My usual glib remarks seem terribly misplaced against the events that have happened this week in Nepal and Tibet. Usually, I would probably have tried to weave some Dolly Parton songs into the bulletin, but I have a Nepalese brother-in-law, thankfully not from the affected region but it brings things closer to home, so I’ll try a little bit.
But life, in general, does go on as reflected in the markets this week so I will undoubtedly go back to my normal self. The Ftsee100 share index was looking very nice up to Wednesday, but a rapid rethink meant it ended the week just about where it started!
Over in the US Nvidia reported a blowout quarter, and shares rallied as the chip giant forecast 70% revenue growth next year and defended its financial support of AI companies. Nvidia’s results show that the AI boom is not running out of demand … while delivering that growth is becoming more expensive and capital-intensive,” said Lale Akoner, global market strategist at eToro.
Morgan Stanley said in a note on Thursday that Nvidia’s forecast for revenue growth of 70% next year is well above Morgan Stanley’s estimate for a 52% rise and that the consensus estimate is closer to 40%. “We would expect Nvidia to continue to knock down barriers to higher growth,” said analyst Joseph Moore in the note.
BUT Kevin Warsh appears to have gotten Wall Street’s memo regarding his communication style according to David E. Rovella at Bloomberg. The rookie Fed Chair on Friday provided some clarity on his views regarding US inflation, warning that it isn’t slowing in a meaningful fashion and that policymakers must be confident that it is, otherwise the central bank has “work to do.”
Though he stopped short of signalling he would support an interest-rate hike when Fed officials gather in September, his remarks appeared to reassure investors who have boosted bets that the Fed will raise rates to rein in inflation.
Warsh’s highly anticipated comments came amid criticism of his pared-back public information strategy that economists and market participants said lacks clarity on the near-term outlook for the economy and monetary policy.
Markets seemed to dampen there enthusiasm afterwards with falls on Friday across the board but overall it was a good week technology in particular with a 1.4% rise in the Nasdaq.
The flow of crude through the Strait of Hormuz is creeping higher as producers across the Middle East boost exports in the face of Iran’s lingering threat to shipping. The increase is keeping global crude oil prices in check.
About 6 million to 8 million barrels a day of crude are now being shipped through the world’s key oil chokepoint, according to estimates from oil traders involved in and monitoring cargo activity. Flows slipped in July amid an onslaught of attacks on supertankers by Iran. They remain at roughly half pre-war levels. And as a reminder today marks six-months since the Iran/US conflict started, and I don’t think many of us would have thought that would be the case.
Expert Commentary
Maybe it’s the summer slow season that means markets are less enthusiastic than they might otherwise be as the Tatton Weekly only has two bullet points this week and a cartoon that explains what that green fuzz is appearing all over the garden this week. Is it OK to be fed up with the weather already!!
- Tantrums and other 21st century resolution mechanisms – Market action was perhaps the quietest it has been all summer, although the same cannot be said about the geopolitical cacophony
- Outlook for the rest of 2026 – back to school – As investors return from their summer break, we update our market outlook. Economic growth is robust, profits are substantial and markets are moving in line with those basic fundamentals – sunny with showers for now, occasional thunderstorms and, hopefully, a fruitful autumn as a result.
Last week, news hit the market that artificial intelligence (AI) research and development startup Anthropic could become a listed company as early as October, with a touted $2tn valuation.
In their latest Weekly Digest, Rathbones discusses how this is a truly meteoric rise for a company very few had heard of even a year ago. However, market sentiment towards the AI complex has become more mixed of late, with more focus on competition between models than we’ve ever seen before. In AI, the landscape shifts fast so today’s loser can quickly become tomorrow’s winner.
Meanwhile, software companies are proving more resilient to AI disruption than many expected.
Guy Foster, chief strategist at RBC Brewin Dolphin, outlines three key factors shaping debt sustainability as debt-to-GDP ratios climb and fiscal repair remains politically out of reach in the latest Markets in a Minute, touching on the following:
- Washington and the yield curve: The U.S. Treasury doubling its buybacks of outstanding debt adds evidence of financial repression.
- UK inflation rose: UK inflation data for July came in at an annual rate of 2.9% on Wednesday. The first rise in four months suggests inflationary pressures remain.
- Bank of England to hold interest rates: Decidedly mixed economic data out of the UK has left markets expecting the Bank of England to hold interest rates at its September meeting.
90% Inheritance Tax
There could be an effective tax rate of almost 90% on inherited pensions under new government rules states Citywire.
The pension money beneficiaries inherit will be subject to inheritance tax at 40% from next April where estates exceed the allowance. But, if the pension member was 75 or over when they died then after IHT has been deducted, the remaining funds also will be subject to income tax when the beneficiary receives the money. The combination of first applying IHT at 40% and then income tax means a higher rate taxpayer could face a tax charge of 64%, and an additional rate taxpayer could face a rate of 67%.
But the calculation gets more complicated when nil rate bands are factored in. No IHT is applied to assets under an estate’s ‘nil rate band’ of £325,000, and people’s estates may also be able to benefit from the ‘residence nil rate band’ of £175,000, which applies to a property left to a direct descendant.
However, if the estate exceeds £2 million then entitlement to the nil rate band is reduced by £1 for every £2 over that threshold and therefore disappears completely for any estates over £2.35m.
The accumulative effect could be that adding a pension to someone’s estate pushes the estate value over this limit, meaning the nil rate band is lost – making the effective tax rate much higher.
Rachel Vahey, head of public policy at AJ Bell, said: ‘The potential “double whammy” of inheritance tax followed by income tax on inherited pension funds feels inherently unfair – pension savings should be treated and taxed as either capital or income, rather than potentially both. ‘The tax impact could be even greater where including an unused pension pot takes the value of an estate above £2m, potentially reducing or eliminating the residence nil rate band. ‘For some families, this could push the effective tax rate on pension funds even higher – maybe to 90% or more – leaving beneficiaries with only a small proportion of the original pension pot.’
Example supplied by AJ Bell
Steve is aged 76. He is unmarried and has one son who will inherit his estate and his pension. His son is an additional rate taxpayer. Steve’s estate is worth £2m, and he also has a drawdown fund worth £350,000.
Adding Steve’s unused pension fund to his estate gives a total of £2.35 million, and means he loses all his RNRB.
If Steve did not have a pension fund, then his combined nil rate band of £500,000 would be deducted from his estate, leaving £1.5m subject to 40% IHT, and a reduced estate of £1.4m to pass to his son.
However, adding in Steve’s £350,000 unused pension fund pushes the total estate’s value over the RNRB taper threshold, fully extinguishing the RNRB of £175,000.
That leaves only the nil rate band of £325,000, and therefore the taxable estate plus pension is £2.025m, and total IHT of £810,000 is payable, which split proportionately means IHT of £120,638 is due from the pension and £689,362 from the estate.
Steve’s son will then have to pay additional rate income tax on the remaining pension fund of £229,362, reducing it further to £126,149. When that is added to the reduced estate of £1,310,638 (£2m less £689,362) that gives £1,436,787.
The addition of a £350,000 pension fund has only increased the overall estate by £36,787, which works out at an effective tax rate on the pension of almost 90%.
For others in different circumstances, for example where they have inherited nil rate bands from spouses or are Scottish taxpayers, this effective tax rate could be more. Nouran Moustafa, IFA at Roxton Wealth, said an 87% effective tax rate feels like ‘punishment for dying with the wrong assets in the wrong place’.
‘I understand the government’s argument that pensions should primarily fund retirement, not act as an inheritance vehicle, but layering 40% IHT onto a pension and then potentially charging the beneficiary income tax can create outcomes that are completely disproportionate,’ she said.
In a public example, comedian and actor Ricky Gervais openly told the press that he is going to marry his partner of 44 years to avoid paying IHT. He told Saga Magazine: “It’s horrible, isn’t it? I’ve got to get around to marrying before I die. “We haven’t done it yet. But if it wasn’t for [tax]… why? It’s mad. How more married can you be? We share all our money; we’ve been living together for 40 years. Some marriages don’t last a year.”
Even if you take the view that you received nothing so why shouldn’t your children, I’m sure you weren’t expecting to give just about everything to HMRC instead. So please start planning by speaking to your usual JB Wealth advisor [Ed – although we can’t help with marriages!]
Picture of the Week
Just something I saw and made me stop and think!!
Luck & Daughter Wealth Management Ltd?
We instinctively understand the idea of inheritance. Of passing something down from one generation to another. It’s part of our society. Parents get it. Children get it.
That’s why the popular response to inheritance tax changes is always so emotional – it feels like someone messing with how the world works. Normally, though, we think about the impact of inheritance one or two generations ahead. Your kids, and maybe their kids.
But an inheritance can last a lot longer than that …
In the 15th century Florence was one of the richest cities in Europe; filled with bankers and merchants and goldsmiths, as well as second-hand linen dealers, sewer workers and street cleaners.
In 1427, the Florentine government conducted a census of the 60,000 inhabitants. The aim was to collect taxes (of course), but it means we have a complete record of jobs, salaries, assets, and, importantly, names.
Italy has more surnames than almost any other country in the world. The top 100 Italian surnames represent just 7% of the population, whereas in England, the top hundred names cover a quarter of the population (Smith, Jones, Williams, Taylor, Brown are the top five).
So, you can trace someone’s descendants far more easily down the years … which is exactly what a group of economists did *.
They linked families from the 1427 census to people living in Florence today, to try and work out what happened to the city’s elite from six hundred years ago.
They found that even after twenty generations, wealth persisted. Wealthy families in 1427 in Florence, are still far more likely to be wealthy in Florence today:
Source: Mocetti and Barone, 2018
Interestingly, inheritance wasn’t limited to wealth.
The researchers also found evidence that certain professions appeared to run in families, for far longer than expected. If your great-great-great-great-great-great-great-great-great-great-great-great-great-great-great-great-great-grandfather (give or take) was a Florentine Renaissance doctor, you were more likely to be a doctor too!
It turns out an inheritance isn’t just in the bank account.
Other things are passed down too. Knowledge. Skills. Family expectations and culture.
The money matters. But perhaps the most interesting question isn’t how much wealth gets inherited. It’s what else gets handed down alongside it.
We spend a lot of time obsessing over inheriting financial capital. The Florentine evidence suggests we should spend a bit more time thinking about the human capital inheritance too – and hey, that’s not taxable!
*https://www.eui.eu/Documents/DepartmentsCentres/Economics/Seminarsevents/Mocetti.pdf
Whilst there might be certain professions where this lineage is potentially true in the UK, I wonder if there is a link between a growing propensity to tax inherited wealth and what seems to be a generational desire, or need, not to follow in the parental footsteps?
Miscellaneous
The Treasury raked in a record £24.2bn of capital gains tax last year as an extra 181,000 investors were forced to pay up. The number of individuals paying capital gains tax soared by 45pc in 2024-25 to hit a record high of 584,000, as the threat of tax rises in Labour’s first Budget encouraged investors to sell. Capital gains tax revenue rose by 89pc compared with 2023-24. Rachel Reeves, the former chancellor, increased capital gains tax rates in the October 2024 Budget, which also contributed to the dramatic rise in the tax haul. Rates rose from 10pc to 18pc for basic-rate taxpayers and from 20pc to 24pc for higher-rate taxpayers. Sarah Coles, of investment platform AJ Bell, said a “perfect storm” of rate increases, allowance cuts and endless speculation had sparked an “eye-watering spike” in capital gains tax payments in 2024-25. She added: “Capital gains tax has gone from being a tax relatively few taxpayers had to worry about, to something more mainstream, with the number of people paying capital gains tax more than doubling in five years.”
Prime Minister Andy Burnham refused to rule out tax rises in the October budget reports AdviserHub. Many will foresee a re-run of last year’s Budget fiasco, which became a mess of kite-flying and denials. Will the next two months be a bin fire of panicking clients needing to be stopped from impulsive and wealth-destroying moves? It is possible. The chunky headroom that Rachel Reeves built up as Chancellor has now been eroded by higher bond yields and inflation in the wake of the war in Iran. Economists suggest the cushion may have dropped from £22bn to around £15bn. Burnham has also made some uncosted spending commitments, including on defence. Chancellor John Healey has said he will stick to the fiscal rules. With no spending cuts likely and more borrowing impossible, that only leaves tax rises.
The Department for Work and Pensions (DWP) is set to publish a consultation in September on how it tackles the issue of consolidating small pension pots, Citywire understands. The government wants to create a new system to automatically combine deferred pension pots worth £1,000 or less. Under the proposals, any defined contribution (DC) pots created via automatic enrolment, with no contributions for at least 12 months, will be transferred into an authorised ‘default consolidator’ unless the saver opts out. If ever there was a reason to consolidate pensions this must surely be it.
Mortgage debt and payments remain key drivers for protection as today is the busiest day of the year to move home, according to Vitality. Research from the HomeOwners Alliance showed that the final Friday of August is the most popular day to move home in the UK, more than four times busier than the average moving day. Vitality research, which surveyed 2,000 UK homeowners with a mortgage, showed that mortgage debts and payments were still a major reason for purchasing protection. Its research showed that 34% of respondents said protecting mortgage debt remains an important driver for taking out cover. The provider’s research also showed that 56% of mortgage holders with serious or critical illness cover would use the pay out to pay off or reduce their mortgage.
I’m off now to rename my town ‘Lucksville’ with a sharpie pen as I’m sure that’s all you need to do. I’m still totally sure it won’t appear on the list of places with billionaires!
I hope to catch up with you next time.