Welcome back from holiday traders. Never in 27 years writing about the state of financial markets, have I seen as much negativity in financial markets as I saw in December. This relates to forecasts for the year ahead. Yes, there have been moments of more acute terror, like the collapse of Lehman Brothers in 2008 or the start of the global pandemic lockdowns in March 2020.
But in terms of sheer doom and gloom, the end of 2022 is going to be hard to match. This is especially true if you are a UK-based investor, and you are reading some of the economic forecasts polled by the Financial Times, for example. But I would argue that it is still possible for the canny investor to make money, even in the current circumstances.
This year I have resolved to make my tip sheet a more regular thing. It will feature my thoughts on stocks and wider financial markets. I have many, many conversations with investors, both amateur and professional, in the course of the average month, and I’ll be featuring some of that intelligence in this column too.
Screen, screen and screen again
I spend a lot of time running screens of stocks as part of my initial criteria when generating trade ideas. I’ll be going into more detail on my methodology in the course of this year. It has been interesting how, during the turbulence of 2022, these screens have pointed towards very specific sectors as areas of potential growth in the middle of an embattled global economy.
Good examples have included the energy and commodity sectors in the first half of the year, which helped us to capture the upside from companies like Glencore LON:GLEN for example. In 2H we saw some great companies pop up in the Healthcare and the Defence sectors. I recently tipped Babcock LON:BAB as a potential turnaround story in Defence. This year we’ll also be adding to the names we follow in the small caps space, both in the UK and further afield. Make sure you sign up to our premium AT+ service to get the full benefit from this.
- Hargreaves Lansdown cheers FCA vision for UK investment culture
- A Christmas gift isn’t always something children can unwrap
- Zopa and Upvest to launch investment platform for UK’s “reluctant investors”
UK investors facing bigger tax burden
If you are a UK investor, you will be facing a larger tax burden in 2023. This was inevitable. The government has not really paid for all those bail outs in 2009, and now there is the bill for the pandemic to be settled as well. Hargreaves Lansdown estimates that UK residents are already nursing an £800 hit to their disposable incomes, thanks to inflation and rises in interest rates.
The dividend allowance falls in April from £2,000 to £1,000 – and will halve again the following April. To add insult to injury, shareholders in the UK will also be taxed at the higher rates introduced last April – at 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers. Business owners who pay themselves with dividends out of profits will take a hit at a time where they’re facing threats to their businesses from all angles – from runaway energy bills to rising prices and wage bills.
In addition to the hit on dividends held outside of tax wrappers and exceeding the new smaller allowance, investors face a capital gains tax blow too, with the annual allowance slashed from £12,300 to £6,000 – before being halved to £3,000 the following April. Having invested diligently for the long term to build their financial resilience, it’s going to feel particularly unfair to be trapped by this allowance-cutting pincer movement.
We keep banging the drum for stocks and shares ISAs on this website, and there is a reason. Every UK resident has a £20,000 tax free ISA entitlement, so the first twenty grand you invest, every year, is tax free. A stocks and shares ISA, which is provided by many UK brokers, allows you to park some or all of your trading activity into a tax free wrapper. If you don’t have a stocks and shares ISA yet, you still have three months to make the most of your tax free allowance before the current tax season ends.
