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WAY urges government to look to AIM to achieve IHT-driven solution to care funding crisis

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Synechron Partnered with CapSpecialty to Build Solution for Excess Casualty

WAY Investment Services is urging the Office of Tax Simplification to focus on simplification in its IHT review, by scrapping the Residence Nil Rate Band (RNRB) and aligning the rules for AIM with the rules for gifts. WAY experts say that cleaning up the rule book could generate additional revenue that could contribute significantly to funding care, as well as encourage more appropriate investment strategies by older investors.

In its feedback to the consultation, WAY experts recommended that the RNRB is removed completely, as the current rules are too complex and unfair, with a bias against people without children.

Whilst this could lead to reduced tax receipts, any loss of revenue could be more than countered for by aligning the AIM rules with the gifting rules for inheritance tax. Currently, certain AIM investments qualify for potential inheritance tax exemption after two years, which may seemingly offer an opportunity to mitigate inheritance tax in comparison with making a gift. But the rules can easily be misunderstood;firstly, only Business Property Relief (BPR)-eligible investments in AIM qualify for the exemption after two years, yet not all investors may be aware of this rule. In addition, clients may not be aware that they need to remain invested AIM for the rest of their life for the inheritance tax exemption to apply on their death.

WAY gives the example of a 60-year-old who may have a typical life expectancy of a further 24-26 years. Within such a timeframe, a holding may move from AIM – whether to another Index or outside a listing, which would require an investment decision to be made. Neither can there be any guarantee that the rules will not change again over the next two or three decades.WAY says that aligning the rules for AIM investments with the rules for gifting would create greater certainty, and encourage more appropriate financial planning strategies.

 John Humphreys

John Humphreys

The AIM market has recently been valued at approximately £108bn*, and it has been estimated that around a third of the investment has been invested with intention to mitigate IHT**. If the BPR rules were returned to the original Finance Act 1976 definition and AIM share investments were no longer IHT exempt after two years, WAY estimates additional IHT up to £14.4bn could be raised for the Treasury, which would more than offset any loss in revenue from scrapping the RNRB, as many of those invested in AIM may be unlikely to survive seven years.

However, WAY says that the inheritance tax relief on AIM investments should not be removed completely (unlike the Association of Accounting Technicians, who have suggested IHT relief on AIM investment be removed completely). Such a drastic move could be to the detriment of clients if it encouraged divestment for the wrong reasons and could have a very negative effect on AIM – with the potential for investments to devalue very quickly.

 John Humphreys, Inheritance Tax Specialist at WAY Investment Services, comments:

“We welcome the review into IHT that is taking place. It is clear that the rules have, over time, become far too complicated. Anything that needs to be explained through 18 case studies is, by definition, not clear – and that is exactly how the RNRB is explained on the HMRC website. The complexity of the rules also means they are open to mis-interpretation. The review now gives a great opportunity to step back and shorten the rule book. Scrapping the RNRB and adding the same incremental increases to the main NRBis a great place to start as it would instantly sweep away a whole layer of complexity and unfairness.

“The current rules for AIM investments encourage behaviour which may not be in clients’ best interests. The intention of the original Finance Act 1976 was for families to be able to pass down businesses without incurring an inheritance tax charge that would require the businesses to be broken up. As time has passed, that intention has been lost. The rules are driving people to invest in AIM to avoid inheritance tax, which should never be the primary motive.Investment in AIM is an extremely important part of the economy and young companies need to be given every change to succeed. But it is important to be realistic about the risks.

“AIM investments are being used by too many people as a quick fix for solving an inheritance tax problem. Whilst such investments are entirely appropriate for some, they certainly aren’t for all, especially older clients with reduced life expectancy. Yet this could be precisely the group that are being encouraged to make these investments. This is often the archetype tax tail wagging the investment dog and an investment dog.

“The issues of NHS and social care funding for the elderly and inheritance tax are inextricably linked, so we have to consider them together in order to find solutions. We strongly believe that any changes need to focus on simplification. This means aligning rules and removing unnecessary rules, with AIM and the RNRB key targets. We sincerely hope that the outcome of the review are clear, simplified rules, that encourage investment in the best interest of both clients and companies, leading to better outcomes for all.”

* Source: London Stock Exchange

** Source: Investor’s Champion

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Dollar edges lower as investors favor higher-risk currencies

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Dollar edges lower as investors favor higher-risk currencies 1

By Stephen Culp

NEW YORK (Reuters) – The dollar lost ground on Friday as market participants favored currencies associated with risk-on sentiment over the safe-haven greenback.

Risk appetite was stoked by better-than-expected economic data and expectations that U.S. President Joe Biden’s proposed $1.9 trillion coronavirus relief package will come to fruition.

“The dollar’s down against other currencies but not by a whole lot,” said Oliver Pursche, president of Bronson Meadows Capital Management in Fairfield, Connecticut. “I expect the dollar to be where it is now at the end of the year, and the main reason for that is while I see some signs of improvement in the economy, monetary policy is going to stay where it is.”

“I don’t think the dollar is underpriced or overpriced,” Pursche added.

For the week, the dollar slid about 0.2% against a basket of world currencies, the euro was essentially flat, and the yen lost more than 0.5%. But the British pound advanced more than 1.1% against the dollar, its best week since mid-December.

Bitcoin continues soar to record highs. The world’s largest cryptocurrency was last up 6.6% at $54,961.67, hitting $1 trillion in market capitalization.

Its smaller rival, ethereum, was last up 0.7% at $1,953.28.

The digital currencies have gained about 89% and 1,420%, respectively, year to date, leading some analysts to warn of a speculative bubble.

“One concern I’ve always had (about cryptocurrencies) is how susceptible they are to manipulation,” Pursche said. “But they’re going to continue to gain legitimacy.”

“While it’s great that Tesla made an investment in bitcoin, I’m more intrigued by Blackrock and other major investment firms taking a hard look at cryptocurrencies as a viable investment.”

The Australian dollar, which is closely linked to commodity prices and the outlook for global growth, was last up 1.21% at $0.7863, touching its highest since March 2018.

The New Zealand dollar also gained, closing in on a more than two-year high, and the Canadian dollar advanced as well.

Sterling, which often benefits from increased risk appetite, rose to an almost three-year high amid Britain’s aggressive vaccination program. It had last gained 0.27% to $1.40.

The euro showed little reaction to a slowdown in factory activity indicated by purchasing manager index data, rising 0.21% to $1.2116.

The yen, gained ground against the dollar and was last at 105.495, creeping above its 200-day moving average for the first time in three days.

(Reporting by Stephen Culp, additonal reporting by Tommy Wilkes; editing by Jonathan Oatis)

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Shares rise as cyclical stocks provide support; yields climb

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Shares rise as cyclical stocks provide support; yields climb 2

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – A gauge of global equity markets snapped a 3-day losing streak to edge higher on Friday, as the recent selling pressure on high-flying big technology-related stocks eased even as investors showed a preference for economically sensitive cyclical sectors.

Oil prices fell from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather, while the U.S. Treasury yields extended their recent rise.

The MSCI’s global stock index was up 0.47% at 681.88, after losing ground for three consecutive sessions.

On Wall Street, stocks steadied as cyclical sectors edged higher while tech names made modest advances after concerns about elevated valuations led to some selling in recent sessions.

“What we saw (this week) represents a market that is tired and may not do very much. So we are headed for some sort of a pullback, but I don’t think we’re there just yet,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

“Investors are not really pulling out of the market, but they are becoming more cautious. It already has factored in another good positive earnings season.”

The Dow Jones Industrial Average rose 119.97 points, or 0.38%, to 31,613.31, the S&P 500 gained 12.93 points, or 0.33%, to 3,926.9 and the Nasdaq Composite added 92.58 points, or 0.67%, to 13,957.93.

The S&P 500 technology and communication services sectors, housing high-value growth stocks, were among the smallest gainers in early trading, while financials, industrials, energy and materials rose more than 1%.

European shares edged higher on Friday as an upbeat earnings report from Hermes boosted confidence in a broader economic recovery. The pan-European STOXX 600 index was 0.64% higher.

U.S. Treasury yields on the longer end of the curve rose to new one-year highs on Friday as improved risk appetite boosted Wall Street, while the yield on 30-year inflation-protected securities (TIPS) turned positive for the first time since June.

Core bond yields have pushed higher globally, led by the so-called reflation trade, where investors wager on a pick-up in growth and inflation. Growing momentum for coronavirus vaccine programs and hopes of massive fiscal spending under U.S. President Joe Biden have spurred reflation trades.

The benchmark 10-year yield was last up 5.1 basis points at 1.338%, its highest level since Feb. 26, 2020.

Oil prices retreated from recent highs for a second day on Friday as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.

Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude oil production and 21 billion cubic feet of natural gas, analysts estimated.

Brent crude futures were down 28 cents, or 0.44%, at $63.65 a barrel, while U.S. West Texas Intermediate (WTI) crude futures fell 66 cents, or 1.09%, to $59.86.

Copper jumped to its highest in more than nine years on Friday and towards a third straight weekly gain as tight supplies and bullish sentiment towards base metals continued after the Chinese New Year.

Spot gold XAU= was down 0.58% at $1,785.71 an ounce.

The dollar lost ground on Friday, extending Thursday’s decline as improved risk appetite sapped demand for the safe-haven currency and drew buyers to riskier, higher-yielding currencies. The dollar index was off 0.295%.

Bitcoin hit yet another record high on Friday, hitting a market capitalization of $1 trillion, blithely shrugging off analyst warnings that it is an “economic side show” and a poor hedge against a fall in stock prices.

(Reporting by Saqib Iqbal Ahmed; Editing by Nick Zieminski)

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Oil falls after surging past $65 on Texas freeze

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Oil falls after surging past $65 on Texas freeze 3

By Stephanie Kelly

NEW YORK (Reuters) – Oil prices fell on Thursday despite a sharp drop in U.S. crude inventories, as market participants took profits following days of buying spurred by a cold snap in the largest U.S. energy-producing state.

Brent crude fell 41 cents, or 0.6%, to settle at $63.93 a barrel. During the session it rose as high as $65.52, its highest since January 2020.

U.S. West Texas Intermediate (WTI) crude futures fell 62 cents, or 1%, to settle at $60.52 a barrel, after earlier reaching $62.26, the highest since January 2020.

Brent had gained for four straight sessions before Thursday, while WTI had risen for three.

“The market probably got a little bit ahead of itself,” said Phil Flynn, a senior analyst at Price Futures Group in Chicago. “But make no mistake, this selloff in oil doesn’t solve the problems. The problems are going to persist.”

Though some Texas households had power restored on Thursday, the state entered its sixth day of a cold freeze. It has grappled with refining outages and oil and gas shut-ins that rippled beyond its border into Mexico.

The weather has shut in about one-fifth of the nation’s refining capacity and closed oil and natural gas production across the state.

“The temporary outage will help to accelerate U.S. oil inventories down towards the five-year average quicker than expected,” SEB chief commodities analyst Bjarne Schieldrop said.

Prices dropped despite a decrease in U.S. oil inventories. Crude stockpiles fell by 7.3 million barrels in the week to Feb. 12, the Energy Information Administration said on Thursday, compared with analysts’ expectations for an decrease of 2.4 million barrels.

Crude exports rose to 3.9 million barrels per day, the highest since March, EIA said.

“The big nugget was the big jump in exports of crude oil,” said John Kilduff, partner at Again Capital in New York. “We’ll have to see what happens with that next week weather in Texas, but I have been looking for a pickup there for a while.”

Oil’s rally in recent months has also been supported by a tightening of global supplies, due largely to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the OPEC+ grouping, which includes Russia.

OPEC+ sources told Reuters the group’s producers are likely to ease curbs on supply after April given the recovery in prices.

(Additional reporting by Yuka Obayashi in Tokyo; editing by Emelia Sithole-Matarise, Steve Orlofsky, David Gregorio and Jonathan Oatis)

 

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