Oh no, she won't.
by Doug Brodie
In this blog:
/1. Affordability: Demographic breakdown of the source of personal tax revenue
/2. Teach your children well – do you trust them?
/3. ETFs – active not passive so not what we thought
/4. Your pension money: spent on TV subscriptions perchance?
/5. Did you get confused by the nine months income comparison table?
/1. Affordability: Demographic breakdown of the source of personal tax revenue
In a quick summary, the top 10% of income earners have 33.7% of the income and pay 60.3% of all income tax.
/2. Teach your children well – do you trust them?
A sixty year old today, who dies at, say, age 88, will likely be looked after in those final weeks by a consultant who sat his GCE’s only last year. As we stepped up to our parents and grandparents, so our children will eventually get the keys to everything, including all the money and all the pensions. We hope we’ve taught them well as they will be looking after us.
On IHT, currently, we have the ability to gift assets to others where that gift/item/sum falls out of the IHT net after seven years (known as a Potentially Exempt Transfer). The ideal scenario is therefore to hand all the liquid assets over to the kids with the implicit understanding that the money/gift will be used to support us. It’s not that simple though, as the kids are still subject to the divorce, debt and fraud scenarios that we have been through, and that will always be a risk. A grandparent with a holiday home now more used by the adult kids, their friends and their own children might be suitable for being transferred. CGT remains an issue, even if the transfer is for no cash transaction (come on kids, get your cheque books out), but it’s something that might be worth considering. Pensions of course are brilliant for passing on – we say, “spend the house, pass on the pension”. Let’s see what happens in the budget.
/3. ETFs – active not passive so not what we thought.
There is a true-ism about passive index investing that it is never totally passive because someone has to choose the index and then how to replicate the index, how to package the investment in regards to tax and domicile, and how it should be charged.
Most ETFs tracking the FTSE All Share do not actually hold all 2,200-odd shares, they replicate the index, trying to pick a few shares whose combined performance is representative of the index. Who chooses those shares?
Wisdom Tree is a key player: ETFs are particularly tax efficient in the US hence their prevalence. ETFs provided a tax efficient package plus index investing at the same time so it’s simple to see why the two aspects were conflated. Active don’t track the index, so by default active ETFs seem the only way to invest in an ETF with the potential to outperform the market. However, that’s not strictly true as passive trackers can be designed to perform in a systematic manner with the potential to outperform (ie large cap tech ETFs).
Active ETFs are simply the same ETF wrapper, however with cherry-picked stocks. Aren’t all stocks/indices subject to selection by someone? You may see marketing hype about active ETFs, particularly in the investment pages, however that’s because you are the product – they want your money. In truth, as Wisdom Tree says “stock-picking strategies in an ETF wrapper are just old wine in a new skin”.
/4. Your pension money: spent on TV subscriptions perchance?
From Deloitte:
England pays the same amount of money in football broadcast costs as Germany, Italy and France combined. That money comes from your subscriptions somewhere along the line, however, 6 of the top 10 most valuable clubs in the world are English, and the top is Manchester United, probably due to its massive 1.1 billion fans and followers who mainly switched on during the Ferguson era from 1986-2013.
Despite a NYSE listing since 2012, a $6.55 billion valuation and revenue of c$936 billion last year it has not made a profit since 2020. Last year its broadcasting rights revenue was £222 million, that itself was dwarfed by its commercial revenue of £301 million. Employee expenses last year were £365 million – a simple £1 million per day, with their Brazilian midfielder Casemiro on £18.2m per year. That’s the cost of 478 teachers. I wonder if we wonder where we spend our pension money?
/5. Did you get confused by the nine months income comparison table?
The table in the investing shorts blog from a couple of weeks back clearly caused some spluttering over the cornflakes, and we did get some querying calls. Apologies, I should have added a warning. The table was put together for the trade media – straight after summer they are often short of content so we provide items that they can choose to plug some of their pages – not big important stuff, and who would ever consider the nine-month income record?
A little bit of knowledge is a dangerous thing: quarterly income is paid at different months, and no investment trust I know runs a Dec 31 year end, so there is always a difference between the calendar dividend record and the financial year. When ‘consistent increase’ tables are put together it is always on a financial year basis – the same as any company, however, those figures are then shoehorned into calendar periods.
Next, a dividend payment from someone like Temple Bar is paid at the end of December: this means if the payment date collides with a procession of year end bank holidays the Dec dividend can actually be paid at the start of January – that leaves the preceding year ‘showing’ a fall in payment, and the following year showing a spike. We smooth out these figures as the dates can cause misleading charts. Next, we get specials: these are one off, exceptional dividends that either the result of a special, high receipt, or it is because the overall income was so high in that year that to abide by the minimum 85% payout rule an extra sum has to paid.
All these items affect the records of the trusts, and these we track, monitor and check.