We are now firmly post summer holidays and autumn is getting into full swing. With year end fast approaching, it can be a good time to begin thinking about year end planning strategies to help minimise tax.
In June this year, Warren Buffett made a deal to provide financing to Canada’s Home Capital Group (HCG) and also purchased a stake in the company. While other investors were selling out of Home Capital because of a run on deposits in Canada’s number one lender of residential mortgages to borrowers with poor credit ratings, Buffett was buying in. He secured generous terms on his loan and purchased his stake at a steep discount of 33% on the stock’s previous closing share price. Time will tell if Buffett’s investment will be successful, for now, this appears to be a good example of Buffett buying cheaply or in other words, a good “value” investment.
Upon arriving in the UK, most Americans are non-domicile for income tax purposes. Usually you can elect to pay tax on the remittance basis so that UK tax is only paid on foreign income or gains when they are brought into the UK. Once you have been resident in the UK for more than 7 out of the last 9 tax years you are taxed on the arising, or worldwide, basis unless an election is made to pay an annual Remittance Basis Charge (otherwise known as the RBC). Under rules that come into effect for the new UK tax year, this RBC can only elect to be paid for the tax years prior to meeting a UK long-term residency of more than 15 out of the last 20 years. For many Americans, paying the annual charge often does not make financial sense due to being subject to US tax on a worldwide basis. As a result, it is usually in your 8th UK tax year that you often find yourself dealing with worldwide taxation in two jurisdictions. Knowing what is tax-efficient from both a US and UK perspective becomes of utmost importance.
With the holiday season in full swing, what better way to be reminded of the importance of the season than through Heathrow’s Christmas advert. Arguably one of the best adverts to come out this year, it follows two elderly bears on their travels to London in order to spend Christmas at home with their loved ones.
The arrival gate at Heathrow is that quintessential place that captures the pure joy of families, friends and loved ones being reunited after time spent apart. No matter how far we go, nothing feels quite like coming home. As many of us get ready to travel this holiday season, Heathrow’s advert serves as a timely reminder of what so many of us treasure and yet so often take for granted.
The Sunday Times magazine carried an article this week about two people whose work I enjoy hugely – Daniel Kahneman and Michael Lewis. More specifically it was an interview with Michael Lewis, author of Liar’s Poker, Moneyball and the Big Short amongst others, who has written his latest book about Kahneman and his former co-author Amos Tversky and how the two men came together as friends and then radically changed the way we think about the human mind and why we make the decisions we do. Before their work, economists mostly thought of people as generally rational beings who would analyse all the necessary information before coming to the best decision.
At any gathering around the world, I’m invariably approached by someone who wants to know when and where they should enter the market. For the past couple of years, those of my friends and family in the States have been pleased with how their portfolios have been performing. I generally agree with them knowing that there is significant home country bias in their portfolios. However, the rest of the world hasn’t fared as well. In our market, primarily the US expat market, we hear something opposite from those in the States. Presently, 22 August 2016, the US is all but fully valued (some may say over-valued) according to Research Affiliates . It’s impossible to pick and choose markets in advance to garner the benefits that appear to be easy to select in the rear view mirror. Times are challenging now. In fact, times are generally challenging. Below are some of some of the key indices around the world to provide some insight as to how things really are and have been over the past few years. It’s very easy to take a snippet from an article or listen to the talking heads on television and believe that markets are doing something they’re actually not. As Wealth Managers, our job is to provide a solid portfolio structure that will give the best chance of a positive result based on risk appetite. We diversify broadly, both from a geographical and industry perspective. The easiest way to keep this in mind is to think about the late 1990’s. Tech was the rage and if you weren’t in it, you would receive paltry high single to low double digit returns. That was great while it lasted, but, like all other fads, that fizzled and many people and institutions were burned. Don’t give in to the hype of greener pastures. You’ve heard it before, this time, make sure you don’t go searching.
There are many different considerations that come into play regarding trusts depending on the type of trust you own, the tax status of the individuals who settle the trust and retain an ongoing benefit from the trust. As such, it is often important to review some of the basic rules associated with what makes a trust a US trust as opposed to a non-US ‘foreign’ trust.
A US trust is one that satisfies two tests:
(1) Court Test – A court within the US has primary rights to administer the trust.
(2) Control Tests – at least one ‘US person’ has the ability to control all substantial decisions related to the trust. A US person would be defined as a US citizen, green card holder, or resident alien under the substantial presence test.
I spent a couple days earlier this week at an investment conference. Whilst there, I was reminded of the volumes of empirical evidence supporting our investment philosophy. It was reassuring and affirming. Even though I’m “in the business,” I’m not immune to the noise that is everywhere. Talking heads on TV telling us which stocks are winners; newspapers telling us the sky is falling; co-workers telling us how great their investments are the greatest thing since sliced bread. These distractions are ever-present, and it takes true resolve to not be swayed by these externalities. Clients will often ask what we think of a particular event (How will Brexit impact me?) or security (Should I buy some Apple?) or perceived future risk (But what if Trump is elected?). These questions are relevant and valid, but they shouldn’t cause you to deviate from your long-term strategy.
Following the Brexit vote in June, there was speculation as to whether (and when) HMRC would follow through with publishing more detailed changes set to take effect in April 2017 for non-domiciled individuals who are long-term resident in the UK. However, on 19 August, HMRC published a second round consultation (open until 20 October) which provides a bit more insight into the details of the changes that are on the horizon.
Since the Great Recession there has been a slow recovery fuelled by nearly universally loose monetary policies around the world. We have now reached a point where many countries’ long term interest rates are negative, but there is still little sign of inflation.
Will continuing this policy work? How far can it go?