Archive for June, 2017

Q1 Market Commentary

Monday, June 26th, 2017

By Scott A. Middleton, Chartered Financial Planner
James & George Collie Financial Management

Despite a perceived background of worldwide uncertainty and volatility the Q1 of 2017 has witnessed further upward growth for many investors. The FTSE 100 Index increased in value by 2.86%, the FTSE World Index by 2.89% and there was a significant upturn in European Equities, which increased in value by 7.31% measured by the FT Europe (ex UK) index.

Sterling strengthened by nearly 3% during the quarter, which reduced the performance of equities that traded in overseas, dollar based, assets in Sterling terms, but boosted the performance of more UK focused firms in the ‘mid caps’ sector which rose by 9.34% measured by the FTSE 250 (ex IT) index.

During March the upward momentum in major markets appeared to reduce significantly as President Trump withdrew his healthcare bill after it failed to gain sufficient support to pass in Congress. The ‘snap’ UK election also caught many people by surprise when it was announced on 18th April and this led to a fall in the FTSE 100 whilst the progress of the far right party of Marine Le Pen in France, also caused market volatility. After a long period of strong upward returns many investors are now asking the key question ‘Is it time to bank profits and avoid the risk of a market pullback?’

It is undeniable that P/E ratios are a little on the high side. This ratio measures the share price of a company divided by the earnings per share or, to put it another way, the number of years it would take for the company to pay for itself based on current earnings. There has been some press coverage that this measure has only been above current levels on two previous occasions and both times a significant market crash followed, suggesting that investors should expect a similar outcome.

Although this press speculation is broadly accurate, there are two further pieces of immediately relevant information investors should consider. The first is that on both previous occasions valuations went up considerably further than current levels before the crash occurred suggesting that even if history does repeat itself, it is still too early to take profits. The second is that PE ratios need to be considered alongside the alternative investment option of bond yields in order to make a meaningful comparison.

Interest rates have fallen and fallen over the recent investment cycle, which began in the late 1980s. This period has been heralded as a super cycle for fixed interest markets. Yields have fallen from double digit returns to historically low levels and therefore whilst PE ratios may look high historically the yield available from lower risk asset classes is lower still and therefore equities continue to look good value on a relative basis.

Current valuations aside, the main driver of equity returns will rest on the ability of companies to increase earnings into the longer term. The last six months has witnessed an increase is equity asset valuations and this effect has sometimes been described as ‘Trumpflation’. Donald Trump, as one of his election policies, wanted to reduce taxes and increase government infrastructure spending, targeting economic growth of between 3% and 4%.

There is a widespread need to replace infrastructure within the US as many bridges, roads, railways and dams are in a poor state of repair and need imminent replacement. The combination of the potential improvement to infrastructure and the economic boost of spending the $1trn mentioned during Trumps campaign, won support from many voters and equity traders.

Stock markets have responded positively since Donald Trump won the election, but suffered a set-back in mid-March as his plans to repeal Obamacare, another key election pledge, ran into difficulties and were withdrawn. Investors began to wonder if his spending program could be relied upon, which caused equities to fall back whilst bonds recovered from a period of weakness. Whilst this set back does raise some concerns, we continue to expect the spending plans to go ahead given that the Obamacare repeal bill was closely contested and the spending plans have wider support.

Theresa May’s announcement of a ‘snap’ election on 18th April caught many by surprise, not least because she had categorically ruled out this action on, at least, 5 previous occasions. With hindsight, this decision was perhaps flawed, and the effect on the political power base and Brexit negotiations currently remains uncertain. The future potential moves of Sterling are too difficult to predict at this stage and will be influenced significantly by political developments, which are unpredictable in nature.

We continue to consider the potential future influence of the estimated $13trn which has been printed and injected into bond markets since the credit crisis by central banks. Had $13trn been spent directly within the global economy, the direct economic effect would have been incredible with a huge rise in economic activity, growth and inflation but only on a temporary basis. The mechanism of injecting this money into the bond markets has been the equivalent of a muscle based injection with a slow release over time. The impact on the real economy has been small but there is evidence that cash is moving from bond markets and impacting the real economy.

Economic data over the last twelve months has been positive with economic growth and inflation showing a more stable upward path. Confidence indications have also trended higher as companies, in particular, are more confident about the future and therefore are more likely to trigger capital spending programmes, which are stimulatory in nature.

Although it is not a good idea to rely on the past too greatly, we do recognise that some patterns in financial markets can be seen to repeat frequently. At the moment some analysists are particularly excited by the FTSE 100 as this index has been in a maximum trading range of circa 7000 since January 2000, but has recently broken above this figure seventeen years later. They point out that seventeen years is a long period for a new high not to be reached and historically, when a breakout occurs, the next cycle is often a significant upward rise and this occurred between 1992 and 2000 when the FTSE 100 increased by over 160%. Whilst this point has little relevance in isolation it does provide some context with regard to market timing in relation to the other positive economic observations.

In summary, this is an interesting time for investors with few historical reference points, especially in recent history. Yields and interest rates have not been as low as current levels in modern times (the information age which began in the 1960s and significantly impacted the global economy from the 1980s). The economic back drop has shown a generally upward trend and valuations are reasonable on current factors continuing earnings growth being likely to improve this picture. The key downside risks are largely political at present and although recent European elections have had favourable outcomes, the risks of populism are on-going in addition to global political uncertainty, especially given the unpredictable nature of President Trump.

Strategy

There are many uncertainties at present, both domestically and internationally, however we believe that there is risk on both sides. A case for significant increases in equity market values can be justified as well as outlining risks, which could lead to equity market falls. In either scenario it is difficult to see fixed interest investments being able to off-set the risk through the normal diversification process, as yields are generally too low to offer much upside to any negative news.

On balance, we see more opportunities for further growth in equity markets than downside risk and therefore portfolios are positioned with increased equity weightings. Lower risk portfolios are diversified through short dated fixed interest holdings, which are relatively less sensitive to interest rate increases, and are expected to reduce the overall volatility of the portfolio. In addition we have also included inflation linked holdings, which will benefit if inflation continues to accelerate as we expect.

The outcome of the General Election could have a major impact on your financial plans and investments.
Why not canvass our professional adviser’s opinion on the best way forward?
Pension/retirement planning
Investment management
Estate planning
Tax planning

Contact us on 01224 581581 or scott.middleton@colliefinancial.co.uk to arrange an appointment.

Continuing and Welfare Powers of Attorney….Why Should You Have One?

Monday, June 26th, 2017

They are recommended by solicitors universally, and are becoming ever more popular; but what is a Power of Attorney, and more importantly, why do you need one?

The Adults with Incapacity (Scotland) Act 2000 provided a framework for protecting the welfare and managing the finances of adults who lack capacity due to mental illness, learning disability or a related condition, or an inability to communicate. The instrument you can grant to provide this protection is a Continuing and Welfare Power of Attorney. By granting a Power of Attorney, you are taking control of a situation before it presents itself. There are two aspects to a Power of Attorney; the continuing side in relation to financial matters; and the welfare side in relation to health and wellbeing matters.

Firstly, a Continuing Power of Attorney allows an Attorney to act on behalf of the Granter in relation to all financial or business matters. This would cover operating their bank account, organising insurances, and even selling any property. Once the Power of Attorney has been signed and registered, the Attorney can commence their duties whenever the Granter chooses. This is beneficial in situations where the Granter has not lost capacity but is perhaps physically unable or struggling to look after their affairs. The attorney would be able to continue to act in the event of the Granter losing capacity in the future.

The second is a Welfare Power of Attorney which would allow the Attorney to take decisions relating to medical treatment, care and accommodation. In this case, however, the Attorney would only be able to take these decisions in place of the Granter if they were to lose capacity, which will only be confirmed by a doctor. It is vitally important that a Granter advises their attorney what medical treatments they would choose and how they would like to be treated prior to this coming into effect. An Attorney should be able to commence their duties knowing exactly how the Granter would like to be treated.

Who should you choose as your Attorney? If you are married, most Granters will appoint their spouse. However, it is also recommended that you choose a substitute for your spouse as they may not be able to act in the future. You can also have more than one Attorney, and they can make decisions acting together or independently depending on your wishes.

Perhaps the greatest benefit of a Power of Attorney is preventing a negative. If you lose capacity without having a Power of Attorney in place, a Guardian may have to be appointed through the courts in order to make decisions on your behalf. This process is costly and immeasurably time consuming. By taking steps now, a Power of Attorney can be set up within twelve weeks of signing and can act as an insurance policy going forward. A Power of Attorney will not only alleviate the stress for the Granter but also for the family and friends who will be able to take care of the Granter’s needs without having to worry about administrative hurdles.

Please contact Greg Lawson at our main office on 01224 563367 or by email at g.lawson@jgcollie.co.uk to arrange a meeting to discuss granting a Power of Attorney. It’s never too early…

We’re all going on a Summer holiday!

Monday, June 26th, 2017

Separated parents often wish to spend extended periods of quality time with their children over the Summer months; but when it comes to taking your children abroad on holiday, what do you need to know?

The Children (Scotland) Act 1995 provides that no person can remove a child habitually resident in Scotland from the UK without consent of both parents who have parental responsibilities and rights. This means that if you wish to take your children abroad this Summer, the law says that you will need to obtain the other parent’s consent to do so.

Despite the fact that there is no specific requirement to do so, it is good practice to seek consent in writing. In particular, it is worth bearing in mind that some destinations may even require sight of written consent to travel prior to entering the country.

Of course, many parents have difficulty communicating post-separation, and unless permission to remove a child from the UK is addressed in a Separation Agreement, it can often be difficult to reach an amicable agreement on this matter.

Ultimately, there is the option to apply to the Sheriff Court for a Specific Issue Order which would allow you to take your child abroad on holiday. This can be costly, time-consuming and stressful on both parties, therefore parents should always try to negotiate between their Solicitors, or attend mediation, in the first instance. The Court will take a view of the specific facts of the case, such as any particular objections that the other parent has to the holiday. The holiday may be deemed unreasonable due to the age of the children or length of the trip or it may be that there is a risk that the children will not be returned. However, the overriding consideration will be the best interests of the children. In general, the Court takes the view that a holiday abroad falls within this bracket and broadly speaking they are supportive of non-resident parents enjoying extended periods of contact with their children.

With a view to avoiding matters reaching Court, we advise you to plan well in advance and seek consent from the other parent at the earliest possible opportunity. Be open and transparent about your plans and provide as much information as possible about the holiday. Discuss practicalities such as handing over passports and emergency contact details. Likewise, allow the parent who is remaining at home to raise any concerns they may have and take steps to alleviate these. Think of the child/children and aim to keep their involvement to a minimum. Exposure to any upset may affect them in the long term as well as casting a shadow over the holiday. If you are still unable to come to an agreement, consult your Solicitor.

If you do come to an agreement, we recommend that you give some thought to recording this in writing and putting it into a formal Separation Agreement which can set out the terms of future contact and holidays, and avoid any conflict further down the line.

Most importantly, the paramount consideration should always be the children enjoying quality time with both parents, therefore it is in everyone’s best interests to try and approach this issue in a calm and sensible manner.

The Family Law team at James & George Collie are happy to advise you on any of the points contained in this article or indeed any other related matter.


Scottish Private Residential Tenancies

Monday, June 26th, 2017

A new leasing regime is being introduced by the Scottish Parliament in terms of the Private Housing (Tenancies) (Scotland) Act 2016.  The Scottish Private Residential Tenancy – or SPRT – will replace the existing private leasing regime in Scotland.  At present, privately let properties are let on a short assured tenancy.  The beauty of a short assured tenancy is that at the end of the period of lease, provided certain notices are served in the correct order at the correct time, the Court must grant an eviction of a tenant.  This is what is known as a “no fault” ground for repossession.  The no fault ground however is set to disappear under the new regime.  On one hand, tenants will have enhanced rights of security.  However, as this article will hopefully demonstrate, there are many new grounds available to a landlord to regain possession of their property.

The Act will come into force in December this year, after which, no new short assured tenancies can be created.  Existing short assured tenancies will remain in place until they in turn come to an end.  It can be appreciated therefore that it is important that landlords with existing tenancies should take advice on the changes and be aware of the impact those will have.

A SPRT will continue indefinitely unless (a) the tenant wants to leave or (b) the landlord can end it on one of the prescribed grounds for re-possession.  The no fault ground has gone for good.  A tenant must give four weeks notice to leave no matter how long the lease is for.  Depending upon the ground a landlord founds upon, the notice period can be twelve weeks if the tenancy was for six months or more, or four weeks if the tenancy lasted for less than six months.  Regardless of the length of tenancy, if the tenant is not occupying the property, or has failed to pay three consecutive months rent in full, or is in breach of the tenancy agreement, or has behaved anti-socially, then the notice period is four weeks.  The new eviction grounds include where a landlord intends to sell, or the property is to be sold by the lender, or the landlord intends to re-furbish, or the landlord intends to live in the property.  In all of these cases, the tribunal, if satisfied the relevant ground applies, must grant an order for eviction.  Further, if the landlord intends to start using the property as a shop, or the tenant is no longer an employee of the landlord, or the tenant is not occupying the property, the tribunal is bound to grant an eviction order.  It is also an eviction ground where the tenant has been in rent arrears for three or more consecutive months.  Where there is a finding that for three or more consecutive months the tenant has continuously been in arrears and that at any point in time the arrears have been an amount equal to or greater than one months rent then the tribunal are bound to make an eviction order.  If it can be shown there has been criminal behaviour by a tenant or anti-social behaviour then the tribunal may grant eviction.

From the end of the year, there will be one model tenancy agreement to be used by landlords and tenants alike.  There will be no notices required at the beginning of the lease as there are in the case of the present short assured tenancies.

Landlords will regret the passing of the no-fault ground of repossession.  However, it remains to be seen whether in real terms a tenant does have improved security of tenure given the fact that landlords can seek an eviction order simply on the basis that they intend to live there themselves or that they wish to sell their property or re-furbish it.

If you require any advice in relation to property leasing matters and in particular in relation to eviction, please do not hesitate to contact Court Partner, Duncan M Love by email at d.love@jgcollie.co.uk

Additional Dwelling Supplement (ADS) – are you liable to pay?

Monday, June 26th, 2017

The Land and Buildings Transaction Tax (Amendment) (Scotland) Act 2016 (containing Additional Dwelling Supplement or “ADS” provisions) came into effect on 1 April 2016, adding an additional cost to buyers who purchase an ‘additional’ dwelling at a price over £40,000. The tax amounts to 3% of the total purchase price and the tax appears to have contributed to a decline in “buy to let” purchasers entering the market.

Consider the following examples which illustrate that whether ADS is payable is very much dependent on individual circumstances, and ADS applies in more situations than many of our clients may have been aware.

Example 1

Where you do not own any dwelling but your partner (spouse, civil partner or cohabitee) does then you may have been under the mistaken belief that since you do not own a dwelling yourself, the ADS does not apply to you and you can purchase your own buy-to-let flat. However under the rules of “deemed ownership” it is deemed that you and your partner are treated as one ‘economic unit’ and you will potentially be liable for the ADS on the purchase of a new property.

The Scottish Government has felt that this rule ensures that couples cannot complete simple transfers of title in order to purchase multiple properties without paying the ADS tax liability.

Example 2

Where you own multiple dwellings and are selling your main dwelling (your primary residence) and you are replacing this with a same day purchase of your new main dwelling then even though you own other properties you will not be due to pay the ADS because you are replacing your main dwelling.  However, under the same example, if it was not your main residence that you were selling but another property you had, as you are not replacing your main residence then you will be liable for the ADS.  An example would be where you owned multiple buy-to-let flats and were selling a dwelling that you had let out and were buying a new dwelling for any reason. The tax is liable because you will own multiple dwellings but will not be replacing your primary residence by selling your existing one and buying a new one.

On a similar note where you buy a new main dwelling and later (within 18 months) sell your main dwelling (therefore replacing your main residence) you will have paid the ADS up-front on your purchase but are entitled to claim the ADS back. If you are not replacing your main residence then you are unable to claim the tax back later.

If you sold your main residence in the last 18 months and are buying a new main residence in replacement of your main residence within that 18 months you will not be liable for ADS.

Example 3

Where a company is purchasing its first dwelling it will always be liable for the ADS. It is unsurprising that the Scottish Government has blocked such an obvious way of avoiding/mitigating the additional dwelling supplement tax.


Example 4

Where you own a house which is your main residence and you buy a piece of land then if that land has planning permission for a residential dwelling but no building work has commenced nor does it have any existing structures on it then you will not be liable to pay ADS on this purchase as the land you are buying will not be considered as a dwelling.  Although you intend to build a dwelling on it, the use of the property at the effective date of the transaction overrides any past or intended future uses.

However the land may be considered as a dwelling if at the effective date there exists a structure or building already on it (even if you intend to substantially refurbish or demolish it), a dwelling is currently being built on it, or if a contract exists for a builder to construct a dwelling on it i.e. an off-plan property.

Example 5

Where you are selling your own main residence and replacing this with a new main residence, and for the purposes of this example, let us assume that you are very wealthy, and in addition to the large mansion you are purchasing you are also acquiring, as part of the deal, a “gate house”. You will be liable to pay ADS on the part of the purchase price that is attributable to the “gate house” as this part is considered to be an additional dwelling.

These examples are not exhaustive and as you can see from some of the examples above, whether you are liable for ADS is very much dependent on your particular circumstances. Therefore, should you believe that you are potentially affected by the additional dwelling supplement you should take individualised legal advice and this article should not be relied upon or construed as providing legal advice.  Should you require any legal advice regarding any of the issues raised in this article, or should you wish to discuss your next purchase, please get in touch with either Mark Allan, Associate, by email at m.allan@jgcollie.co.uk or your usual contact at James & George Collie.

Section 63 – Will it affect you?

Monday, June 26th, 2017

New regulations under Section 63 of the Climate Change (Scotland) Act 2009 (the “Act”) are now fully in force and landlords of eligible non-domestic properties are now under obligations to contribute towards reducing Scotland’s greenhouse gas emissions. The potential costs and implications for commercial property transactions are significant and should not be overlooked.

As part of the international effort to tackle climate change, the Scottish Government has set targets for reducing Scotland’s greenhouse gas emissions by 42% by 2020 and 80% by 2050. As non-domestic buildings are responsible for a large amount of these emissions, Section 63 of the Act has introduced The Assessment of Energy Performance of Non-Domestic Buildings (Scotland) Regulations 2017 which places a duty on a number of commercial property landlords to assess and improve the energy performance of their buildings.

Section 63 came into force on 1st September 2016 and it applies to the majority of non-domestic buildings (or parts thereof), over 1000 square metres in area, that are placed on the market for sale or lease to a new tenant.

Alongside the existing requirement for an Energy Performance Certificate (“EPC”), a Section 63 Assessment is now compulsory for such buildings. The result of this assessment is the production of an Action Plan setting out carbon and energy savings targets that should be achieved if certain specified improvements and upgrade works are undertaken to the building.

The regulations set out seven standard prescriptive measures (improvement works) and the Action Plan places a duty on the owner to undertake all of those measures that are applicable to the building in question. The owner has a 42 month timeframe within which to complete the works and have an updated EPC prepared to complete the procedure and avoid enforcement action.

The seven prescriptive measures are:-

  1. Installing draught stripping to windows and doors.

  2. Upgrading lighting controls.

  3. Upgrading heating controls.

  4. Installing an insulation jacket to hot water tanks.

  5. Upgrading to lower energy lighting.

  6. Installing insulation in accessible roof space.

  7. Boiler replacement if over 15 years old.

At first glance these works may not seem unduly onerous, however, costs can become significant for larger buildings.

It is possible to negotiate alternative improvements in lieu of the “prescriptive measures” as long as they still achieve or exceed the initial savings targets set out the Action Plan. This may be beneficial to an owner if they already have upgrade works planned for the building or if less expensive works are possible.

Owners have an option to defer implementation of the works by recording the current operational ratings of the building through a Display Energy Certificate (“DEC”), however, these certificates must be updated annually for as long as the owner wishes to delay. If there is any failure to update the DEC timeously then the owner will revert automatically to having to complete the works. Whether to opt for the DEC deferral route will likely be determined by comparing the long term annual DEC assessor fees and the need to update against the actual cost of the works.

Whilst there are some minor exclusions to a building having to undergo the Section 63 procedure – the age (and current energy efficiency) of the building and type of transaction – these regulations must be a factor to be carefully considered when planning any sale or lease of an eligible commercial building.  As a Section 63 Assessment is triggered by a sale or lease it is probable that issues will arise concerning liability under a commercial lease and, in relation to sales, the Action Plan impacting on the value of the building – prices may have to be adjusted!

If you require any further information on matter covered in this article then please contact Richard Shepherd on 01224 563344 or r.shepherd@jgcollie.co.uk