation, considering both lump sum and phased approaches where appropriate. If you are looking to establish a regular savings plan, or arranging a lump sum investment, speak to our experienced advisers to discuss the options in more detail.

Mar 20

Alternatives to investment property

By FAS | Financial Planning

Buy to Let has remained a popular investment option for many years, as landlords have enjoyed the benefits of a buoyant rental market, and rising property values. Investor appetite may, however, be waning, judging by recent data collated by estate agent Hamptons. Their data suggests the proportion of homes purchased by landlords has fallen to the lowest level since 2009, accounting for just 9.6% of purchasers in January.

It is not only new landlords who appear to be reconsidering property purchases. Those with existing Buy to Let properties are also considering selling, with National Residential Landlords Association research from last Autumn suggesting that 40% of landlords questioned were considering selling one or more properties in the next 12 months.

It is not difficult to see why landlords may be reaching this conclusion. Increased tenant’s rights, and an end to so-called “no fault” evictions, higher mortgage rates and an increased tax burden may all be contributing factors. Further legislative changes, including the recent announcement that all rental properties must meet tighter energy performance ratings, also adds to the uncertainty.

We frequently speak to clients holding rental properties, who are considering reducing their exposure to residential property. This decision needs careful consideration, as undertaking a property disposal is an expensive process, both in terms of fees and timing. The most appropriate way forward will be determined by the overall financial circumstances of the individual in question, with many variables to consider.

Increased liquidity

One of the most compelling reasons to consider an alternative to property investment is the increased liquidity that investments in assets such as equities and bonds can provide. Most regulated investment options provide access within a few working days, whereas raising funds from a property may be a long and expensive process. Other forms of investment, potentially using collective investments holding a blend of equities and fixed interest securities, can easily be realised should funds be needed for any reason.

Tax inefficiency

Profits from property rental income are liable to income tax in the hands of an individual, at their marginal rate of tax. Some allowable expenses can be deducted from rental income, such as insurance, professional costs, property repairs and maintenance. Buy-to-let mortgage interest payments can also be deducted; however, this tax relief has been restricted to 20% since 2020, meaning that higher and additional rate taxpayers have seen the tax they pay increase since the previous relief system was withdrawn.

By way of contrast, investors considering alternatives such as equities and fixed income securities have tax wrappers such as the Individual Savings Account (ISA) available where tax-free income can be generated. Whilst the ISA subscription is restricted to £20,000 per tax year, other options such as Investment Bonds can also provide tax-efficiency, and on equity investments held outside of a tax advantaged wrapper, the rates of tax on dividends are lower than on property income.

Capital Gains Tax (CGT) is another consideration for those selling a property. Successive Budgets have reduced the CGT annual exemption to just £3,000, although joint owners can use both allowances to offset the tax liability. Periods when the property was occupied by the owner can provide Private Residence Relief, and costs in selling the property can also be deducted. Finally, significant improvements made to the property may also be an allowable deduction. CGT is charged at 24% for higher rate taxpayers, whereas basic rate taxpayers pay CGT at 18%. CGT is due within 60 days of completion and therefore those selling property need to calculate the gain quickly to avoid a late payment penalty and/or interest.

Changing legislation

One of the most challenging aspects of property investment is navigating changes in legislation, which threaten to reduce the attractiveness of property investment. Firstly, landlords will need to comply with updated energy efficiency rules, where all rental properties will need to hold an Energy Performance Certificate (EPC) of at least C by 2030. This could force landlords into expensive upgrades to their rental properties, and damage investment returns from affected properties.

The Renters Rights Bill, which is expected to become law during the Summer, may well provide tenants with greater stability, but may lead to higher costs and greater difficulty removing problem tenants. Amongst the measures included in the Bill, so-called “section 21” evictions will be outlawed, meaning landlords will no longer be able to end a tenancy without a valid legal reason. Whilst the new legislation may not have any impact for landlords with good tenants, dealing with issues may become more problematic and costly.

Tailored advice is key

As you can see from the various factors listed above, the decision to sell an investment property is rarely straightforward; however, in our experience, landlords are more readily questioning whether they should consider alternative investment options, a decision which may be underpinned by static or falling house prices in the coming years.

In most instances, an investment strategy designed to produce an attractive level of natural income can compete with net income yields from property investment, particularly when the tax-efficiency that investment wrappers can provide is considered. Taking a diversified approach, and blending investments across different asset classes and sectors, can help reduce risk, and using equities can also produce capital appreciation over time, in addition to the income yield. Not only can a diversified portfolio be more tax-efficient than property investment, such an approach can also prove to be lower maintenance and less hassle.

Our experienced advisers can take a holistic view of your financial circumstances and provide independent and unbiased advice on the options available. We can also look at ways to offset a CGT liability through investments that provide tax relief on investment. Speak to one of the team if you hold investment property and are considering alternative options.

Mar 13

Focus on fundamentals

By FAS | Investments

Amidst an avalanche of news flow over recent weeks, investors are trying to understand the implications of events in the White House in respect of the Russian-Ukraine conflict, and imposition of tariffs by the Trump administration. It is, therefore, not surprising that market volatility has increased. At times such as these, we feel it is important to look beyond the noise, and focus on quantifiable, fundamental factors.

Cutting through the noise

Firstly, it is sensible to put the recent market performance in context. It is important to bear in mind that investment markets have enjoyed an extended period of positive returns and relative calm since October 2023. The only significant spike in volatility over the last 18 months was the brief market hiccup when the Yen carry trade began to unwind in August 2024. The graph below shows the CBOE VIX index, which is a measure of volatility in US markets, and often known as the “fear index”. Whilst volatility is elevated, it remains some way below the levels seen in August 2024 and the early part of this year.

The calm incremental returns seen over the last eighteen months represent a long period of market stability, and increased market volatility is expected as we continue through 2025. Volatility is, however, not only an inevitable element of the investment process – it is also healthy. For example, overvalued stocks may be re-rated during periods of volatility, leading to more attractive valuations and greater investment opportunities.

Factors to consider

Investors are weighing up a range of factors that are exerting an influence on market direction currently. Greater uncertainty is apparent, although there are reasons why investors should remain confident about the medium-term outlook.

The imposition of trade tariffs by the White House may represent a bigger threat to global growth than the geopolitical wranglings between US, Ukraine and Russia. There is, however, some question over how long tariffs would be imposed for, which could limit the damage they could inflict. Any trade barrier is unhelpful, and tariffs imposed for an extended period are likely to hamper global growth, which would extend to countries that are indirectly affected. Tariffs are also inflationary, as prices are driven higher, and consumer confidence may also be affected. Likewise, businesses may well curb expansion plans in this environment.

Broad tariffs have so far been imposed on Canada and Mexico, and specific tariffs on commodities such as steel and aluminium have been introduced over recent weeks. There has already been some pullback from the Trump administration, which introduces further uncertainty over the likely damage tariffs could cause and only adds to the volatility.

US corporate earnings remain strong, and we feel this supports a positive medium-term view. Fourth quarter company earnings in the US have largely exceeded expectations, although companies from a range of sectors have warned that the immediate outlook is less positive.

The broadening of the market rally over recent months can also be viewed as a positive signal. Technology stocks were the spearhead for the growth in the US, which widened the performance gap between growth companies and value stocks last year. This gap has now narrowed, with investors turning their focus to other sectors, with financials, energy and consumer staples outperforming, and defence stocks jumping on the likelihood of increased government spending.

Investors showed considerable confidence throughout 2024, although this is likely to be tested in the short term. The market falls before Christmas, and again in January following the announcement of DeepSeek (the Chinese AI competitor), saw investors buy back in, thus reinforcing the positive mood. It remains to be seen whether investors view the current volatility as a buying opportunity; however, it would be foolish to write off the positive trend. In the words of John Maynard Keynes, “markets can stay irrational far longer than you can stay solvent”.

The final positive factor may be delivered by the Federal Reserve. A slowdown in US growth, and weakening outlook, may lead to the Fed cutting US interest rates perhaps more rapidly than many market commentators expect. Falling interest rates later in 2025 could provide an injection of positivity, and support investor confidence.

Remain focused on the long term

In more volatile market conditions, investors would be well advised to review the composition of their portfolio. They should ensure they have adequate diversification across a range of sectors, geographies and asset classes. Even in the most testing of market circumstances, opportunities always present themselves. For example, bond markets have not been immune to weakness, due to concerns over Government debt levels and the jump in inflation; however, good value can be found within short-dated bonds.

Active equity fund managers can allocate their portfolio to sectors that are performing well and seek value where possible. Where passive funds proved hard to beat in some markets last year, the expected conditions lend themselves well to active fund management. This is why we advocate holding a portfolio that holds both passive funds for broad market exposure, and active funds to drive performance.

We also recommend investors remain invested through any period of volatility, as investment returns are delivered from the length of time invested, rather than timing. Trading market conditions introduces significant risks, and the current uncertainty could lead to a rapid repricing of assets. For example, a ceasefire in Ukraine or the decision to remove tariffs could lead to a marked rally.

Keep a sense of perspective

Looking through the noise and rapidly evolving news flow, and focusing on the fundamentals, can help keep a sense of perspective. Strong corporate earnings, pockets of value amidst sectors left behind by the tech rally of 2024, and a supportive Federal Reserve provide us with confidence that markets can continue to perform well over the medium term. It is, however, clear that short-term risks are somewhat elevated, and external factors, such as trade tariffs and the conflict in Ukraine, could derail confidence in the short term.

Given the changing landscape, it would be sensible to ensure that your portfolio remains under review. Our experienced advisers can take an impartial view of an existing investment portfolio and provide suggestions where changes could be made that are tailored to your needs and attitude to risk. Speak to one of the team to arrange a review of your portfolio.

Mar 06

Tax year end planning

By FAS | Tax Planning

As we are hurtling towards the end of another tax year, it is important to take the opportunity of reviewing your finances and take appropriate action to make the most of available allowances, exemptions, and tax reliefs, before the deadline on 5^th April.

Top-up pension contributions

Making additional pension contributions can help boost your retirement savings and reduce your Income Tax bill. Qualifying personal pension contributions automatically benefit from tax relief at basic rate; however higher-rate and additional-rate taxpayers can also claim additional tax relief through their self-assessment tax return. The maximum you can contribute into a pension in the current tax year, also known as the Annual Allowance, is £60,000 or 100% of your relevant earnings, whichever is lower. This allowance covers all contributions made to pensions in the tax year, including those made into a workplace pension.

Higher earners need to proceed with caution, as those earning over £200,000 may well see their Annual Allowance reduced via a taper. Anyone who has flexibly accessed a pension in the past also needs to take care, as they will be subject to the Money Purchase Annual Allowance, which limits the level of contributions to £10,000. As there could be tax penalties if the level of contribution breaches your available allowance, we recommend you seek advice before making additional pension contributions.

Consider Capital Gains

After being heavily reduced over recent tax years, the annual Capital Gains Tax (CGT) exemption is just £3,000 for individuals, and £1,500 for Trustees in the current tax year. Despite the much smaller CGT exempt amount available, it would be wise to consider investments that sit outside of a tax efficient wrapper, to see whether it would be sensible to sell assets to make use of the exemption before the end of the tax year, as the exemption cannot be carried forward if not used.

Gains made above the CGT exemption are subject to higher rates of tax following the Budget in October 2024. For investment disposals, basic rate taxpayers are now liable to CGT at a rate of 18% on the excess above the exemption, with higher rate taxpayers paying 24%.

Tax implications should not be the only consideration when deciding whether to sell an investment. Furthermore, if you hold an investment portfolio, choosing which investment to sell can be problematic. Our advisers can consider an existing investment portfolio and provide advice on the best course of action.

Use your ISA allowance

Individual Savings Accounts (ISAs) remain one of the most tax-efficient ways to save and invest, as you do not pay tax on interest or dividends generated from within the ISA, and assets sold within an ISA are not subject to CGT.

As the tax year draws to a close, it is time to assess whether you have fully used your available ISA allowances. For the 2024/25 tax year, the ISA allowance stands at £20,000 per individual. This allowance can be split between a Cash ISA, Stocks and Shares ISA, Innovative Finance ISA, and Lifetime ISA (up to a certain limit). In addition, up to £9,000 can be invested in a Junior ISA, which can be held by a child up to the age of eighteen.

It is important to note that ISA allowances must be used in the tax year in question, otherwise they are lost. There is no facility to carry forward or make use of allowances from previous years. It is very much a case of “use it or lose it”.

Planning to reduce an Inheritance Tax liability

One of the simplest methods to reduce a potential Inheritance Tax (IHT) liability is to make gifts, and the end of the tax year is a call to action to consider whether this would be a sensible step to take.

The annual gift exemption is set at £3,000 per person, which means that everyone can gift this amount in the current tax year. Couples can benefit from making joint gifts, effectively doubling the annual gift exemption to £6,000. In addition, if you have not used the gift exemption in the previous tax year, you can carry forward any unused allowance for a single tax year.

Gifts that are greater than the annual gift exemption are also potentially exempt from IHT, if the individual making the gift survives for seven years after making the gift. You could also consider making gifts out of income which is surplus over your normal expenditure. These rules are complex, but used correctly, such gifts can be a powerful way of gifting regular sums, without the seven-year rule applying. We recommend seeking independent advice if you wish to consider making gifts using this method.

Other tax breaks

Those who are married or in a civil partnership could benefit from the marriage allowance. This is only effective if one partner earns below £12,570 per annum, and the other pays tax at basic rate. The non-taxpaying partner could transfer £1,260 of their personal allowance to the taxpaying partner, which would result in an income tax saving of £252. You can also potentially make a backdated claim for the last four tax years, if you were eligible.

It is also worth reviewing your income position in relation to the Child Benefit High Income Charge. This affects those with an adjusted net income which exceeds the earnings threshold, which increased from £50,000 to £60,000 from April 2024. Making pension contributions could be an effective way of reducing your net income to reduce or remove the charge completely.

Seek advice

As we reach the end of another tax year, it would be sensible to consider your financial arrangements to make the most of the available allowances and reliefs, many of which will be lost if not used.

Speak to one of our independent financial planners to carry out an impartial review of your financial position and consider any actions that need to be taken.