I was previously an investment manager in London in a previous life and UBS (UK Ltd), Morgan Stanley Quilter and Vestra Wealth were some of the houses that I worked at. Many mums (and dads!) do ask about their children’s financial future especially when it comes to saving for future education, and I cringe at the lack of quality advice given to them by financial advisers. There is also a lack of faith in the financial products in the market and I can see why – people are constantly mis-sold products as some financial advisers sell according to the incentives given by the product houses. I really believe that it is the investment manager that makes a difference to your future wealth. We speak to someone I learnt a lot from, my former boss, Duncan Carmichael-Jack, who has been in the industry for many years to give parents and UK offshore residents some advice about their financial future.
Duncan Carmichael-Jack, based in London, was a founding Partner of Vestra Wealth, which was established in 2007 and manage portfolios for Individuals, Trusts and Charities. He also manages the Elite Balanced and Elite Income Unit Trusts for which he was awarded an AA Citywire rating in 2007 and is a top 100 Citywire manager for 2012. He joined Vestra Wealth from UBS where he was Joint-Head of UBS UK Ltd, following their acquisition of Laing & Cruickshank, which he joined from Credit Suisse in 1999. He began his career at JP Morgan Investment Management in 1991 and he is a Chartered Wealth Manager.
For more information please check the website www.vestrawealth.com or email them on email@example.com and ask for Duncan Carmicahel-Jack.
You are a father of 4 children, and soon to be 5. Can you tell us how you manage your own personal finances towards your children’s education?
I have an investment portfolio invested in the Elite Income fund, which is a cautious managed ‘fund of funds’ I run, investing in a mixture of Global equities (for growth), fixed income secutities (for yield and capital preservation) and cash (for liquidity).
Are you a saver or a spender?
Both and it varies year on year as there are times when my financial commitments match my earnings and times when my earnings exceed my commitments, when I can save.
Can you briefly describe your own personal asset allocation?
As most of my money is invested in the Elite Income fund excluding my own home, I am a cautious investor. The savings I have set aside for school fees and general expenditure are split 60% equities, 25% fixed income 12% absolute return and 3% cash. My pension is more aggressive with 85% equities, 10% fixed interest and 5% absolute return, as I have a longer time horizon and no need for immediate liquidity.
What made you decide to choose investment management as a career?
I have always enjoyed maths and reading, so a career with the combination of both seemed the perfect fit. I’ve never looked back…
For many parents, their children’s education is a concern. What do you advise for parents to do regarding this? When is a good time to start saving?
As soon as possible! If you are lucky to have enough capital set aside for fees, the schools usually offer quite a nice discount, equally if you have more than one child at a school you can often negotiate a discount. However setting money aside as soon as possible is paramount, as is how this money is invested.
Many people are always approached to invest in so many educational schemes? How do you know you are dealing with an ethical and moral adviser?
As I manage the money myself it’s not really an issue (as a moral and ethical manager). If I were looking around I would ensure the manager was fully regulated, check the stability of the firm and look at the performance track record. I would also search websites for any bad press.
For parents who would just like a portfolio of stocks or collective funds, how long should they consider keeping their portfolio invested for?
Until the money is required. The compounding effect of re-investing dividends is huge, as can be the longer term rewards of investing in equities. I would also make sure they were invested is as tax efficient a vehicle as possible.
What are your general thoughts on investing the markets like the UK, US, Europe and Asia at the moment?
The S&P 500 Index continues to make new all-time highs but smaller companies have struggled somewhat recently. The unloved utility sector has seen resurgence this year as US Treasury yields have declined. The energy, telecommunications and consumer staples sectors have risen strongly since the end of March as investors have sought to switch out of other areas of the market that performed well in 2013. The US market is not cheap and therefore, despite better growth prospects, we remain neutral at present.
Europe ex UK Equity
As with the sector rotation in the US, Europe has seen a change in the market leadership between countries. The burst of enthusiasm for Italian equities following the appointment of Matteo Renzi as prime minister has dwindled recently with Spanish and French markets benefiting instead. The possibility of a weaker Euro going forward and of more action from the European Central Bank remain the likely catalysts for pushing corporate earnings higher. Should either occur, the operational gearing in European companies means that there is the potential for a large increase in profits. However, only 30% of the recent corporate earnings releases beat expectations and this falls to only 12% when looking at sales. Whilst the potential for rapid acceleration in corporate performance is there, we remain neutral in the absence of a catalyst as economic growth remains weak. In addition, the upcoming European elections may herald gains for parties seeking to counter European integration, which could reignite concerns about the future existence of the Eurozone.
The BoE’s recent Inflation Report pointed to continued improvement in the UK economy and indicated that it will remain supportive. Whilst labour productivity is still low, the recovery in spending has broadened to both the household and corporate sectors. Wages are beginning to grow faster and average earnings increases have overtaken the rate of inflation. Looking at equity market sectors, healthcare benefited from a bid for Astrazeneca by Pfizer at the end of April and the energy sector has seen stronger performance after a disappointing 2013.
We continue to believe that the recent events in Japan are only the start of a longer term recovery. Reform will take time to occur, particularly as it is likely to require something of a culture shift, but we see signs of this starting. The Bank of Japan has so far held back from increasing its quantitative easing program but any stuttering of the economy is likely to lead to further support. Perversely, we await negative economic data as a catalyst for further equity market strength, as was seen in the US equity market over the last 5 years.
Asia ex Japan Equity
The Indian equity market paused during April as the general election took place and investors awaited the outcome. Victory for Narendra Modi’s BJP party looks set to boost the market further but we believe most of the potential impact has already been taken into account given the equity market rally recently. Emerging Asian equities generally performed well led by the energy and utility sectors.
Emerging Markets ex Asia Equity
Eastern European equities fell during April as the situation in Ukraine threatened to escalate into civil war. Recent statements from Russia have helped to reduce the tension but the situation remains volatile. Latin American equities were broadly flat over last month but have performed strongly since the turn of the year as investors seek out better value opportunities.
What is the minimum that is required to invest with your investment house? What are the options?
A segregated (tailored) portfolio starts at $850,000 (£500,000), but we offer a range of ‘fund of funds’ for anything over $85,000 (£50,000), with US Dollar, Euro or GBP Sterling share classes. The funds also offer a monthly savings programme for the smaller investor, trying to build up their portfolio. There are three options; Growth, Balanced and income, depending on the clients risk profile.
For those UK residents living in Dubai, Singapore and other popular expat destinations, what are the benefits of investing from overseas?
Residence is the primary connecting factor in determining an individual’s liability to both UK income tax and also Capital Gains Tax. Broadly speaking, a non-UK resident would not be subject to UK tax on his foreign income, only his UK income as it arises in the UK. In determining an individual’s liability to Capital Gains Tax, where the asset is situated is generally irrelevant. The key determinant is the residence status of the individual. Except for certain exceptional circumstances (one of which is outlined below) if you are non-UK resident, you will not be subject to UK capital gains tax on the disposal of assets whether situated in the UK or abroad.
It follows that investing offshore whilst you are not UK-resident will potentially minimise exposure to UK taxation on income and gains. How beneficial this approach is for any individual will depend upon their own personal circumstances, the nature of the investment and their intended interaction with the UK.
Practically, an individual living abroad would also need to consider issues not just from a UK tax perspective, but also specific to the country upon which they were residing. That individual may decide to invest in other offshore areas such as Jersey or Guernsey dependent upon their own tax circumstances. Furthermore, specific anti-avoidance provisions are in place aimed at preventing short term non-residents from disposing of assets whilst outside of the UK in order to avoid UK taxation.
What are the options when they move back to the UK?
There are numerous planning opportunities that should be considered before an individual moves back to the UK. Individuals should consider reviewing and organizing their affairs efficiently. Firstly, individuals should consider from exactly which date they would be considered resident in the UK for UK tax purposes. This clarity is essential if any planning is to be undertaken.
Once an individual is resident in the UK they will generally be liable for tax on worldwide income as it arises. They will also normally be liable for capital gains tax on disposals of assets worldwide. Tax is on the gain arising from the date of acquisition and not from the date on which an individual becomes resident in the UK. It follows that a client could consider disposing of assets pregnant with gains prior to becoming resident in the UK to avoid UK capital gains tax. Similarly, individuals could considering deferring disposal of assets showing a loss until they are UK resident as the full loss is generally allowable to offset against UK gains in the year of arrival and, any losses not utilised, may be carried forward to offset against future gains. Clearly, there are many other non-taxation issues to consider when looking at such approaches.
Furthermore, the UK has a beneficial tax regime for individuals who are not domiciled in the UK. I outline brief details below:
Domicile is not a tax concept; it is a legal concept and essentially denotes the country or state that one considers to be their permanent home.
The fact that a person has not lived in their homeland for many years does not preclude them from being domiciled there provided they have an intention to return to live in that country.
UK resident and domiciled individuals are generally subject to UK tax on worldwide income and gains as they arise (‘the arising basis’)
UK resident but not domiciled individuals can elect to be taxed on a more favourable basis: (‘the remittance basis’).
This means that their UK sourced income and gains is taxed on an arising basis, but UK tax only applies to foreign income and gains to the extent that they are remitted to the UK. (enjoyed in or brought into the UK)
Historically this has been extremely beneficial for Non-UK domiciled individuals. Legislation introduced in 2008 tightened the definition of remittance and introduced a Remittance Basis Charge for longer term residents should they wish to continue claiming the remittance basis.
The charge is £30,000 for each tax year that a non-domiciled individual wishes to claim the remittance basis after they have been resident in the UK for 7 out of the previous 9 tax years. This charge is in addition to any tax due on funds actually remitted to the UK.
Individuals who have been resident in the UK for at least 12 of the previous 14 tax years will have to pay the charge at a higher rate of £50,000. Nevertheless, for clients with significant income and gains outside of the UK, the remittance basis of taxation can still be beneficial even with the charge for longer term residents.
Importantly, clients do not have to elect to claim the remittance basis. They have a choice each particular tax year and can choose which option (arising worldwide or remittance) is most appropriate for them.
Separately, domicile is the primary connecting factor relating to inheritance tax in the UK. Broadly if you are not domiciled in the UK you are only taxed to inheritance tax on assets situated in the UK.
Again there are provisions for longer term residents where they would be deemed to be domiciled in the UK solely for inheritance tax purposes after being resident for 17 out of 20 years.
These individuals require very specific planning advice prior to arriving in the UK to organise their affairs as they wish.
If parents are considering investing funds, what percentage of their assets could thy reasonably put forward to invest in a safe and balanced portfolio?
Depending on their age, income requirements and risk profile, we have a range of options which could cover most, if not all, of their investment needs.
What are your personal thoughts on the UK property market? What are the effects of CGT on non-UK residents? Does this apply to UK passport holders too?
It is proposed that Capital Gains Tax will be payable on disposals of UK property as from April 2015. This follows the recently introduced Annual Tax on Enveloped Dwellings (ATED) legislation which has been very successful in bringing in tax revenues above and beyond original expectations. Clearly the government is trying to leverage off the current worldwide appetite to own UK residential property. There are several points to make:
1. It is proposed that tax will apply “only to gains arising from that date”. There is a degree of ambiguity to this statement awaiting clarification.
2. Non-resident individuals owning (or treated as owning) UK residential property directly will be liable to CGT on gains realised on a disposal (subject to the availability of Principal Private Residence Relief (PPR)). PPR is a relief from CGT on the disposal of an individual’s only or main residence.
3. As far as we understand the nationality of the individual concerned will be irrelevant in determining the tax liability due.
The extent to which this will impact upon the property market is unknown. The changes will broadly align the UK with many other parts of the world. I would assume that there will remain many other non-taxation issues that would drive appetite for UK property investment over the coming years more so than this specific piece of legislation. We still have a shortage supply and London was the most visited capital city in the World last year.
For investors who are not UK residents or UK passport holders, what are their options with investing with your investment house?
Although we are a UK Wealth Manager we look after trusts, companies, charities and individual clients from all over the World. Offshore clients tend to use our Jersey nominee company for holding their assets. In addition we hold an SEC license so that we are able to look after US investors.
Tuesday, June 17, 2014