Morfitt's Mailshot Issue 35...          Can't see this email properly? View in browser

Morfitt & Turnbull
 

Issue 35   

WHO'D BE A POLITICIAN??
Well it's certainly been a very interesting and somewhat turbulent last 12 months for UK Politics, commencing with the BREXIT vote followed by the snap general election. As we all know, Mrs May failed to secure the majority that she was looking for and we have ended up with a hung parliament again. I thought we would therefore have a look at how stock markets have reacted when similar results have occurred previously?

This is the 2nd time from the last 3 general elections that a hung parliament has resulted. This has now occurred on 6 occasions since the turn of the 20th century most recently in 1974 and 2010.
There were 2 elections in 7 months in 1974, when high inflation and union strikes brought the country to a standstill and the then Tory Prime Minister, Ted Heath, ran a campaign with the infamous slogan "Who runs Britain?". Labour won the most seats in the February election but didn't have a majority and Harold Wilson's government collapsed 7 months later and Britain went to the polls again. This time Labour won a slim majority and battled on for another 5 years until Margaret Thatcher secured a 43 seat majority in 1979. But what happened to markets?   Wilson & Heath
 
The FTSE All share rallied briefly in early 1974, but over the next 6 months spiralled down by 41% to reach an all time low in December, although this wasn't all due to political uncertainty as the boom of the early 1970's came to a juddering halt as inflation rose to 26.9% in August 1975, oil soared and the government responded by increasing interest rates to 13%, this combined effect saw the economy collapse.
 
In May 2010 Labour suffered an election defeat for the 1st time in more than a decade leading to the resignation of Gordon Brown which then paved the way for the Conservative & Liberal Democrat Coalition. The day after the election the FTSE All share fell by 2.8%, but shares quickly re-bounded and ended up being 18% higher a year later. Again this wasn't all due to politics as the recovery from the financial crisis of 2008 emerged combined with record low interest rates and quantitative easing which fuelled market growth.   Chart
 
Markets have remained pretty quiet since the election on June 8th with overseas earnings of Britain's largest firms being boosted by the impact of the falling pound helping the markets to remain fairly stable unlike after the BREXIT vote when markets immediately crashed. Looking back at previous elections the percentage change in the FTSE All Share was as follows.
 
1992 – John Major
12 months before the election  -5%
3 months before the election  -1.8%
3 months after the election  5.7%
12 months after the election  19%

1997 – Tony Blair
12 months before  12%
3 months before  4.6%
3 months after  8%
12 months after  32%

2001 – Tony Blair
12 months before  -7%
3 months before  0.6%
3 months after  -15.3%
12 months after  -17%
 
2005 – Tony Blair
12 months before  8%
3 months before  0.4%
3 months after  10.4%
12 months after  28%

2010 – Coalition
12 months before  17%
3 months before  5.8%
3 months after  0.7%
12 months after  18%
So what does history indicate to us?
1. Hung Parliaments in isolation have had little impact upon Markets generally. 
2.  Markets have tended to be significantly ahead 12 months after an election result.
3.  Annual returns since 1970 tend to favour a conservative government at around 16% on average, compared to 9% for a Labour or coalition government.
 
The interesting times are no doubt set to continue with BREXIT negotiations about to commence, together with the possible Conservative & DUP coalition looking likely!

Craig
  

 


 
Morfitt & Turnbull Fantasy Football 2017/18
 
The new football season will be upon us once more very shortly so we are continuing the M&T fantasy league for this season and would encourage you to enter along with us.
  
It's free to join and the league winner gets £100 with £50 for the runner up. The more people who join means there is more chance of knocking Gareth from the top spot again!

If you would like to enter please email adam@morfittandturnbull.com and he’ll send you the details. Players from last year login as usual and you’ll be automatically entered into the M&T league.

This is purely for fun, the more participants the better so please join in!
Fantasy Football
 

 
Adam's Technical...  The Residence Nil Rate Band
 
The Residence Nil Rate Band (RNRB) was introduced in April. This followed the Conservatives announcement in July '15 that, for families with an estate under £2M, the family home will no longer be subject to Inheritance Tax (IHT) as the IHT free threshold for couples will be raised to £1 million.
 
The IHT nil rate band is currently £325,000 per individual and is set to remain fixed at this amount until April 2021. The simplest way to increase the amount on which no IHT is payable would've been to increase this amount to £500,000.

This did not happen. Instead we have the RNRB! This is an additional allowance relating to a house that is included in a person's estate which they have lived in at some point prior to death.

Before reading on about the idiosyncrasies of the rules, please note that if you are married or in a civil partnership with a house valued at more than £350,000 and the second death is after 5th April 2020, your RNRB allowance will be £350,000. (provided the total estate is under £2million).
  House
  
The RNRB started at £100,000 in April and will increase each year, as per below:
 
Tax Year RNRB Amount Total Allowance
 2017/18  £100,000  £425,000
 2018/19  £125,000  £450,000
  2019/20  £150,000  £475,000
 2020/21  £175,000  £500,000
 
The intention is that from April 2021 the £175,000 RNRB and the £325,000 nil rate band will increase in line with the Consumer Prices Index (CPI).

The key rules surrounding the RNRB are as follows:
 
  It is the open market value of the property at death minus any loan outstanding that benefits from the RNRB.
  The amount available is the RNRB or the value of the house, whichever is lower. If the value of a house used on first death is lower than the available RNRB the percentage remaining is passed to a partner (if applicable) to be used against the RNRB figure applying at the date of the second death.
  It is available on deaths on or after 6 April 2017. However, if married or in a civil partnership and one person dies before 6 April 2017 and the other on or after this date but prior to 6 April 2018, the additional amount available as a RNRB is £100,000. This is classed as a percentage so will be an additional £175,000 if the partner dies after April 2020.
  The transferable RNRB applies to a couple (married or in a civil partnership) even if on first death a property was not sold.
  The house must be passed on death to a lineal descendant: children (including adopted, step, fostered), grandchildren or a widow/widower of a lineal descendant.
  If more than one property qualifies the personal representatives can nominate the one to benefit from the RNRB.
  If an individual's net estate (after any debts but before allowances or reliefs) is valued at more than £2 million their entitlement to the RNRB is reduced by £1 for every £2 the estate is over £2 million. So when the estate reaches £2.2 million the £100,000 RNRB from April 2017 is no longer available. When the RNRB reaches £175,000 in 2020 an estate of £2.35 million will not benefit from the RNRB.

These figures relate to an individual, if a RNRB of 100% has been inherited, and the second death is after April 2020 when the RNRB is £175,000 the total RNRB available is £350,000. Therefore, the RNRB would be lost in full if the estate was over £2.7 million.
  Downsizing policies have been put in place to protect the scenario whereby part or all of the RNRB is foregone because prior to death an individual downsized or sold their home. This only applies to house sales on or after the 8 July 2015 (when the RNRB was first proposed). In order to qualify for the downsizing addition the deceased has to leave assets equivalent in value to the house to lineal descendents.
 
If you wish to discuss, please contact your usual M&T adviser. Depending on the enquiry we may need to put you in contact with a legal specialist.
          

Gareth Says... 



   
Consumer Price Index (CPI)

This is one of the indices that measures inflation, which is of interest to us all, we are watching this closely as we feel inflation is coming toward us.

So how do they calculate it?

Interestingly it includes everyday items and measures their price movements. It includes items such as food and drink, Council Tax, Chemist goods, to more unusual ones such as cinema tickets, holidays, bicycles, half coated chocolate biscuits, recently GIN has been added! 
 
    Gin
   
In 2016 sales of GIN were over £1 BN with over 40 new distilleries opened in the UK in the year, due to a relaxation of the distilling rules.

I enjoy a little tipple and if you are interested in unusual gin flavours go to www.isleofharrisgin.com. A gin infused with sea kelp! If demand increases and prices fall, we may be doing our bit to keep inflation low! (joke!).
 
 

 
Staff Matters
Craig & Karen's wedding turned out to be the perfect day on June 2nd, with all of their expectations of a Greek Wedding being fully exceeded due to the impeccable job undertaken by their wedding planners.

This was followed up by a "bash" at the DW stadium for all of their friends and family that couldn't make it over to Zante.

We wish them all the very best for their future.
  Craig & Karen, DW Stadium Craig & Karen, Zante
   

 

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