The Daily Telegraph - Your Money
Five sectors to double your cash in eight years
James Davidson’s buy-to-let is in a cladded block. Can he use the crisis to lower his tax bill? Melissa Lawford investigates
Investors should buy into the five fastest-growing “themes” to be in with a chance of substantially boosting savings pots, experts have said.
Savers could make strong returns and double their cash in eight years, without using highly speculative bets. Fund firm Axa Investment Managers has said there are five “themes” where businesses involved could double in value before 2030. Its research found investors could experience returns of at least 10pc per year over the next decade.
Telegraph Money looks at the key areas savers should buy. 1 ONLINE SPENDING The rise of e-commerce has been accelerated during the pandemic, but there is still much further to run, according to Axa IM’s Mark Hargraves.
The number of e- commerce transactions remains paltry in comparison with overall sales and there is every expectation the shift will take place. In America just 18pc of payments are made online, while in Britain this rises to 20pc. In 2019, e-commerce transactions accounted for around 14pc of all sales, but this is expected to jump to 20pc by 2023. 2
AN AGEING POPULATION Humans are living longer and this creates potential opportunities for investors. The healthcare sector is geared towards ensuring people live longer and more elderly patients has created the need for better medical treatment.
In 2018, there were one billion people aged over 60 worldwide but this will increase 42pc to 1.4 billion by 2030, representing 16pc of the population. People over 60 will account for 55pc of total spending globally, Mr Hargraves said, primarily putting money into their health.
“Demand for healthcare is almost unlimited,” he added.
CLEAN ENERGY Social pressure and regulatory support to reduce the use of fossil fuels has caused a boom in renewable energy that is unlikely to dissipate. Yet in 2020, clean energy accounted for just 9pc of the global energy consumption. This is expected to rise to 25pc by 2030, the research said. Electric vehicles will also benefit ( see above). Mr Hargraves estimated eco- cars will account for one third of all global sales over the next decade and 90pc by 2050.
AUTOMATION Robots are becoming more affordable and will be key to unlocking growth in the future, according to Mr Hargraves.
He said: “A shrinking labour force means we need to find new ways to work intelligently using technology.”
The number of robots in the world is expected to rise from two million in 2019 to 20 million by 2030 and advancement in technology will lead to a rise in productivity and efficiency.
The robotics market could grow 10pc to 15pc a year over the next five years. The introduction of 5G and artificial intelligence should keep this growth rate going for a decade. 5 RISING MIDDLE CLASS In 2018 there were 3.6 billion people with middle- class wealth, but this is set to rise to 5.3 billion by 2030. This is led by a rise of wealth in the emerging markets, amid a transition from informal economies to developed countries.
“Fast- developing societies will create new opportunities. Growing wealth will mean higher demand for goods and services,” he said.
The pandemic has led to a spike in savings, particularly among those between the ages of 35 and 44, with British workers setting aside an average of £2,673 in cash.
There has been a growing divide between those who have squirrelled away more money and those who have had to take a pay cut, faced redundancy or been excluded from government support. Millions of workers who continued to receive their full income have cut their costs on everything from commuting and holidays to eating out.
The Bank of England estimated from March to November alone,
British households built up an extra £125bn in savings. This represents five times as much as in any other nine-month period in history.
More than two thirds of people have been able to put money away during the pandemic, according to a study by Gatehouse Bank, a savings provider. Basic savings accounts were the most common location, while 28pc of people saved into an Isa, according to research compiled by Wesleyan, a financial adviser. It found those aged 35 to 44 had saved the most during lockdown, putting aside an average of £297 a month.
Kevin Brown of Scottish Friendly, an investment group, said: “Recessions in Britain have typically led to a sustained increase in retail saving but there has never been a spike as severe as there was in 2020.”
The pandemic has ushered in a new culture of higher saving, as workers are expected to set aside an average of £3,023 in 2021, according to analysis from Scottish Friendly and the Centre for Economics and Business Research, a consultancy.
The cladding crisis has wreaked havoc on the lives of thousands of leaseholders. But can the absurd system, in which homes can be valued at nothing, also mean some homeowners can benefit from tax perks?
James Davidson, 58, works full-time and has a portfolio of three buy-to-let properties. His son, 24, has finished university and is living with his parents while he works from home.
Mr Davidson, who spoke using a different name, wants to gift one of his buy-to-let properties to his son.
But the property in question – a onebedroom leasehold flat in Lambeth, south London, that Mr Davidson bought six years ago for £300,000 – has cladding problems. An inspection also revealed wider safety problems such as incorrect fire breaks.
The building does not have an external wall safety form ( EWS1) and the managing agent does not yet know what the remediation costs will be.
The block is less than 18m high, meaning it will not qualify for g government funding for cladding adding remediation works, but could d qualify for low-interest loans.
“My impression is that we will have to pay for our share of the he works,” said Mr Davidson.
“A surveyor told me that the property has no value without an EWS1 and it just dawned on me: can we gift the property to our son and not pay capital gains tax?”
But the property would come with baggage. He added: “Is it wise to gift the property anyway if our son has to face the cost of cladding issues further down the line?”
If gifting the property to his son through this loophole is not viable, Mr Davidson wants to look at other ways that he can help him financially. He has a surplus monthly income of £2,500.
For CGT purposes, Mr Davidson and his son are “connected” parties. Where gifts are made between connected parties, the disposals take place at market value. The definition of market value is “the price which those assets might reasonably be expected to fetch on a sale in the open market”. If the value of the Lambeth property is nil because it does not have an EWS1 form, Mr Davidson’s deemed proceeds would therefore be nil for CGT purposes. This means he could potentially gift the property to his son without incurring any CGT. Mr Davidson should obtain a formal valuation to confirm the market value of the property in case HMRC challenges the position. If he would like certainty regarding the CGT position, it is possible to use HMRC’s post-transaction valuation check procedure. This is only available once the gift has been made. If a capital loss is realised, relief for the loss would only be allowable against gains arising on future disposals to his son. There is another way that Mr Davidson could lower or avoid a CGT bill completely. As he points out, if the property is gifted now, it is his son who would need to meet the costs of future remedial wor works. If Mr Dav Davidson were to wait, and pay for the these repairs himself, the costs inc incurred should be deductiblewh ble when calculating the capital gain gain, along with any other capital ca improvement costs m made to the property while he has owned it. He should think about the likely costs involved versus the eventual market value, and whether he would be able to afford any capital gains tax bill that did arrive once all costs have been deducted. If the property is held jointly with his wife then two annual exemptions of £ 12,300 ( based on current rates) could be available, meaning a net gain of £ 24,600 could be realised before CGT becomes payable. If there is an outstanding mortgage on the flat, a stamp duty charge may arise on transferring it to his son’s name, depending on its value. Mr Davidson may therefore want to think about paying off mortgages on any properties he may consider gifting.
Michael Martin Private client manager at Seven Investment Management
The tax system is a series of cul-de-sacs. Depending on the one you choose, there is always a tax at the end of it. Parents do not want to pay 28pc CGT, but they also do not want their estate to pay inheritance tax at 40pc.
It’s important to remember that tax treatments will depend on your individual circumstances and can change in the future. The question of whether gifting a property is sensible is a great one. When it comes to gifting, cash is king. My view is to always consider simplicity first.
When you give someone a present there should be no conditions. Gifting cash would be like Mr Davidson giving his son a crisp £20 note in a birthday card. The recipient can buy anything they want. When it comes to IHT, as long as the person giving the gift lives seven years, everything works out perfectly. This is a true gift.
Gifting a property, however, is comparable to gifting a cardigan. Mr Davidson might love it, but his son might not. This kind of gift restricts his options.
In this scenario, if he wants to help his son, it may be prudent for Mr Davidson to sell one of his other properties, as CGT is still very low historically at 28pc (it will not stay there forever).
Then Mr Davidson can sort out the cladding issue (the unwanted cardigan in this scenario).
When Mr Davidson has sorted the cladding issue, he may wish to sell that property as well, and simply give his son the money.
Mr Davidson could also consider gifting his excess income each month to his son as cash, or into a life assurance policy. Gifts out of excess income have no seven-year clock.