2009 Budget Seminar Introduction and Welcome

Making the Right Decisions

2009 Budget Seminar

Introduction and WelcomeTony Grice- Allotts

Rensburg Sheppards Investment Management

April 2009

Current Investment Thinking

Presented by

Chris HillsChief Investment Officer


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Agenda

• Global economic growth outlook

• The banking system – how crucial a factor?

• Inflation or deflation ahead?

• Some historic data on asset classes

• The outlook for income

• Where are we in the cycle for asset classes?

• Conclusions….


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Economic outlook


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The banking system

Is the big issue because:

Western economic growth has been fuelled by increased debt

Economic recovery is slower in financial crisis recessions

Emerging growth is partly dependent on exports to the West

Investors have employed debt too


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Economic Backdrop

• Outlook for growth:

– Western economies largely stagnant at best, even in 2010

– Emerging economies some growth, but nothing like previous

years and not enough to keep global growth positive this year


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IMF Forecasts


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Details

2.1-0.62.2World

5.03.36.3Emerging

0.6-2.6-0.3Japan

0.2-2.01.0EU

1.6-1.61.1US

0.2-2.80.7UK

201020092008


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Types of cycle – data compared


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Savings patterns in recessions


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Bank lending

Will be reduced by debt write-offs unless further capital injections are made (estimates for the latter are up to $900bn…)

Borrowers can be put into “political” order:

• Mortgagees• SMEs (Small/medium size employers)• Infrastructure projects• Multi-national companies• Commercial property


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Concerns

• Speed of recovery?

• Size of recovery?

• Is deflation a threat?

• What will happen to portfolio income?


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Opportunities

• Rates have been cut rapidly, so cash will be invested

• Equity ratings are not expensive

• Corporate bond and property yields are attractive vs cash

• Good companies will gain market share in adversity

• Markets have been indiscriminate


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Inflation outlook


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Historical data, ordered by inflation

Annual real returns 1925-2007

14-4.3-3.7-3.5inflation over 8%

6-4.20.73.6inflation 6-8%

16-1.11.65.6inflation 4-6%

233.11.67.1inflation 2-4%

146.42.116.7inflation 0-2%

108.95.87.1deflation

no of yearsgiltscashequities


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The outlook for income

-88%-4.8%0.5%Cash

1.1%-1.1%7.8%Commercial property

2.5%-4.1%6.9%Corporate bonds

2.5%-4.6%3.9%Gilts

Nil2.7%3.6%Overseas equities

-6.5%1.8%4.8%UK Equities

Likely real income growth

2009

Real historic income growth

1925-2007

Current yieldAsset class


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Equities no longer expensive, but not yet

cheap…


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Timing

In the long run, equities can generate the best rewards, in the short term they can generate the biggest losses!

So where do we think we are now?


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The Growth/Liquidity Cycle

Early CycleFed easesGrowth picks upInterest rates lowSpread tightenEquities rally

Mid CycleStrong economyEasy moneyEquities rallyCommodities rally

Down CycleRecession or slowdownFed easesBonds rallyEquities correct

Late CycleGrowth peaksFed tightensSpreads widenEquities OK

Concept by Morgan Stanley

POOR LIQUIDITY

STOCKSearly cyclical, tech, financials

STOCKS COMMODITIES

industrials, tech, energy

BONDS CASHdefensive growth,

utilities

STOCKS CASHenergy, late cyclical

AMPLE LIQUIDITY

STRONG ECONOMY

WEAK ECONOMY

2003 2004

2005

2006

2007

2008

2009

2010?


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Conclusions

• Understand what you need from a portfolio both today and in future

• Establish the pecking order of your needs: low volatility, capital growth, security,

income, income growth

• Identify what each element in your portfolio is contributing to these needs

• Apply common sense


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No easy answers

Effective portfolio management is about timing

as well as diversification

That’s why investment remains an art,

not a science!


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Rensburg Sheppards Investment Management Limited is authorised and regulated by the Financial Services Authority and is a member of the London Stock Exchange and the Rensburg Sheppards Group

Contact Details

Chris Hills

Chief Investment Officer

Rensburg Sheppards Investment Management2 Gresham StreetLondonEC2V 7QN

Telephone 020 7597 1281Fax 020 7597 1000email [email protected]

www.rensburgsheppards.co.uk

Please note that the value of investments and the income derived from them may fluctuate and investors may not receive back the amount originally invested. Past performance is not necessarily a guide to the future. Current tax levels and reliefs may change and the investments and investment services referred to may not be suitable for all

investors.


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Group OfficesBelfast Cheltenham Farnham Glasgow Leeds Liverpool London Manchester Reigate Sheffield

Member firm of the London Stock Exchange. Member of Euronext.liffe. Authorised and regulated

by the Financial Services Authority.

Rensburg Sheppards Investment Management Limited is registered in England. Registered No.

2122340.

Disclaimer

The rules of our Regulator requires us to make clear to any reader that the illustrative suggestions, as to stock selection and strategy, which are contained within this document are not intended as, and must not be relied upon as being, recommendations or advice given by Rensburg Sheppards Investment Management Limited. The investment comments are provided solely for the purposes of demonstrating the manner in which Rensburg Sheppards Investment Management Limited would be likely to approach such matters on behalf of a new client. Specific proposals would be created in each case, which would take account of both the investment objectives and the financial circumstances of the client. Past performance figures quoted are for indicative purposes only and may not be repeated.


Steven WatsonTaxation Partner

Allotts

Tax Implications for Businesses


Alistair’s limited room for manoeuvre

• Gov’t borrowing £90 bn in 2008/9• To put this in context• Annual CGT take is £5 bn• Annual IHT proceeds are £3 bn• Danger of increase tax in a recession• But needs the money so few tax reliefs• Tax alone not answer -cut public sector costs


Overview

• Business tax - capital allowances + co cars - income from overseas - deferring tax payments - carry back of trading losses - employment matters - ensuring compliance


Capital allowances + co cars

• £80,000 cap on co car list prices abolished To ensure drivers ‘pay a fair amount of tax’• Capital allowances on company cars 20% under 160 CO2 g/km 10% over 160 CO2 g/km• 40% FYA on plant + machinery in addition to existing first £50k 100% rate for one year from April 2009


Income from overseas

• Individuals - to have a non repayable tax credit on o/seas dividends

received in the UK - previously limited to under 10% holding - from co in country with which we have DTT

• Companies - divs from o/seas companies UK tax exempt (from July 2009)


Deferring tax

Business Payment Support Service 0845 302 1435

- Agree a staged payment of tax liabilities- Can now take into account current year

losses when agreeing payment of earlier tax


Carry back of losses

• Offset of trading losses - typically against - current year + previous year total income - and future trading profits from same trade

• Now also carry back upto £50k of losses 3 years - for each co’s accounts ending Nov 2008 – Nov 2010 - for non co’s for each tax year 2008/9 + 2009/10


Employment matters

• National insurance increases - from April 2011 ½% increase in NI rates - from 2009 £3,835 increase in e/ee upper NI band

• Job creation for unemployed for over 12 mths - 50,000 traineeships in social care - guaranteed job, training or work experience for 18 - 24’s over 1 year unemployed - 100,000 in socially useful activities


Ensuring compliance• Deliberate tax defaulters

-publicly name + shame if liability over £25k-if penalty over £5k then required to provide more info on tax affairs for up to 5 years-no stated start date at the moment but details will be in Finance Act

• Senior accounts person in major corporates to personally certify adequate tax controls + systems

-turnover over £22.8m, e/ees over 250 -balance sheet net assets total over £11.4m -supported by penalties regime on the person + the co -tax returns due after Royal Assent of Finance Act


Summary

• In general taxation can only increase• This side of an election high earners are

being targeted• Looking to increase tax by ensuring

compliance• Use the governments tax deferral scheme if you need help with cashflow


Kirstie WilliamsonPrivate Client Partner

Allotts

Budget Changes in Relation to Personal and Capital Taxes


Income Tax

• From 06/04/2011 :• 50% tax on income over £150,000• 42.5% tax on dividends• Personal allowance reduced on adjusted net

income over £100,000• Reduced by £1 for every £2 over £100k


Adjusted Net Income

• Total income less:• Trading losses• Gross pension contributions• Grossed up gift aid contributions• Grossed up pension contributions• Add: • Relief for TU & police contributions


Pensions (1)

• From 06/04/2011:• Restrict relief • Income over £150k sliding scale• Income over £180k – basic rate relief only

(20%)• Does not apply to existing regular

contributions


Pensions (2)

• If income of > £150k; and• Change of pension contribution pattern; or• Change in benefit accrual method; and• Total contributions / benefits accrued exceed

£20k pa


Pensions (3)

• Then forestalling rules from 22/04/2009• Restrict relief to basic rate for people with

taxable income > £150k• Regular savings > £20k – charge applies to

excess of regular sum• Regular savings < £20k charge applies to

excess over £20k


Pensions (4)

• Charge has effect of restricting relief on additional pension savings to basic rate

• Charge applies to total contributions – made by individual, employer or third party

• Charge applies to benefits accruing in defined benefits scheme

• Charge collected via self-assessment


Furnished Holiday Lets (1)

• Rule change• Only applies in EEA (see table)• Treated as trading income• Must meet certain criteria • Must be let commercially with view to profit


FHL – CGT & IT (2)

• Rollover relief• Entrepreneurs’ relief• Holdover relief• Loan interest relief • Relevant earnings – pensions• Reclaim of tax possible for up to 5 years

where CGT relief claims not made


Furnished Holiday Lets (3)

• Repeal of FHL rules from 2010/11• Both UK and EEA properties• Unable to use losses against other income • BPR ?


IHT & CGT

• Extension of Agricultural Property Relief • Now includes property in EEA• CGT holdover also available even where land

let to third party – tax reclaim• Reclaim IHT paid in previous 6 years –

reduces to 4 from 01/4/2011• Check date country joined EEA


EEA Countries

UKMaltaGermany

SwedenLuxembourgFrance

SpainLithuaniaFinland

SloveniaLatviaEstonia

SlovakiaLiechtensteinDenmark

RomaniaItalyCzech Republic

PortugalIrelandCyprus

PolandIcelandBulgaria

NorwayHungaryBelgium

NetherlandsGreeceAustria


Vehicle Scrapping Scheme

• Vehicle more than 10 years old• Owned for at least 12 months• Discount of £2000 on new vehicle


Andrew DenniffPolicy & Communications Manager

Barnsley & Rotherham Chamber

Questions and Close

Documents

2009 Budget Seminar Introduction and Welcome