Savings & Investments

Investing in ESG benefits

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In this video we take into consideration the social and governance impact of ESG investing. We explore people and relationships, human rights, labour standards, employee engagement and gender and diversity and align them with the United Nations Sustainable Development Goals.

Are you interested in sustainable investment funds?

If you want to find out more about ESG investing or our sustainable investment funds, please get in touch and speak to one of our ESG investment Advisors.

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Environmental, Social & Governance

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Over the past few decades, there has been a growing interest and awareness in investing in companies that take into account environmental, social and governance (ESG) factors.

This type of investing – also known as sustainable, responsible or impact investing – aims to generate both financial returns and positive social and environmental impacts.

Sustainable investment funds

The origins of ESG investing can be traced back to the 1960s, but it was in the 1970s that the environmental movement gained momentum, with investors increasingly calling on companies to address issues such as pollution and resource depletion. And in the 1990s, corporate governance came into the spotlight following a series of high-profile corporate scandals.

ESG investing has its roots in the field of responsible investing (RI), which emerged as a response to growing concerns about the negative social and environmental impacts of businesses. RI investing initially focused on screening out companies with poor ESG records from investment portfolios.

Corporate behaviour

Over time, RI evolved into a more proactive approach that seeks to engage with companies on issues related to their ESG performance and influence corporate behaviour for positive change. This is often referred to as ‘active ownership’ or ‘impact investing’.

Today, ESG investing is a mainstream investment strategy used by institutional investors and individual investors alike. In fact, one in six investor respondents to a global responsible investing survey are committed to aligning their portfolios to net zero, with a further 42% intending to align their investment portfolios to net zero before 2050[1].

Responsible investments

While debate continues about whether doing well (financially) and doing good (morally) need not be mutually exclusive, the survey finds that more than two-thirds (69%) of respondents with exposure to responsible investments are satisfied or very satisfied with their returns to date.

Increasingly, investors are also reflecting more on what it means to be ‘responsible’. Specifically, many are actively considering what impact their investment approach can have on society and the environment. The survey identified one of the main reasons for including responsible investments in portfolios is the perception that they will lead to better risk adjusted returns when compared to ‘traditional’ investments.

Personal values

Investors’ concerns around major ESG issues continue to rise, and many are in the process of addressing at least some of these in their investment strategies. For some, it’s simply a matter of aligning their investments with their personal values.

Others believe that companies that manage ESG risks well are likely to be more financially successful over the long term. And still others see ESG investing as a way to generate positive social and environmental impacts.

How can you mix in ESG into your portfolio?

Climate change, demographics, biodiversity and the need for social justice are at the top of the agenda for many investors. The world of investment is catching up. An increasing number of funds now boast of their ESG credentials. If you would like to discuss how this could form part of your portfolio, please contact one of our ESG investment advisors for more information.

Important information: The value of your investments can go down as well as up and you may get back less than you invested.

Source data: [1] Aon’s Global Perspectives on Responsible Investing Report January 2022.

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Taxing Times

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Time for a tax health check?

With the current tax year having begun on 6 April 2022, the clock is ticking and it is important to utilise all the tax reliefs and allowances available to you before 5 April 2023 in order to minimise any potential liabilities.

Personal tax planning should be at the top of your agenda as the end of the current tax year is not too far away. Taking action now may give you the opportunity to take advantage of any remaining reliefs, allowances and exemptions.

At the same time, you should be considering whether there are any planning opportunities that you need to consider either for this tax year or for your long-term future. We’ve listed a few reminders of the issues you may want to consider as worthy of including in your 2022/23 tax health check to-do list.

Some key things you might need to action before the tax year end

1. Personal reliefs

Married couples should consider utilising each person’s personal reliefs, as well as their starting and basic rate tax bands. Could you make gifts of income-producing assets (which must be outright and unconditional) to distribute income more evenly between you both?

2. Salary sacrifice

This is an especially tax-efficient way for you to make pension contributions, to save and reduce your Income Tax and National Insurance.
Have you considered exchanging part of your salary for payments into an approved share scheme or additional pension contributions?

3. Pensions annual allowance

Unless you are an additional rate taxpayer or have already accessed pension benefits then you are entitled to make up to £40,000 of pension contributions per tax year. Have you fully utilised your tax-efficient contributions for this tax year or any unused allowances from the three previous tax years?

4. Stakeholder pensions

A stakeholder pension is available to any United Kingdom resident under the age of 75. Children can also make annual net contributions of £2,880 per year, making the gross amount £3,600 regardless of any earnings. It is also a very beneficial way of giving children or grandchildren a helping hand for the future. Is this an option you or a family member should be utilising?

5. Large pension funds

The Pension Lifetime Allowance (LTA) is currently £1,073,100 and has been frozen at this level until the 2025/26 tax year. The maximum you can pay in is £40,000 per annum unless you pay tax at 45% in which case the annual limit could be as low as £4,000. Inflationary increases by the end of the current tax year could also have an impact on your pension funds. Do you have a plan in place to protect your money from this?

6. Pension drawdown

If your are 55 or over you could access 25% tax-free cash from your Defined Contribution (also known as Money Purchase) pension pots and invest the rest. However, drawing large amounts in one tax year can lead to a larger tax bill than if spread over a longer period. Do you know the implications of taking money out of your pension pots?

7. Passing on your pension

Usually called a ‘spousal by-pass trust’, although the recipient may not always be a spouse, this is a discretionary trust set up by the pension scheme member or pension holder to receive pension death benefits. Are your pension death benefits written in trust?

8. Individual Savings Accounts (ISAs)

An ISA allows you to save and invest tax-efficiently into a cash savings or investment account. The proceeds are shielded from Income Tax,
tax on dividends and Capital Gains Tax. The government puts a cap on how much you can put into your ISA or ISAs in any tax year (from 6 April to 5 April). The ISA allowance for 2022/23 is set at £20,000. Have you fully utilised the maximum annual allowance?

9. Junior ISAs

This is a long-term tax-efficient savings account set up by a parent or guardian, specifically for the child’s future. Only the child can access the money, and only once they turn 18. Have you invested the maximum £9,000 allowance for your child or children?

10. Lifetime ISAs (LISAs)

The Lifetime ISA (LISA) is a tax-efficient savings or investments account designed to help those aged 18 to 39 at the time of opening to buy their first home or save for retirement. The government will provide a 25% bonus on the money invested, up to a maximum of £1,000 per year. You can save up to £4,000 a year, and can continue to pay into it until you reach age 50. Could you be taking advantage of this very tax-efficient option?

11. Capital Gains Tax (CGT)

There are two different rates of CGT – one for property and one for other assets. If your assets are owned jointly with another person, you could use both of your allowances, which can effectively double the amount you can make before CGT is payable. If you are married or in a registered civil partnership, you are free to transfer assets to each other without any CGT being charged. It is currently £12,300 but will be reduced to £6,000 from 6 April 2023 and £3,000 from 6 April 2024. Have you fully used your current £12,300 annual exemption?

12. Inheritance Tax (IHT) relief

IHT must be paid on the value of any estate above £325,000, or up to £1 million for married couples including the residence nil-rate band). However, certain business assets, including some types of shares and farmland, in private trading companies can qualify for 100% relief from IHT. The government has frozen the IHT thresholds for two more years to April 2028. Are you taking advantage of the reliefs available to you?

13. Residence nil-rate band (RNRB)

This allowance was introduced during the 2017/18 tax year and is available when a main residence is passed on death to a direct descendant. The allowance is currently £175,000. When combined with the nil-rate band of £325,000, this provides a total IHT exemption of £500,000 per person, or £1 million per married couple. If you are planning to give away your home to your children or grandchildren (including adopted, foster and stepchildren) the RNRB must be claimed. There is a form for this purpose – IHT435. The form is available on the Gov.uk website. If applicable, have you applied for the RNRB?

14. Charitable and personal gifts

If you leave at least 10% of your net estate to charity a reduced inheritance rate of 36% applies rather than the usual 40%. Other exemptions apply for inter-spousal transfers, transfers of unused annual income, business and agricultural assets, and for various other fixed, small amounts. Are you intending to make gifts before the end of the current tax year?

15. Trust funds

These help protect your assets and guarantee that your loved ones have financial stability for their future. Crucially, a trust can help to avoid IHT and ensure that the majority of your money, shares and equity are passed on in the most efficient way. Should you consider setting up a trust? Future legislation could potentially result in changes to tax law, which could in turn require adjustments to your plans.

Want to talk about a tax health check?

We hope you find this checklist useful, but please bear in mind that this only provides a summary of the options available and not all options will be suitable for everyone. Therefore, for more information in respect of the ideas outlined, please contact us.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The value of your investments can go down as well as up and you may get back less than you invested. The financial conduct authority does not regulate taxation and trust advice. Trusts are a highly complex area of financial planning.

 

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Asset Allocation

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What is asset allocation and diversification?

Asset allocation involves diversifying your investments among different assets, such as equities, bonds, property and cash. Asset allocation may change depending on what works for you based on your financial goals and your ability to tolerate risk.

  • Cash: Cash equivalents and other forms of money can be easily accessed at any time.
  • Equities: Purchasing shares on the stock market, typically traded on the Stock Exchange.
  • Bonds: A fixed-income product representing a loan made by an investor, typically corporate or governmental, for a fixed period.
  • Property: Buying properties intending to make money e.g. rental income or selling a property.

When building our portfolios, we consider all the economic and technical market conditions that influence our exposures to the main asset classes of Ellis equities, bonds, property and cash.

We screen and choose all our funds, not just our Socially Responsible Investment portfolios, against a range of Environmental, Social and Governance (ESG) factors so you can see the impact your investments are having.

Read more on our screening process for sustainable investment funds.

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COP27

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By Kim Holding, Portfolio Manager

On 6 November, the 27th Conference of the Parties (the name given to the United Nations’ annual climate change conferences) began. Hosted this year by Egypt, COP is an important platform for nations to discuss and reach consensus on how to protect the world in terms of environmental issues. This year’s summit is expected to be a crucial point in the fight against climate change, as it seeks renewed solidarity between countries to deliver on their previously agreed pledges. Further, due to the scale of its potential impact, climate change takes a global effort so coordinated action is crucial.

Environmental issues have been at the centre of society’s concerns since the 1980s following disasters such as Chernobyl and the Exxon Valdez oil spill. In more recent years, climate change has been rising up public agendas. Further pressure to take action came in 2021 when the Intergovernmental Panel on Climate Change (IPCC) reported that unsustainable human behaviours (such as burning fossil fuels) have caused global temperatures to increase by 1.2°C since the 1850s, which is worryingly close to the globally agreed target of 1.5°C. According to the IPCC, this rise has damaged our planet in unprecedented ways which is, in turn, disrupting food and fresh water supplies, significantly impacting on our health and wellbeing, and putting life (both on land and at sea) at risk; and, further, that some of these effects are ‘irreversible’. Temperatures are expected to continue to rise, unless those unsustainable behaviours are addressed and greenhouse gas emissions are significantly reduced.

That said, temperature rises are not uniform across the globe, with some locations warming faster than others. Scientific research indicates that several of the world’s developing regions are contributing less to climate change, yet they are more vulnerable to its impacts, and in this regard they will continue to face much greater risks in the years ahead. One of the most widely publicised examples of 2022 is Pakistan which, following torrential monsoon rains over the summer, experienced the most severe flooding in its modern history, washing away villages and affecting millions of people; yet the country contributes less than 1% of the global carbon footprint. Another example is Africa, where large parts of Ethiopia, north-eastern Kenya and Somalia are currently facing their worst droughts for over four decades, yet the continent accounts for only 3-4% of global greenhouse gases. In contrast, approximately a quarter of emissions come from China, followed by about 12% from the US.

This non-uniformity of temperature rises is expected to be a key focal point at COP27 where world leaders, some of the world’s most influential businesses, environmental and faith groups, policymakers and think tanks are in attendance. While China, among other high-emitting countries, will not be at the summit, they – along with the US and other rich nations – are being urged to increase their financial aid to poorer countries. In doing so, this will allow the latter to deal with the impacts of climate change – for example, to establish green energy systems (to cut their own greenhouse gas emissions) and to improve their infrastructure (so they may adapt to hotter conditions).

This all comes at a time, though, when Russia’s invasion of Ukraine is putting increased economic strains on developed countries. That said, according to the International Monetary Fund (IMF) in its October assessment of the world economy, a timely and credible green transition is not only critical for our planet’s future but will also help macroeconomic stability, since the relinquishment by nations of their reliance on Russia’s fossil fuels will enable a quick transition to clean energy, simultaneously putting them more in control of their own destiny with regard to energy prices. Thus, COP27 could represent a historic turning point in the global energy crisis and in the fight against climate change.

Companies demonstrating poor practices – whether they are damaging to the environment, have poor human rights records, or are poorly managed – are more likely to fail and won’t be around in years to come, so from an investment perspective, diligent investors simply will not look to invest. For this reason, we incorporate environmental, social and governance (ESG) considerations across all our portfolios, and SRI has always formed a fundamental part of our investment process. Our SRI portfolios provide our clients with a more targeted approach in tackling the world’s challenges, and every fund we hold must demonstrate that a socially responsible investment culture is intrinsic to their approach.

For more information on our SRI portfolios, visit our Socially Responsible Investing page at https://www.ellisbates.com/socially-responsible-investing/.

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Investments with Ellis Bates

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We put you, and what you want your money to achieve, at the very heart of everything we do. The Ellis Bates advantage for you is that our expert Investment team are in-house and work hand in hand with your Financial Adviser on a daily basis.

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Advantages & Disadvantages of ISAs

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ISAs are a type of savings plan where you can pay in lump sums and/or regular contributions. There are both advantages and disadvantages to having an ISA.

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Types of ISA

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In this session we talk about Individual Savings Accounts (ISAs) and how they encourage saving and investing in a tax efficient way.

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What is an ISA and how do they benefit me?

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Individual Savings Accounts (ISAs) aim to encourage UK residents to plan for their financial future by saving and investing in a tax efficient way.

What is a Cash ISA?

A cash ISA works mainly like a traditional savings account. You can open a cash ISA if you are a UK resident aged 16 or over and it allows you to save money and pays you interest. However, when you hold a cash ISA you do not pay any tax on interest you earn. With a bank or building society account you pay income tax on earnings exceeding £1,000.

Why open a Cash ISA?

Paying into a Cash ISA is often seen as the safest option as your savings aren’t subject to the ups and downs of the investment markets. You typically get an income and easy access to your money. However, an important factor to consider is the effect of inflation on your savings over time. With interest rates being so very low, the purchasing power of your money in real terms will decline over time.

What is a Stocks and Shares ISA?

With a Stocks and Shares ISA, your money is invested in assets such as shares, bonds, property and commodities. As the investment is tax privileged no tax is applied on capital gains you make or income such as interest and dividends you earn. You can keep everything you earn from your investment after all management charges.

You can pay into a stocks and shares ISA if you are a UK resident aged 18 or over.

What are the risks of a Stocks and Shares ISA?

Holding a Stocks and Shares ISA does present some risk since there is no guaranteed return and the value of your investment could go down. However, it also gives you the chance to earn higher returns than you could expect from cash savings.

One way to mitigate your risk is by remaining invested over the long term as this typically helps you smooth out the ups and downs of the market and gives your money time to benefit from the power of compounding.

What is a Lifetime ISA?

Paying into a lifetime ISA allows you to save for your first home or your retirement and you don’t have to pay any tax on income you receive, nor capital gains tax. With this type of ISA, you will receive a 25% uplift on any amount you put in, up to a maximum uplift of £1,000 per year. This bonus is given every month and you’ll then receive interest or potential investment growth arising.

Opting for a lifetime ISA means you’ll hold cash or investments or a combination of both.

Lifetime ISAs come with many rules, for example:

  • You must be at least 18 years of age but under 40 to start a lifetime ISA.
  • The maximum you can put in each year is £4,000.
  • You can contribute until your 50th
  • If you intend to purchase a house you must be a first-time buyer, meaning you have never owned a property in the UK, and the house you wish to buy must cost £450,000 or less.

What is a Junior ISA?

A Junior ISA allows you to give your children a head start in life. You can open a Junior ISA for your child at any time as long as they are under 18, live in the UK and don’t already have a child trust fund. The amount you can put into your child’s Junior ISA each tax year is limited to £9,000.

When looking to open a Junior ISA you can choose to pay into a Junior Cash ISA, a Junior Stocks and Shares ISA, or both, as long you don’t go over your child’s annual allowance.

As with any investment, it is wise to get professional advice to ensure your investment strategy is in line with your personal risk tolerance and that the type of investment is appropriate to meet your personal needs and objectives.

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Recession-proof your Finances

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10 practical steps to ensure your money is working hard for you

In these uncertain times, it’s more important than ever to make sure your finances are in order. The Bank of England believes that a painful squeeze on our living standards, driven primarily by soaring energy prices, is set to intensify and will push the UK economy into recession later this year.[1]

Making your finances recession-proof is all about taking practical steps to ensure your money is working hard for you. It is vital to be completely honest with yourself about your financial situation.

By conducting a thorough audit of your finances and gaining a comprehensive understanding of all your incomes and outgoings, this will show you exactly where your cash is going and, most importantly, help you identify problematic spending behaviour.

Here are 10 tops to help you recession proof your finances:

1. Make a budget and stick to it

This will help you keep track of your spending and ensure that you’re not overspending.

2. Save, save, save!

Try to put away as much money as you can into a savings account so that you have a cushion in case of tough times.

3. Invest in yourself

Take the time to learn new skills or improve upon existing ones. This will make you more valuable in the job market if you need to make a job or career change.

4. Remove any unnecessary payments

Look at your bank account and remove any pain-free direct debits. Consider if you’re currently paying for things you don’t really need, for example, subscriptions.

5. Time to switch

Look at energy tariffs, home insurance, car insurance, broadband, TV package, mobile tariff – now might be a good time to switch.

6. Stay disciplined with your debt

Make sure you’re making all of your payments on time and in full. This will help you avoid costly late fees and keep your credit in good shape.

7. Pay off high interest

Prioritise any high-interest debt, such as credit card debt, freeing up more money in your budget to cover other expenses if your income decreases.

8. Have an emergency fund

This is a must in case you lose your job or have any unexpected expenses. Try to save up at least between three to six months’ worth of living expenses so that your expenditure is covered.

9. Diversify your income

Don’t put all your eggs in one basket. Having multiple streams of income can really help. If one income source starts to dwindle – or gets eliminated completely – this will provide other sources to fall back on.

10. Diversify your investments

In addition to diversifying your income, it’s also important to diversify your investments. Review your investment portfolio and make sure your investments are spread across different industries and even different types of asset classes.

Secure your financial future

Following these tips will help you secure your financial future and protect yourself from the effects of rising inflation and the cost of living crisis. If you would like to find out more or to discuss your situation, please contact us.

Source data: [1] https://www.bankofengland.co.uk/monetarypolicy-report/2022/may-2022

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