PWM Insights - Issue 2 2022

pwm insights edition two

Inside...

Tax: Could paying it be optional?

Should you continue to invest in bonds?

Why overseas property can be a good investment

2022

PAGE TWELVE

Why overseas property can be a good investment

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Contents 04 Welcome David Stoll, Senior Partner, Partners Wealth Management (PWM)

06 Tax: Could paying it be optional?

James Roberts, Managing Partner, PWM

08 Should you continue to invest in bonds?

Jeff Keen, Director, Head of Fixed Income, Waverton Investment Management

12 Why overseas property can be a good investment Mike Braunholtz, CEO, Prestige Property Group

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PWM Insights

Edition Two

Welcome David Stoll Senior Partner, PWM

Welcome to the latest issue of PWM Insights, our quarterly magazine.

In this edition, we aim to give you an insight into how PWM is supporting the broader community through its charitable efforts.

There is no doubt that we are currently living in unprecedented times, where we have experienced a global pandemic that has now lasted for more than two years, and more recently, borne witness to a tremendous humanitarian crisis in the shape of the Russia, Ukraine conflict. Now, more than ever, it seems appropriate to turn our attention to charities, and applaud them for their efforts in supporting many important causes.

At PWM, we strongly encourage and actively take part in various fundraising initiatives, and often give our colleagues the opportunity to choose the charities they would like to support. For our main focus over the last few years, we committed to Barts Health Violence Reduction Service, a charity founded by Dr. Martin Griffiths, a consultant trauma surgeon, to hopefully make a real difference to the lives of young people affected by violent crime in London. We were delighted to have raised, through various events and the kindness of our clients over £64,000 for this charity.

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We strongly encourage and actively take part in various fundraising initiatives, and often give our colleagues the opportunity to choose the charities they would like to support.”

Alongside this more significant fundraising, we’ve also supported many other charities with a whole variety of good causes, many selected by members of the PWM team and also via personal sponsorship.

The actual fundraising is clearly the main purpose, but so is the inclusion. Members of the PWM team have taken part in many different events, directly for and in partnership with the charities, for example, the Three Peaks Challenge, decorating a hospital ward, a 105-mile cycling challenge, giving blood, skydiving and quizzes!

Now part of the 7IM Group, we have also decided to work with 7IM’s supporting charities and charitable projects. The programme, ‘7IM Gives Back’, is committed to helping national and local causes with the aim of reducing inequality. It has been designed to support various charities, which we also wish to align with, and pledges to match any donations arising from the fundraising efforts of the team by a total of £20,000 a year.

This offers our team the opportunity to greater support a wide range of charities that are close to all our hearts.

As we look ahead into 2022 and beyond, we hope to introduce more volunteering opportunities, allowing the team to continue to engage and support national causes and the local community, alongside running a number of selected fundraising initiatives.

For our clients, we advise on charitable gifting within the wider topic of personal estate planning and can also assist with the establishment of appropriate structures, such as Charitable Trusts and Donor Advised Funds.

If you have any questions about our charity initiatives or on any of the topics covered here, please reach out to your contact at PWM. The PWM team and I hope you enjoy the second issue of our rebranded Insights magazine.

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PWM Insights

Edition Two

Tax: Could paying it be optional?

James Roberts Managing Partner, PWM

The UK government now levies the highest tax rate as a proportion of GDP since the post WW2 Labour party created the universal Welfare State. Obviously, the payment of tax is not optional – or is it?

There are a number of simple strategies which can be undertaken to legitimately reduce the amount of tax you are required to pay. Without the right tax strategy in place, your capital can be eroded very quickly.

We call it our Tax Optimisation Strategy and it is no exaggeration to state that following it has saved our clients tens of millions of pounds over the years.

How you structure your investments can result in a tax differential from 0% to a 64% marginal rate of tax, allowing significant savings to be made.

As financial advisers, we take our client’s individual requirements into consideration, creating bespoke solutions with portfolios that will grow in the long term, while incurring the minimum amount of tax. However, while each strategy is tailored from a starting point for individuals, common themes will emerge:

1 Pension allowances are one of the most tax-efficient and flexible allowances available in the financial planning process. While they carry upsides thanks to their tax relief, pensions also come with numerous pitfalls as a result of adding further complexity into the pension space, where additional layers have been introduced over several years. At their most efficient, pensions can lower your income tax by 64%, and at their most inefficient they can see you pay tax at 55%. Our experienced advisers are trained to establish how and where you sit amongst this spread and advise you and action accordingly.

an average of 6% growth. Now, if we do a couple of calculations, we can establish that a couple saving £40,000 per year, at 6% growth per annum, would have saved over £1.7 million over a 20-year period, and not be liable to pay any tax on dividends or capital gains tax.

The Junior Individual Savings Account (JISA) scheme has an annual tax-free saving allowance of £9,000, which can be opened for any child under 18, born on or after 3 January 2011. If parents were saving £9,000 per year into a JISA, by the time their child reaches 18 they could have potentially saved approximately £326,000. This sum would cover the child’s educational fees and potentially a deposit for their first property.

2 Individual Savings Accounts (ISAs) are a tax-efficient savings vehicles, with a £20,000 allowance per year. If there are two people in your household taking advantage and maximising their ISA allowances, this is a benefit from £40,000 of allowances each year, achieving

3 Few people realise that Capital Gains Allowances Tax (CGT) and dividend allowances work in conjunction to enable tax-free growth on amounts above ISA limits. Your CGT allowance is £12,300 per annum, so a couple

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Please note that this article is intended for educational purposes only and should not be taken as investment advice. You must be aware that the value of your investments may go up and down and you could receive back less than you originally invested. Tax rules are subject to change and taxation will vary depending on individual circumstances. Please consult a financial adviser before making any investment decisions.

EIS and VCT’s are investments that carry a higher degree of risk so it is important that you consult a financial planner before investing.

can make £24,600 in gains per annum and incur no tax. That is a portfolio of around £400,000 for a couple, if growth is 6%. At the same time the first £2,000 of dividends an individual receives is tax free, so that same portfolio would pay no dividend tax if the yield were 1%.

4 The final strategy is to consider the differential between your tax rate now and you/your partner’s in retirement. If you are a higher rate taxpayer and have an expectation of being a basic rate taxpayer in retirement, then using an offshore bond can be helpful. Monies within a bond compound gross, with no tax realised on gains, at the point of return growth is liable to income tax, meaning one can benefit from growth on the tax they would have paid in realisations and dividends.

In addition, you can draw your original capital first at up to 5% per annum, allowing even more time for growth to compound tax free.

Some advisers suggest using allowances such as the 30% income tax relief on Venture Capital Trusts or Enterprise Initiative Schemes as ways of growing tax optimally. While they can have a place, they distort the risk as you are obtaining tax relief for risk of investing in very small businesses. Unlike these schemes, the four allowances above allow you to organise your entire investment wealth, no matter how it is invested, into four easy to control pots that will minimize the tax you pay as you secure the wealth you have created for retirement or for future generations.

Get in touch To find out how PWM’s Tax Optimisation Strategy can help you, please contact your usual Partners Wealth Management adviser, or contact us on info@ partnerswealthmanagement.co.uk or 020 7444 4030 for an initial conversation.

How we can help At Partners Wealth Management, we passionately believe that a good tax planning strategy will generally encompass the use of a variety of different financial products, savings options, investment strategies and retirement plans. To support this belief, we developed our Tax Optimisation Strategy. Our aim is to structure your assets to mitigate your tax burden while maximising your overall return.

We will help you plan your wealth throughout your lifetime, ensuring that you fully utilise the tax-free allowances and tax breaks available. We monitor proposed or published legislation and help you seize opportunity and minimize threats. Our ultimate aim is to deliver you a retirement where multiple income sources are drawn upon. For many clients, single digit tax is paid on the first £100,000 drawn each year.

Paying tax may not be optional, but your tax rate certainly is.

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PWM Insights

Edition Two

Should you continue to invest in bonds?

Jeff Keen Director, Head of Fixed Income Waverton Investment Management

With yields so low (and seemingly set to rise), inflation so high, and central banks turning more hawkish, it seems that the risks in fixed income are asymmetric.

Meanwhile, there seems to be a promising opportunity set in alternative assets.

Real assets tend to have favourable characteristics in an inflationary environment, and absolute return assets seek to provide a portfolio with steady, reliable gains, fulfilling a role that bonds are often assigned. Due to these factors, we are currently overweight alternatives and underweight fixed income, but there is a valid question: why hold any bonds at all?

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“ Despite feeling that the outlook for bond returns is challenging, we feel that they can still offer significant benefits in a balanced portfolio.

Firstly, they offer diversification.

There is a lot of discussion over whether the correlation between bonds and equities will remain negative – research in our Global Outlook publication suggests that elevated core inflation is associated with a switch to a positive correlation – but no one assumes that the correlation is +1. As the saying goes: diversification is the only free lunch in finance.

Secondly, the negative correlation that has existed is not a given, but most of the time the correlation is not of huge importance – it is nice to have, but there have been periods of history with a positive correlation before, and there likely will be again. When the negative correlation does tend to matter is in times of stress. Thus far, the risk-off aspect of bonds has held up – it has managed to reduce portfolio damage when equities are in trouble.

Real assets tend to have favourable characteristics in an inflationary environment.”

Thirdly, on all but the most exceptional days, bond volatility is significantly lower than that of equities (and most other asset classes). Holding bonds can therefore act as a ballast that allows one to invest in other more volatile areas – with potentially higher returns – while keeping the portfolio variance within an acceptable range.

Fourthly, they have the additional benefit of allowing relatively low risk exposure to different currencies. If a foreign bond were to lose, say 5%, but the currency to strengthen by 10%, then this would still be a profitable trade. There are perhaps other, preferred ways to gain currency exposure, via derivatives or other asset classes, but bonds can be an option.

Concerns over finding a buyer for government bonds are also potentially overstated, though of course it is the marginal buyer that sets the price. There are a number of parties who are, as things stand, essentially forced into owning government bonds.

Banks need sufficient high-quality collateral, pension funds need to match their liabilities, and some fund managers are required to own bonds to meet their clients' mandates. >>

The views and opinions expressed are the views of Waverton Investment Management Limited and are subject to change based on market and other conditions.

The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security.

All material(s) have been obtained from sources believed to be reliable, but its accuracy is not guaranteed.

There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.

Changes in rates of exchange may have an adverse effect on the value, price or income of an investment. Past performance is no guarantee of future results and the value of such investments and their strategies may fall as well as rise. Capital security is not guaranteed.

Derivative instruments can be utilised for the management of investment risk and some of these products may be unsuitable for investors.

Different instruments involve different levels of exposure to risk.

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Edition Two

Should you continue to invest in bonds?

Continued

Waverton Global Strategic Bond Fund performance 160

150

JPM GBI Broad (USD Unhedged) JPM 1M US Cash

140

Waverton Global Strategic Bond Fund A USD

Return

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110

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90

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80

Source: Waverton Multi-Asset Team, March 2022

This article has been provided by Waverton Investment Management. This insight presents their views and underlines their asset and investment methodology.

Part of the appeal of fixed income is in the name: the income is fixed. So long as you are confident that the issuer won't default, either partially or in full, then you know what you will be paid and when. If you own a gilt and hold it to maturity, then you can be confident that you will be paid the expected number of pounds. If the yield fluctuates along the way, the market value will move, but these gains or losses are not realised, and the amount received is the amount expected. Some investors still believe that this certainty is worth paying for.

Despite our underweight recommendation for bonds, and the potentially difficult outlook for the asset class, we believe that exposure to an active fund, can be a boost to a portfolio. Active exposure can, when done well, mitigate some of the concerns associated with fixed income investments currently.

Waverton's bond funds seek to invest in bonds in an intelligent way, not just manually replicating an index as many funds do.

For forty-years, a buy-and-hold strategy has worked well in bonds, but now successful

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funds need to be active, flexible, nimble, and opportunistic. The Waverton funds seek to follow these principles, there are still good, profitable bonds to buy.

Within the Waverton funds they look to supplement the core of the portfolio (which is currently made up of long-duration government and short-duration credit exposure) with a sophisticated tail-hedging strategy. This is something most bond funds lack, and something beneficial to have, especially given that there are currently material tail risks in the global economy.

With the deck stacked as it is, it's not surprising that bonds have been maligned, but this is to tar the whole asset class with the same brush. Passive, index tracking bond funds may be a risky proposition, but wellmanaged, active funds, such as those at Waverton, still have plenty to offer. You can still make money with bonds and a good bond fund can be a very useful addition to your portfolio.

About Waverton Investment Management Waverton is an award-winning, independent investment management house dedicated to creating high-quality investment solutions and providing bespoke, personal service for private clients, advisers, charities, and institutions.

Our focus is on generating attractive real returns for our clients over the long term, using an active, flexible approach through segregated portfolios or specialist funds. We attach huge importance to investing in what we believe to be the best ideas worldwide, be that in stocks, funds, fixed interest or alternative asset classes. All our decisions are based on rigorous in-house analysis and our research team conducts around 1,000 company meetings a year, both in the UK and overseas. Environmental, social and governance principles are embedded throughout our investment process and we actively engage with company management, voting on our largest shareholdings to encourage positive change.

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Edition Two

Why overseas property can be a good investment

Mike Braunholtz CEO, Prestige Property Group

Prestige Property Group has been marketing properties internationally since 1997, connecting discerning buyers and sellers of premium real estate in the most desirable locations in the world.

We are currently marketing over 10,000 properties in France, Spain, Portugal, Italy and many other locations. Our business and the actual market itself have both been transformed, thanks to the internet. Many individuals involved in various industries, but particularly those in the highend information service sector, banking and fintech, can now operate quite successfully entirely from other countries with high internet speeds across even the most rural parts of Europe. They can also travel back and forth with relative ease, thanks to the low-cost flight revolution, which has also in part been driven by easy access to the internet.

One of our specialist markets is high-end and large-scale French châteaux and manoirs – these types of properties are relatively abundant. In the French government state, there are approximately 80,000 properties across France which are classified as ‘châteaux’. The price differential between the equivalent types of property in the UK and France is very significant.

The grander châteaux, manoirs and castles, that have been fitted with new roofs, new electrics and possess more than 25 acres, can be acquired for less than €1 million - we have many in the sub-€500,000 level.

Of course, investment in property does not come without risk. Real estate is a relatively illiquid asset and your return can also be affected by currency fluctuations and market conditions.

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The French ski property markets are growing fast, driven by the increasing popularity of skiing and summer mountain pursuits but also increased availability of very low-cost mortgages in France.”

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Why overseas property can be a good investment Continued

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Acquiring a chalet in a popular resort such as Chamonix, Meribel or Courchevel may require a significant investment initially.”

The French ski property markets are growing fast, driven by the increasing popularity of skiing and summer mountain pursuits but also increased availability of very low-cost mortgages in France.

Acquiring a chalet in a popular resort such as Chamonix, Meribel or Courchevel may require a significant investment initially.

For example, a client recently acquired a €2 million ski chalet in Meribel, with a 80% mortgage for 5 years at 1.25%. He is expecting to earn €5,000 – €10,000 per week during the super peak season Christmas and Easter), with €5,000 on average for the rest of the season.

The French Riviera remains our most important French market and is surely at the apex of the European real estate sector.

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Popular regions are around St Tropez, Cannes, Antibes and, of course, the famous ‘Caps’ of Antibes and St Jean. We are also able to help with property acquisition within Monte Carlo – which, of course, is attractive as perhaps the most famous of tax havens.

Portugal and the Algarve are also very buoyant. The Algarve has the same latitude as Southern Spain but is much cooler in the summer and far greener – because it rests upon the Atlantic, as opposed to the Mediterranean ocean. This is particularly appealing for golf enthusiasts and explains why some of Europe’s best golf resorts are dotted along the Algarve coastline. These resorts boast some of the finest real estate in Europe. For example, Quinta do Lago or Vale do Lobo.

The Balearic Islands remain a popular part of Spain for the higher end of the international property market, along with more traditional mainland locations such as Marbella and Barcelona.

Majorca and Ibiza remain at the top of the popularity stakes with easy transport links and all the attractions that these two beautiful locations have to offer.

Mallorca is also particularly attractive for golfers.

Barbados has been an attractive location for many of our clients in the last few years and has benefitted from a booming market and its year-round tropical weather – there are many reasonably priced properties on the island, and we have beachfront villas, with pools, starting from around $500,000.

The impact of Brexit It is all about increased red tape when it comes to buying a house in Europe. The main issue revolves around time: the British can spend no more than 90 days at a time in Europe within a 180-day period (be it for work or pleasure). However, for those who are looking to spend a few weeks in the sun or on the slopes or beach, this is not a problem.

As non-EU citizens, British nationals are permitted to apply for Golden Visa residency permits.

It is a residency-by-investment programme currently being offered by EU countries such as Portugal, Spain, Malta, Cyprus and Greece and grants residency in return for a form of property investment.

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Why overseas property can be a good investment Continued

We also advise always working with a local property expert and we are able to introduce clients to highly skilled individuals in all the markets we operate in. There are many people based around the world who specialise in helping buyers find and purchase property in foreign countries.

These property specialists may be able to help you find property in your preferred region and price range, represent you in negotiations (especially useful if there is a language barrier) and handle all the complicated paperwork.

If you are considering investing in new builds, ask to see paperwork related to the development, such as architecture plans, engineering appraisals, surveyor’s reports and confirmation of the land purchase.

You may also want to look into the developer’s funding sources.

Also, when purchasing abroad, learn what you can about the local infrastructure. Remember, it is not just bricks and mortar you are buying. You will also need to know about the local energy supply, water and sewage systems, and telephone and transport infrastructure.

If you would like more information on any of the points raised in this article, please contact: Tim Davies Partner and Head of PWM’s Private Office 020 7444 4032 | tdavies@partnerswealthmanagement.co.uk

About Prestige Property Group For over 20 years Prestige Property Group has been successfully connecting discerning buyers and sellers of premium real estate in the most desirable locations in the world. By carefully listening to our clients, we are able to offer a bespoke personal service ensuring that we deliver and meet all of their property aspirations.

Through harnessing the experience and knowledge of our extensive network of partner agents, we provide invaluable local expertise and the ability to manage our clients’ needs on the ground.

Our service comes at no cost to our clients, so you can rest assured there are no hidden costs or commissions. Our select partnership network is comprised of 120 offices in 8 countries.

www.partnerswealthmanagement.co.uk It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission. © (2022) Partners Wealth Management LLP