The Weekly - Till death do us part ... some advice for Meghan

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21/05/2018
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Whilst Donald Trump didn’t make it onto the guest list at Harry and Meghan’s wedding, he did have something to cheer about over the weekend.  The markets have opened strongly this week with the prospect of a trade war between the US and China diminishing following talks suggesting that not everyone was glued to the television.

Whilst Donald Trump didn’t make it onto the guest list at Harry and Meghan’s wedding, he did have something to cheer about over the weekend.  The markets have opened strongly this week with the prospect of a trade war between the US and China diminishing following talks suggesting that not everyone was glued to the television.

The US has a trade imbalance with China to the tune of $335 billion and it seems the US has persuaded China to buy $200 billion of US goods and services.  This should go some way to reducing the deficit, and it will also be seen as another victory for the Trump administration.  This should also benefit Americans living in the rust belt, where the majority of Trump’s support comes from.  However, we are still missing some of the finer details of this announcement, and the US has not completely discounted imposing tariffs. 

Nevertheless, the markets have certainly factored this in with the FTSE touching a new record high, and we are expecting continued strength from the US.  Given that many economists and analysts had quite rightly said a trade war would be disastrous for the global economy, including the US, Donald Trump certainly seems adept at snatching victories from the jaws of defeat.  He may have had no intention of imposing trade tariffs, in the hope that his words alone would get the desired result.  Whilst this is a high risk strategy it certainly seems to be effective for him, especially when it comes to foreign policy.  The risk is that at some point someone will call his bluff and, being the brash egotistical man he is, he will not want to lose face, even if it means ending up with egg on his.    

Prince Harry and Meghan Markle’s recent nuptials have got us thinking whether marriage makes financial sense, as opposed to just focusing on the romantic connotations.  Clearly, the girl has done well but according to the Office for National Statistics (ONS), the number of marriages between opposite-sex couples since 1935 to 2015 has been on a continuous downward trajectory.  Of course, everyone is familiar with the financial doom and gloom of divorces, whereby the only real winners are the lawyers.  Unfortunately, happy marriages are not newsworthy, so the perception of the financial implications of marriage are understandably negative and misunderstood.

While divorce rates are still fairly high, these too have been levelling off, with couples more likely to stay together past the seven year itch.  This does not suggest that people are more happily married, but again, the financial implications of unwinding an unhappy marriage means both parties are reluctant to do so, especially if there are children involved.  Buying an additional property for one spouse to move into, as well as other day-to-day living expenses often make divorce unaffordable in this day and age.

However, there are some obvious benefits of tying the knot, and over the course of a marriage, providing both parties do actually mean ‘till death do us part’ then the financial benefits can be significant, with many financial advisers believing the benefits can run into hundreds of thousands of pounds.

The government does incentivise marriage and civil partnerships in the form of the marriage allowance, which can save couples up to £238 per tax year.  This works by transferring part of the personal allowance from one spouse to another, providing the lower earner has an income of £11,850 or less.  Although this can only be utilised by basic and higher rate taxpayers, it is still a benefit worth taking, and one that can be backdated to include any tax year since 5 April 2015.

The benefits of the marriage allowance are limited for most people, and one that certainly Prince Harry and Meghan Markle won’t be able to benefit from, however there are other tax benefits that they, like many others, will be able to take advantage of.

When it comes to investments, these can be held in joint names in order to take advantage of both capital gains tax (CGT) allowances, which in the current tax year is £11,700.  While you are able to ‘gift’ assets and other investments to anyone, CGT is payable as this counts as a disposal if this is anyone other than your spouse.  This means a couple are able to make gains of £23,400 before paying any tax.

Income tax planning can also be undertaken.  This is especially useful if one spouse is a non-taxpayer or sits in a lower tax band than their partner.  Assets or investments that produce an income can be passed to the spouse in the lower band once both dividend allowances have been utilised, thus taking advantage of their personal allowance and even preserving your own personal allowance if your adjusted net income is close to £100,000 per year.

While ISAs are undoubtedly an individual savings tool, there are benefits when it comes to inheritance tax. This is because since 2015 spouses have been able to take advantage of the additional permitted subscription (APS). This is where an ISA could be effectively inherited by a surviving spouse or civil partner in the form of an increased ISA allowance.  Given that the current ISA allowance is £20,000 this means a significant amount of money can be saved tax efficiently over the course of a lifetime, and one that you are able to pass to your spouse on death.

We would strongly suggest Meghan Markle starts to save into an ISA.  Despite not being a citizen of the United Kingdom she is able to save into an ISA as she will have a UK address and a national insurance number.  However, what she will find slightly problematic is the fact that as a US person she is taxed on her citizenship as opposed to residency.  This means despite not being in the US, the US will tax her on her worldwide income.   As the US does not recognise an ISA as a tax wrapper, that means she will potentially be liable for US taxes within the ISA. The most useful financial advice someone could give to Meghan Markle would be to renounce her US citizenship, once she has become a UK subject.  The cost of doing so is $2,350 – a worthwhile investment when you consider the considerable benefits that will be bestowed upon her as a member of the royal family.  The IRS must be watching closely!

It is true that marriage is the most important decision of anyone’s life and getting it wrong can be a financial disaster, but for the hopeless romantics amongst us it can also be financially rewarding as well.    

FTSE 100 moves higher as Brent reaches $80

UK equity markets made gains during a quieter week of subdued volumes and mixed economic data. The FTSE 100’s eighth consecutive weekly gain, adding +0.7%, saw it extend its rally to +13% from its low. Overseas markets meanwhile had mixed fortunes over the course of the week; the S&P 500 losing -0.5%.

A significant rally in the price of oil has been one driver behind the recent outperformance of the commodity heavy FTSE 100 index. Crude oil prices have risen to a three-and-a-half-year high, driven by concerns over potential sanctions limiting Iranian supply along with continued production cuts in the Middle East. The primarily European Brent crude oil price surpassed $80 per barrel during the week but closed just +1.8% higher at $78.51, up some 21% over three months.

Currency markets also have a huge influence on many of the UK’s largest companies given the level of overseas revenue. The US Dollars recent appreciation continued last week, gaining a further +1.5% against the Euro and +0.6% against Sterling.

US data was light, Retail Sales being the most closely watched reading which undershot forecasts modestly. Upward revisions to previous months though ensured that any concerns were sufficiently countered and the Federal Reserve has little reason to amend their intentions for monetary tightening. Midweek the 10-year US treasury yield touched 3.11%, its highest level since 2011.

Expectations that the Bank of England may also raise interest rates at their next meeting were dampened by some slightly muted wage growth numbers in last week’s UK employment data. The Average Earnings Index fell twenty basis points to 2.6%. Excluding bonuses however, which can be volatile from month-to-month, showed a small pick-up in this month’s data.  The unemployment rate remained unchanged at 4.2%.

European equities made small gains in a week that saw initial estimates of Q1 economic growth and April’s inflation numbers reaffirmed with no change.  The French CAC 40 index climbed +1.3% whilst Germany’s DAX 30 added +0.6%.

The Week Ahead

This week is a particularly busy one for domestic news flow with plenty of central bank activity and data releases to monitor. On Tuesday, the Governor and several other members of the Bank of England’s MPC are testifying on inflation and the economic outlook before Parliament’s Treasury Committee. In terms of data, retail sales and the second estimate of Q1’18 GDP are due later in the week. However, the standout figure arrives on Wednesday in the form of CPI inflation for April. An unchanged rate of 2.5% is expected, however, surprises can’t be ruled out. Japanese focus this week will also be on inflation with the Bank of Japan publishing its preferred measure of core CPI in the early hours of tomorrow morning. Looking at the US, the latest durable goods orders figures are likely to gather plenty of attention as investors look for signals regarding production levels in the manufacturing sector. The housing sector is also back in focus with both new and existing home sales due before the close of play on Thursday. In the Eurozone, the flash readings of this month’s PMI data are out on Wednesday with economic activity expected to be little changed this time around. There is nothing of note out in China on this occasion.