Weekly Briefing: changes in the new tax year, rising UK mortgage approvals & SVB acquisition
Before heading into the new tax year, investors may find it useful to review the tax changes coming into force on April 6th. With a number of allowances and bands being lowered significantly, the importance of tax-efficient investments is certainly being highlighted. Furthermore, the partial acquisition of Silicon Valley Bank by First Citizens could help to calm global stock markets, providing some form of stability after weeks of uncertainty in the banking sector.
Bank of England remains focused on reducing inflation
- Andrew Bailey, Governor of the Bank of England, stated this week that the UK banking system is "resilient" and the main focus for the Bank of England remains tackling high inflation.
- This comes after the Bank of England increased the Base Rate for the eleventh consecutive time, from 4.00% to 4.25%.
- Bailey said that despite "big strains in parts of the global banking system" he remains confident in the banks due to their “robust capital and liquidity positions” and believes they are still “well placed to support the economy."
Dampened global growth forecast for the next decade
- The global economy may be entering a “lost decade” for global economic growth amidst financial instability and high inflation, according to the World Bank.
- The organisation stated that global economic growth could average 2.2% for the next decade, the lowest rate in 30 years.
- By comparison, in the 2000s, the average global economic growth figure was 3.5%, and it was 2.6% for the most recent decade.
- Reasons behind the decrease include lagging productivity and lasting repercussions of Covid-19, coupled with recent banking stress.
- The authors of the World Bank report noted that potential GDP growth could be boosted as high as 2.9% if nations prioritise growing labour supply, increasing productivity and incentivising investment.
SVB partially taken over by First Citizens
- North Carolina lender First Citizens has agreed to take over the majority of Silicon Valley Bank, assuming $238 billion worth of assets, deposits and loans held by the entity.
- As part of the transaction, the Federal Deposit Insurance Corporation (FDIC) stated approximately $72 billion of assets are being bought at a discount of $16.5 billion.
- Around $90 billion in securities and assets will remain in receivership to be sold by the FDIC.
- SVB’s clients will automatically become First Citizens customers, offering reassurance to many startups and VCs.
- In a statement, First Citizens chairman and CEO Frank Holding said that the bank is "committed to building on and preserving the strong relationships that legacy SVB's global fund banking business has with private equity and venture capital firms".
- The deal comes a week after troubled financial institution Signature Bank – which was also closed by regulators following mass withdrawals – was acquired by Flagstar Bank.
- SVB’s acquisition will likely have a calming effect on banking stocks which have fallen significantly in recent months. For example, Europe’s Stoxx 600 Banks Index was up 0.73% following the news.
UK tax update
Changes to be aware of heading into the new tax year
- With the new financial year fast approaching, many experienced investors and high-net-worth-individuals are finalising their tax plans and considering investment allocations for 2023/24.
- As a result, a reminder of some of the main tax changes coming into force in the UK on Thursday 6th April may be useful:
- Income tax: 45% additional rate threshold is being lowered from £150,000 to £125,140
- Capital gains tax (CGT): annual exempt amount is falling from £12,300 to £6,000
- Dividends tax: allowance is being halved from £2,000 to £1,000
- Inheritance tax (IHT): nil-rate band freeze at £325,000 is to be extended until 2028
- UK investors can utilise a number of tools to plan for the upcoming tax changes, with two main tax wrappers – the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) – offering investors a generous range of tax reliefs in return for supporting eligible startups and scaleups.
The startups most likely to reach unicorn status in 2023
- Last year, the UK produced 11 unicorns (private companies with a valuation of £1 billion, often backed by venture capital) – more than any other country in Europe – and accounted for 23% of the 47 total unicorns established in Europe in 2022.
- Sifted, a media site for early-stage businesses and owned by the Financial Times, highlights 12 UK-based startups that are close to reaching unicorn status, according to data gathered by Dealroom.
- The data highlights companies such as Stenn, Quantexa and GWI, each with current valuations of £900m, £850m and £850m, respectively.
High PE activity key differentiator for top-performing M&A markets
- New global studies of Adobe and Salesforce suggest that heightened private equity interest will see deal rates maintain higher levels over the coming year.
- Relative share prices for key partners of Adobe rose at around 50% throughout 2022, whilst Adobe shares surpassed 100% growth at various points in the year.
- As a result, there is heightened strategic and private-equity interest in Adobe partners.
- Again, heightened private equity and private equity-backed demand was key to the continuing popularity of deals for Salesforce partners.
- High private equity activity has been recognised as one of the key differentiators between M&A markets which are currently outperforming the wider market.
UK’s first long-term asset fund designed to support net-zero has been launched
- Schroders Capital, the private markets division of Schroders, has launched the UK’s first long-term asset fund (LTAF), which is designed to help UK pension fund investors support the transition to net-zero.
- The private equity focused Schroders Capital Climate LTAF, which launched on Wednesday 29th March, received regulatory approval from the Financial Conduct Authority earlier this month.
Mortgage approvals rise in the UK
- UK mortgage approvals rose for the first time in six months in February 2023, amid signs that the collapse in demand for property seen last autumn might be levelling out.
- Figures from the Bank of England showed that home loan approvals rose from 39,647 in January to 43,536 in February – reversing a downward trend in place since August 2022.
- Whilst mortgage approvals did rise month-on-month, Andrew Wishart, UK property analyst at Capital Economics, stated that “our forecast is that approvals will be 30% lower this year than in 2022.”
A final note
As we approach the 2023/34 tax year, considering investment options with the ability to maximise returns and tax-efficiency whilst minimising risk is understandably a top priority for investors. Utilising wrappers such as ISAs and the EIS and SEIS can help investors to meet their investment objectives in an increasingly challenging tax environment and wider economic climate.