Capital Markets Corporate

July 12, 2019

Our Weekly Newsletter

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Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.

Cyber Coverage Clarity

Lloyd’s of London is taking steps to mandate that all insurance policies provide more transparency about the inclusion of cyber coverage in consumer policies. A phased approach will be used to implement the changes, the first being that property damage risks occurring on or after 1 January 2020 must explicitly declare whether coverage exists for losses as a result of cyber risks. (From Insurance Business, 05 July 2019)

Who’ll Pay For The Post Office?

After the 2008 financial crisis, around 3,500 UK bank branches have shut down, putting pressure on post offices to offer increased banking services to consumers such as cash and cheque services. MPs have criticised banks, saying they should bear the financial burden of post offices having to “act as proxy branches”. The Government has not yet mandated that banks pay for the additional work that Britain’s 11,500 post offices are now responsible for carrying out. (From Daily Mail, 11 July 2019)

Flood Re Wants To Cover Home Improvements

Flood Re is encouraging people who live in flood-prone areas to make improvements to their homes so they are less susceptible to flood damage. Flood Re, unlike traditional insurers, says it would prefer to pay for capital improvements for flood-prone homes, in effect, making insurance cheaper. (From Financial Times, 07 July 2019)

More Investors Actively Ditch Active For Passive

Investors have pulled out over £30 billion in active funds during 2019 as passive funds prove to offer stronger performance as a result of lower costs, less volatility, and greater asset diversification. Experts note that MiFID II has helped shine a light on the “true cost of investing”, which is adding to the negative sentiment towards active funds. (From Financial Times, 07 July 2019)

Pensioner Millionaires

The disparity between the wealthiest and poorest pensioners continues to grow, with the wealthiest seeing their weekly income increase by 15% over the last ten years to £988. The difference has grown dramatically to over £700 per couple per week, meaning those in the bottom quintile receive just £134 per week in pension income – far below the new state pension that offers £168.60 per week. (From Corporate Adviser, 08 July 2019)

IHT Shake-Up

Inheritance Tax is one of the most contentious levies families face at the end of a loved one’s life. But as the Government considers a root and branch reassessment of the tax, could more people end up facing a new burden, and will Britain’s wealthiest families be forced to pay a greater share?

The Office for Tax Simplification (OTS) published the second report in its inheritance tax (IHT) review last week, laying out recommendation for how IHT in the UK could be improved after a series of review sessions from the British public.

There is a general view that changes are clearly needed. The review was ordered by Chancellor Philip Hammond in his first Autumn Budget in 2017, and as new findings emerge, it looks as if the levy got its moniker “Britain’s most hated tax” for a reason.

Many of the rules around IHT benefit the wealthiest Britons who have the means to hire advisers to help juggle their assets and avoid the brunt of IHT. Today, many middle-income people are faced with higher IHT bills thanks to a massive rise in the amount of property wealth owned by the average elderly Briton.

And while many respondents to the OTS report have called for radical changes to IHT – or its eradication – the report only holds recommendations for simplification, not legislative changes.

And some of the recommendations made, if enacted, could help relieve the burden for those with estate planning practices in place. The seven-year gifting rule, where IHT is not payable on gifts made seven years before death, could be shortened to five, if one proposal is enacted.

Other rules that are commonly misunderstood could be simplified, such as lifetime gift limits and gifting from existing income. The recommendations could also remove a couple of loopholes for avoiding IHT that campaigners have been outspoken against for many years.

Whether these recommendations were what Phillip Hammond had in mind when he asked the OTS to review IHT remains to be seen, but what is clear is that investors, savers and advisers alike are now looking at HMRC to take action that could reset how much IHT is collected and from whom for generations to come.

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