November 2007

Welcome to the 11th edition of our Professional Connection e-bulletin.

We hope that you enjoy these e-bulletins. If you have any queries, or would like to discuss any of the issues raised with one of our consultants, please call us on 0845 788 9933 and quote EM-4491.

Towry Law continues expansion with a move to a larger London office

As part of our further expansion, we are delighted to announce that we will be moving our London operations to new, larger premises. This move follows our continued growth over the past year and the recent acquisitions of Baker Tilly Financial Services and MLP.

We will be moving from our current offices in Queen Victoria Street and Bedford Square to a new 18,500 sq/ft office space in the prestigious New Street Square development in EC4. The premises are currently being fitted out for our 80 London staff and should be ready for occupation by the end of the year. These premises will provide a high quality environment, with some stunning views, for clients and professional contacts who visit. They will also give us enough space to accommodate our future growth plans.

We will occupy the top two floors of Number 6 New Street Square which is a key part of the 500,000 sq/ft development which includes 30,000 ft of retail and leisure space.

Please click here for a photograph of the office.

Dave Percy
Head of Ops & IT

Shoosmiths - category winners

Towry Law continues to work closely with a number of the pre-eminent professional services firms. We are keen to support other advisers that show the same level of expertise, dedication to service and focus on putting the client first, as we do.

On Thursday 25th October Towry Law sponsored the 'Quality of Life Award' at The Law Society Excellence Awards.

The event was held at the Honourable Artillery Company in London, hosted by Jeremy Vine of the BBC.

The award itself was won by Shoosmiths (Birmingham). Please click here for a photo of them accepting the award from Andrew Fisher, Chief Executive of Towry Law.

Going forwards, we will continue to support the activities and events of our colleagues in both the law and accountancy professions.

Rebecca Warren
Marketing Executive

Financial Times pod-cast

On the 19th October 2007, Andrew Fisher, Chief Executive of Towry Law, featured on a FT pod-cast discussing the Retail Distribution Review with Matthew Vincent, Personal Finance Editor at the Financial Times.

This is the review set up by the Financial Services Authority in response to recurrent problems in the financial advisory industry. We have discussed in previous bulletins that Towry Law is keen for the review to adopt five key principles:

• Fees not commissions
• Education not ignorance
• Integrity not stealth
• Holistic not limited
• Independent not tied

Further details of these principles are featured in the Towry Law document, "Independent Wealth Advice in the UK - A campaign to improve the integrity of the industry", which can be accessed on our home page.

Andrew's discussion with Matthew Vincent largely focused around two of these areas, fee-based advice (fees) and improving qualification levels in the industry (education).

Click here to listen to the pod-cast.

You will then need to "Select your show" of the 19th October. Andrew's piece starts after 11 minutes and 13 seconds. It is worth a listen.

Patrick Connolly
Marketing and PR Manager

2007 Pre-Budget Report

In his first Pre-Budget Report, Chancellor Alistair Darling announced a number of measures which need to be considered in managing wealth.

Inheritance tax

The transferable nil-rate band is welcome and is generous as far as it affects existing widows, widowers and surviving civil partners. In reality, it has been fundamental to estate planning for couples to ensure that the nil-rate band is not wasted on first death, either by including a suitable trust in the Will or, post-first death, by using a deed of variation.

For wealthy couples, lifetime planning to reduce the taxable estate will still be important. Where it is considered desirable to retain a fully transferable nil-rate band on first death, maximum use should be made of exemptions, such as the annual exemption of £3,000 and the ability to make entirely exempt gifts out of surplus income. The Towry Law Loan Trust may also be used to reduce the taxable estate without any impact on the nil-rate band. Discounted gift plans remain available and the essential pre-underwriting of the settlor's life will ensure that some indication of life expectancy is available before the gift is made. Where lifetime gifts could impact on the transferable nil-rate band, life insurance on the donor should be considered.

It is remarkable that these solutions remain available and for wealthy couples, as well as single and divorced clients, they offer a significant estate planning opportunity. Planning should not be delayed as there is always the possibility that the Government will consider the measures on the nil-rate band generous enough to justify curtailing lifetime planning.

Capital gains tax

The new 18% flat rate capital gains tax charge has a significant impact on the relative attractiveness of the life insurance investment bond as a wrapper for new investments, particularly for higher rate taxpayers and trustees currently subject to a 40% rate on the disposal of chargeable assets.

Investment bonds are exempt from capital gains tax but income and gains are taxed as deemed income, with no allowance for any unused annual exempt amount and at the taxable person's highest marginal rate. Gains under collective investments such as in the Towry Law Wealth Management Service will be taxable at the new flat rate of 18%. Although income (and reinvested income) is chargeable on an annual basis, yield is not often the major part of the overall return.

Towry Law has already adopted new advice guidelines and investment bonds will be recommended only where the client's particular circumstances make this appropriate. We anticipate that an investment bond would now be recommended only where the tax structure is essential to inheritance tax planning arrangements or where the investment bond is used purely for cash management and the anticipated yield is high or where the benefits of tax deferral are demonstrably real. It is essential to look ahead and to consider the tax point when gains come into charge and the tax status of the taxable person at that time.

Following lobbying by insurance companies it is possible that the 2008 Budget will include further changes more favourable to investment bonds. We will therefore keep this issue under review and do not currently recommend cancellation of existing investment bonds where such an investment constituted best advice when it was made.

As a fee charging company, Towry Law is in an ideal position to give advice uninfluenced by the high levels of commission currently available where an investment bond is recommended.

Business owners

Owners of unquoted trading companies face a significant increase in tax on the sale of the business if taper relief is abolished from next April.

There are signals that a concession for business owners will be included in the 2008 Budget but we anticipate that in future it will be much more important to plan for the sale of the business so as to reduce the chargeable gain. One method of doing so is to extract profits by way of pension provision for the business owners, attracting tax relief on contributions and benefiting from a tax-favoured investment environment. Recent changes to pension legislation also mean that there is now more flexibility in taking benefits. Towry Law is able to assist in considering the role of pensions in remuneration and exit strategies for family businesses.

Where companies hold life insurance investment bonds it is essential that these are reviewed before the end of the current accounting period. For accounting periods beginning on or after 1 April 2008, an investment bond owned by a company will be taxed under the loan relationship legislation, giving rise to an annual tax charge. Offshore investment bonds are therefore no longer suitable wrappers for company investments.

Non-resident and non-domiciled clients

The Pre-Budget Report proposals will have a significant impact for non-resident clients visiting the UK and for long-term UK resident but non-UK domiciled clients.

Draft legislation and the promised consultation document are currently awaited but early action may be appropriate to secure the full benefit of current rules.

Towry Law has recently increased the number of advisers able to recommend investment and planning solutions for clients resident in the EU or resident but not domiciled in the UK. Please contact your usual adviser if you have such clients and where it would be appropriate to work in partnership in addressing current issues.

Michael Greenwood
Technical Liaison Manager

Market Commentary

Equity markets have been the main drivers of returns over the past year, despite set backs in February, and, more importantly, July and August. Asia and Emerging Markets have been outperforming for five years now, and this superiority was particularly marked over the past year. For example, the average pension fund investing in Asia was up 57%, whereas the average UK fund gained a more sedate 12%. The Emerging Market story remains intact, but some individual countries, such as China and India (and maybe even Brazil) look to be valued at bubble levels and the risk/reward trade-off does not appear to be in their favour. Nevertheless, investors, if history is any guide, rarely seem able to stop buying high and selling low, let alone rebalance their portfolios, and so further momentum purchases do seem inevitable. September was the record month for Emerging Market mutual fund inflows, and the last couple of months have seen more invested than in the whole of 2005 or 2006 - and this, of course, after five years of out performance (you can't buy historic returns!).

The returns from bond markets were rarely better than flat over the year. However, high quality bonds were seen as a safe haven during the uncertainty of July and August and rallied strongly. This emphasised their qualities and importance in portfolio construction terms, and was an important fillip, coming on the back of 18 months of unusually poor returns.

Commercial Property, another asset class to have been flat over the last year, or at least in terms of bricks and mortar, is held in Towry Law client portfolios. Many pension funds and private investors, however, will have invested in listed property company shares, where returns have been negative. Property transactions have been ebullient to say the least, in part due to the presence of leveraged speculators. These have now been priced out of the market by higher borrowing costs, and the froth is getting blown off valuations. This consolidation is a welcome event, as prices had run ahead of themselves and the long term growth rate of this asset class.

Future prospects

Whilst it is usually impossible to predict the future, make sense of all the variables, or assimilate all the information available to today's investors; it is nevertheless rare for the investment outlook to be quite as uncertain as it is now. Much of this is because no one knows how long it will be before the sub prime debacle fully plays out, and what impact this will have. Will the US enter recession (a sporting chance) and will this cause a contagion effect elsewhere in the Western world or indeed across the globe in entirety? Or can the emerging world finally decouple from Wall Street?

The last couple of months have seen stock markets worrying about whether the glass is half full or half empty, and with little real conviction as to how to price a dollar of earnings, especially when that dollar of earnings is now so uncertain.

One also has no idea how much worse the US housing market may get - 6% of sub prime mortgages sold in 2007 defaulted in their first 3 months - or whether there might be any similar action to play out in the UK. In the US, house prices were actually being propped up by sub prime borrowers (those that could least afford it and were the last to arrive at the party), and structured debt markets were being propped up by investors essentially in the same boat and both were overly reliant on borrowed money, which dried up quickly. Banks were quick to pass on the debt, but then found that those that bought it, such as hedge funds, often had credit lines to the self same banks, so like a bout of malaria, it repeated the visit and the problem.

One of the key benefits of multi asset class investing is the lower volatility of returns, and reduced downside risk. This can be helpful from a "sleep at night" perspective, but also comes into its own, from a mathematical angle, during more volatile periods. So, diversified multi asset class portfolios remain an intelligent investment choice for a future where few sensible analysts are prepared to forecast beyond the end of their own noses.

Andrew Wilson
Head of Investment

This Global Markets Commentary is solely for information purposes and is not intended to be, and should not be construed as investment advice.

Whilst considerable care has been taken to ensure the information contained within this commentary is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information and no liability is accepted for any errors or omissions in such information or any action taken on the basis of this information.

The opinions expressed are those of Towry Law Investment Management Limited on behalf of Towry Law Financial Services Limited and are made in good faith, but are subject to change without notice.

IMPORTANT NOTICE: Towry Law Financial Services Limited. Registered in England No. 607039. Towry Law Investment Management Limited. Registered in England No.793636. Towry Law Trustee Company Limited. Registered in England No. 1151146. Towry Law Pension Trustees Limited. Registered in England No.781047. All of the above firms are authorised and regulated by the Financial Services Authority. Towry Law Holdings Limited. Registered in England No.4773122. Towry Law Nominees Limited. Registered in England No.2988101. Towry Law Services Limited. Registered in England No. 5169111. The Registered Office of all these companies is Towry Law House, Western Road, Bracknell, Berkshire, RG12 1TL. Telephone 01344 828000.

We may record telephone calls to protect both of us and for training purposes. We may also monitor the content of email communications and by sending an email to us or responding to an email from us you acknowledge and accept that any such email communications may be monitored. The information contained in this e-mail is intended only for the individual or entity to whom it is addressed. It may contain privileged and confidential information and if you are not an intended recipient you must not print, copy, distribute or take any action in reliance on it. If you have received this e-mail in error, please notify the sender by using the reply function, and then delete the message from your computer. Although this message and any attachments are believed to be free of any virus or other defect that might affect your computer system into which it is received and opened, it is the responsibility of the recipient to ensure that it is virus free, and no responsibility is accepted by Towry Law for any loss or damage in any way arising from its use.