Brexit and Other News

It’s been a busy few days even if stock market news is thinning out now we are into summer. The white paper outlining how Theresa May’s cabinet (at least those who are left) would like to do a deal with the EU has been published. I advised my followers via Twitter to read it rather than simply read the media commentary on it which tends to be slanted based on the writer’s emotions to “leave” or “remain”. You can find the white paper here: https://www.gov.uk/government/publications/the-future-relationship-between-the-united-kingdom-and-the-european-union

Needless to say I have taken my own advice, and read it all. As a supporter of Brexit primarily because I think it is necessary to regain democratic control of our laws, I think it gives me most of what I was looking for.

On goods and agri-products it does mean that we will be adhering to EU standards but is that a major problem? It will ease trade if we do so, just as we adhere to internationally agreed standards in some areas. I do not see that it will necessarily thwart any free-trade agreements with the USA or any other country, regardless of what Trump says. A free trade agreement is primarily about having no tariff barriers but there are bound to be issues about technical standards. For example, does Mr Trump expect the UK to accept US cars built to US technical standards for us to get a free trade deal with the USA? If he does then we would risk becoming a poodle of the USA rather than the EU. That makes no sense when we are much closer to the EU, already conform to their standards in many areas, and do more trade with them. Some Brexiteers argue that we should not be a poodle of either of course, but for us to start setting our own standards and enforcing them would be a massive task in the short term. Likewise continuing to adhere to EU standards on employment rights and competition law, at least for some time, does not seem totally unreasonable even if the European Court of Justice might give rulings on issues that relate to them.

Whether the EU will accept Mrs May’s proposals is far from certain. The proposed customs arrangements where we collect EU tariffs on goods coming into the UK that are destined for EU countries seems particularly problematic. Is that workable in practice and at reasonable cost? And the refund arrangements for goods that do not get forwarded might be a recipe for large scale fraud I suspect.

So on the whole, I am supportive of the white paper’s proposals if in any negotiation with the EU no more is conceded. I hope Donald Trump gives Mrs May some advice on hard bargaining while he is here.

But as I said before, read the white paper and make up your own mind. Your comments are welcomed.

How Not to Run an AGM

On Wednesday I attended an AGM of an EIS company named British Smaller Country Inns 2 Plc (one of four similar companies). The directors have managed to turn my investment of £2,400 into £670 over 12 years (based on the latest estimate of net assets). I think the directors are fools for not trying to exit the pubs market years ago and this AGM gave other examples of their incompetence. Firstly the Chairman, Martin Sherwood, does not know how to run the voting at an AGM according to the Companies Act. He announced a “show of hands” vote but then proceeded to add the submitted proxy votes to the count of raised hands before declaring the result. In essence you can only take into account the proxy votes if a poll is involved in which case the show of hands vote is ignored. Mr Sherwood did not understand this point when I raised it.

I also raised the fact that the company had sent out from it’s email address an “invite” that was clearly “phishing” of some kind. When I raised this at the time he said the company had been “hacked”. Bearing in mind the email had been sent to a number of shareholders, and probably everyone in their email contact list when that could be thousands of people, I asked whether they had reported it to the Information Commissioners Office (ICO)? Who are they, never heard of them, was the response at the AGM. Well for Mr Sherwood’s information and everyone else, if there is a significant leakage of personal information, then it should be reported to the ICO (see https://ico.org.uk/for-organisations/report-a-breach/ ). This is a legal requirement since the 25th May. It simply astonishes me that a director of a Plc is not familiar with the ICO and their responsibilities under the GDPR regulations.

As there is only one pub remaining to be sold in British Country Inns 2, after which the company is likely to be wound up, I may get an exit within a year or so and will then be able to claim “loss relief”. Shareholders in the other linked companies are not so fortunate as they may take longer to reach wind-up. Originally I did not invest directly in this EIS company but via a fund. I am now very wary about EIS fund offerings. How many really show a profit rather than just provide a vehicle for tax refunds?

Proven Growth & Income VCT

After the above AGM I moved on to the Proven Growth & Income VCT (PGOO), another tax relief focused vehicle but with a much better track record. In this case I am at least showing a profit even ignoring the generous tax reliefs. Total return last year was 4.35% according to my calculations, but only 2.7% according to the company. I queried the difference and it’s probably accounted for the fact they are calculating it on the mid-year average asset value when I do it on the year start figure. Total return (change in net asset value per share plus dividends paid out) is the only measure to focus on for VCTs and other investment trusts.

Not much to note at this AGM with only 4 ordinary shareholders present. I queried the length of service of the directors, with 2 having served more than 9 years. They are not apparently in any hurry to refresh the board however.

The manager said it was difficult to find new deals – a “wall of money” going onto companies that would qualify for VCT investment. But they are doing more marketing to raise awareness of their company.

Oxford Technology VCTs

Yesterday I attended the AGMs of the Oxford Technology VCTs in Oxford (all four of them) who are a very different beast altogether with a very disappointing track record since formation. Figures for total return (after tax relief) were given as 107.4, 52.9 122.2 and 82.9 respectively since foundation. As manager Lucius Cary said in his presentation, “not a great result – not brilliant but not a disaster either”. They have had some disappointments and a lack of really big hits which one needs when investing in early stage technology companies. But clearly many investors attending were unhappy with several suggestions for winding-up the companies. That was particularly vociferous for OT4 where there is no problem with investors having claimed capital gains roll-over relief.

The directors, who were all changed not so long ago, suggested wind-up would be difficult. They also think there is value to be realised that would be lost in any “fire sale”. They recognize these VCTs are too small and with no major new investments being made and no fund raising likely, they are aware of the strategic issues. But they are apparently looking at possibly doing a similar deal to that done by the Hygea VCT who appointed a new, experienced manager to raise a “C” share fund. That company has been renamed the Seneca VCT accordingly.

We had presentations from three of their investee companies: Ixaris (electronic payments business), Scancell (a listed pharma company) and Select (printer management software). The last one was somewhat interesting as I am familiar with the sector from my past career. But Select used to be a company that had its own products and IP but seemed to have turned into a distributor of other people’s products. Distributors are not valued highly and in the presentation the typical problems of being distributor became apparent – they lost money last year due to a change in the relationship with their major supplier to their disadvantage.

Scancell and Ixaris are both major proportions of the portfolios so a lot depends on their future results. Scancell result is very dependent on the outcome of clinical trials which won’t be available until 2019. But it was mentioned that one analyst values then at 55p when the current market price is 12p.

The presentation from Ixaris was by David Sear via Skype who was appointed Chairman a year ago. They also changed CEO a week ago. Note: for those who saw a presentation by LoopUp recently at the Amati AIM VCT agm where one member of the audience suggested that everyone should use Skype as it works fine, this latest event was a good demonstration of why Skype is not fit for business use – audio out of synch with video, download delays, etc.

I have to admit to knowing a lot about Ixaris as I was a founder investor 14 years ago and still hold a few shares directly. It has been slow progress, although revenue has been increasing and they are near EBITDA profitability. The new management team does seem to be improving the business but it was suggested that a “possible liquidity event” was 2 years away and it might be via a public flotation. But the bad news was Sear’s mention of a contractual issue with Visa for their Entropay pre-paid card service. Incidentally if you want a pre-paid card for security reasons then the Entropay service is a good one. Ixaris do have a second major division though that seems to be doing well.

Some of the other investee companies were covered in brief, and they do appear to have prospects in some cases. But Plasma Antennas for which there were high hopes at one time has been written off.

When it came to the votes, all the resolutions were passed on a show of hands, including re-election of all the directors, and perhaps even more importantly on the votes to continue with the companies, including even on OT4!

It was an educational AGM and my conclusion is that the directors are actually doing the right things with these problem companies. These VCTs are trading a high discounts to NAV, partly because there are no company share buy-backs unlike in many VCTs. But it would be a brave investor to buy the shares in the market. I only have a small holding in one of them.

K3 Business Technology (KBT), MaxCyte (MXCT), Eservglobal (ESG) and FairFX (FFX)

On Wednesday I attended presentations on the above four companies at the ShareSoc Growth Company Seminar in London. The last of those four I hold some shares in, and at least they made a small profit last year whereas all the others reported losses. With AIM companies, as the private equity world often says, you have to kiss a lot of frogs before you find a prince.

K3 showed the same problems historically as in Select mentioned above. Being a distributor is not an easy life and it’s difficult to make money doing that. But new management is changing the focus which may improve matters. Maxcyte is a typical pharma company and I never understand the technology in these businesses. I think you need a degree in biochemistry to even get to grips with developments in the sector. I have no idea whether it will come good in the end. Eservglobal seem to be moving from a mobile payment offering to focus on “Homesend” – sending money internationally more quickly and at lower cost than traditional banks can do. Earthport is a similar business I believe and that has not yet been reporting profits.

FairFX has a number of electronic money/payment offerings with the latest being a “business” account for SMEs. That might be very attractive to the large numbers of such companies. I have seen this company present before and the message is always clear and the questions answered well whereas the other companies presenting failed to convince me.

An eventful week, compounded by stock market volatility. Summer is the time to pick up bargains and sell the over-hyped stocks when buyers depart for their holidays.

Curtis Banks

One final item; I seem to be having some payment problems with Curtis Banks (an AIM listed company) who manage one of my SIPPs that is in drawdown. They took over a business called Pointon York and since then there have been delays in payments, or in one case two payments made in error. Reviews of the service, including comments from employees on the web seem somewhat poor. If anyone else is having problems with them, please contact me.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Amati AIM VCT AGM and Retailers

Amati AIM VCT is one of those peculiar beasts – a Venture Capital Trust. Yesterday I attended their annual general meeting and here are some general comments on the company and the meeting:

Amati AIM VCT (AMAT) is the result a merger of the two Amati VCTs. They had very similar portfolios so this made a lot of sense, and the result is a large VCT with total assets of £147 million. This figure was also boosted by excellent performance last year – a total return of 45.2% on VCT2 for example. That of course was helped by a surprising good performance from AIM companies in general last year, but the Numis AIM index was only up 29%.

How was the performance achieved? By selective stock picking primarily, and by holding on to the winners. So the top ten holdings are now: Accesso Technology, Frontier Developments, Keywords Studios, Quixant, Learning Technologies, Ideagen, AB Dynamics, GB Group, Tristel and the TB Amati UK Smaller Companies Fund. The fact that I hold 5 of those companies directly tells me I should keep an eye on what the VCT is investing in.

Note that I learned to take a jaundiced view of AIM VCTs who traditionally did worse than private equity (i.e. generalist) VCTs due to being suckered into investing in dubious IPOs in what was historically a poor-performing AIM market. But there are always exceptions and perhaps this shows that AIM is improving and AIM fund managers are learning to be more discriminating.

There were presentations from fund managers Anna Wilson (new to the company) and founder Dr Paul Jourdan. The latter gave a somewhat “spaced out” presentation as if he had not spent much time preparing it. It included coverage of a chess match between two software programmes, indicating how clever they had become. Perhaps Paul is worried about being replaced by a computer. But I think the main message we were meant to receive was that the world is rapidly changing with disruptive new technology such as AI.

Anna Wilson covered the worst and best portfolio performers and some of the new investments. The latter include i-Nexus Global (INX: software to help companies to implement strategies), Water Intelligence (WATR: leak detection and remediation), AppScatter (APPS: app management platform) and Fusion Antibodies (FAB: antibody based therapeutics for cancer treatment).

There were also presentations from investee companies Loop-Up (LOOP) and FairFX (FFX) both of which I hold directly. In the latter case, and as the CEO said in his presentation, they should probably change the name as it does not just do foreign exchange provision which is now a crowded market. That was particularly so after the announcement in the morning about a new service to provide business banking to SMEs. By using their new e-money issuing licence they can act like a bank in almost all regards except that they cannot lend client funds out to others. But that just makes them safer.

As I hold both Loop-Up and FairFX directly I did not learn a great deal more but they were interesting nonetheless. It’s always good to be reminded why one bought a stock in the first place.

As Paul Jourdan indicated there are rapid changes in some markets and retailing is certainly one of them. There has been wide media coverage of the fact that even John Lewis, that favorite destination for middle-class shoppers along with its Waitrose stores, is now not making a profit. Here’s a good quotation from Sir Charlie Mayfield, John Lewis Chairman: “It is widely acknowledged that the retail sector is going through a period of generational change and every retailer’s response will be different. For the partnership, the focus is on differentiation – not scale”.

This is undoubtedly true. Competing with other supermarkets with a general “stack them high, sell them cheap” approach certainly makes no sense. It seems John Lewis is having some success with clothes by using “personal style advisors” (rebranded shop assistants).

Clearly the future is internet shopping for many products, perhaps with some “destination” warehouses for viewing and collecting goods. There are some categories of products where viewing the merchandise, particularly on big ticket items or where one cannot simply return them, may still be essential. Those where advice is required might also require a personal touch but some of that can be done remotely. Where the damage will be mainly done is to high street outlets and shopping malls for which I can see no good purpose. Perhaps if they can turn themselves into entertainment and drinking/eating venues they can survive but it’s clearly going to be a lot tougher for such venues and the smaller retail chains that rely on them. Department stores will likely suffer as they already have so investing in companies such as Debenhams is surely questionable unless they become much more internet focused with the shops changing in function.

The high streets are already changing. Banks going, clothes shops closing and more restaurants, cafes, fast food outlets and charity shops if my local high street is anything to go by. Do I regret the changes? Perhaps but I also know it’s not wise to piss against the economic and technological winds. For investors the message is that with such rapidly changing markets, one has to keep an eye on evolving trends and how company management is responding, or not, ever more closely.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Horizon Discovery AGM and Chrysalis VCT

Yesterday I attended the Annual General Meeting of Horizon Discovery Group (HZD) in Cambridge. This is a new holding for me, and I don’t often buy shares in companies that are not reporting profits, but I thought it was worth going along to learn some more about the business. The company’s primary focus is on cell manipulation tools (gene editing, gene modulation) which they sell to drug development companies et al. I am not sure I have great understanding of the science but they recently had an offer for the business from Abcam who should understand it, particularly as they shared a non-exec director, Jonathan Milner, until recently. The offer from Abcam was rejected on the basis it was not good enough. The board of Horizon thought it was worth twice as much on a revenue multiple basis looking at comparable companies so the offer was withdrawn. Analysts forecasts are for near breakeven on an adjusted basis this year so it is making progress, but it’s still valued at more than seven times revenue.

However, I shouldn’t need to tell you that this area of medical science is a rapidly developing one with great prospects for innovatory cures of genetic defects and more focused drugs to match a person’s DNA profile.

With minimal shareholders present, it was a short meeting and only I asked any questions, so it will be a short report. One question I asked is why the company loses money on services but makes a profit on product sales. See segmental breakdown on page 66 of the Annual Report. As I said at the time, normally it’s easier to lose money on product sales because with services if they are not profitable you can simply stop providing them. In other words, this was an unusual profile. The Chairman, Ian Gilham, initially denied they lost money on services (it’s over £10 million excluding even “leveraged R&D”), but the CFO then explained that the services are often development projects for customers where they retain the IP, i.e. the customers are paying to some extent to develop the products. That is always a good business model.

I asked why the former CEO had recently left and the only answer I got was that he probably wanted to work for a smaller company while Horizon is now quite large after the recent acquisition of Dharmacon. That will transform the financial numbers. The new CEO is Terry Pizzie who has worked for the company since February 2017.

I was favorably impressed on the whole but I did comment that even if it is an AIM company they could do with having a Remuneration resolution on the agenda. Their pay scheme is actually quite a simple one, and bonuses last year were quite limited, so I would have voted in favour of it anyway.

A long-awaited announcement yesterday on what they plan to do to tackle some strategic issues was from Chrysalis VCT (CYS). This venture capital trust has been somewhat unusual in being self-managed and having no discount control mechanism, i.e. no active buy-back policy. As a result of the latter combined with decent fund performance the trust was offering a very high dividend yield to those investors brave enough to buy shares in the market (like me). Some of the directors took advantage of that situation in the past, although not recently. However the company is facing some possible problems in that the size of the trust is tending to run down due to the high dividends paid out, and the changes to the VCT rules might make it difficult to follow their past investment strategy.

So yesterday they announced that they were implementing an “active buy-back” policy with a target discount to NAV of 15%. The share price rose on the day as a result. Even after that the yield is 7.6% (tax free) according to the AIC. The buy-back policy might help if they wished to raise more investment funds, but they also say they are likely to make “further distributions of capital” so it looks like the fund will run down further in size instead.

The half year results given in the same announcement were somewhat pedestrian (NAV up 1.6%) like many VCTs I hold of late. But anyone considering the shares needs to look at the large holding of Coolabi in the portfolio.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Should Trust Managers Attempt to Unseat the Board in a Dispute over Fees?

Investment trust directors should be independent of the manager. But sometimes the latter appear to think otherwise. Such is the case at Invesco Perpetual Enhanced Income Ltd (IPE), an investment company that invests in high yield bonds and other assets. It is managed by Invesco Perpetual. The latter have resigned as fund manager after a dispute over fees it is alleged. They have now also requisitioned a general meeting of the company to remove the trust’s Chairman, Donald Adamson, and director Richard Williams and to appoint two new directors. The two new directors who are proposed are currently directors of Aberdeen funds which is an odd coincidence – see below.

Invesco hold 17 percent of the shares and are supported by two other large institutional investors but a lot of the shareholders in this trust are private individuals.

The dispute over fees arose apparently because the trust wished to reduce the level of fees, and possibly remove the performance fee. The AIC gives the “ongoing charge plus performance fee” of 2.16% which is surely high for what is primarily a bond fund. Performance fees in trusts are also, and quite rightly, becoming unpopular with investors.

Historically the performance of this trust looks good but the company says it has received attractive offers from well qualified alternative managers. However the key question is whether it is morally right for a fund manager to challenge the board of directors in this way. How is that in shareholders’ interests and clearly there is a conflict of interest here. What is in the best interests of shareholders is surely for the board to decide, not the fund manager.

I have come across this situation once before some years ago when Aberdeen attempted to thwart the change of fund manager of a Venture Capital Trust (VCT) where the shareholders (including me) had caused a revolution that resulted in a change of board after a quite dire performance track record. I was not best pleased with that attempt although it was unsuccessful and the manager was changed.

My view is that fund managers should not interfere in this way and the FCA should introduce rules to ensure that trusts are truly independent and not poodles of the manager (a common problem in VCTs for example). The directors should be independent and threats to try and remove them by the fund manager should be treated with contempt. I hope shareholders in this trust will vote against the requisition.

Brewin Dolphin, a leading retail broker, has supported the board in resisting Invesco’s desire to retain a performance fee. Guy Foster, Head of Research, has been quoted in Citywire as saying Invesco should “leave the board to continue working to reduce fees and shore up the uncovered distribution for the benefit of shareholders”. Let us hope other retail brokers take the same stance.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Two AGMs (Accesso and Foresight VCT) in one day

Yesterday I attended the Annual General Meeting of Accesso (ACSO) in Twyford at the somewhat early time of 10.00 am with the result that I got bogged down in the usual rush hour traffic on the M25. What a horrendous road system we have in London! A symptom of long term under-investment in UK road infrastructure.

Accesso provides “innovative queuing, ticketing and POS solutions” to the entertainment sector (e.g. theme parks) although they have been spreading into other application areas. The business has been growing rapidly under the leadership of Tom Burnet who moved from being CEO to Executive Chairman a while back.

Tom opened the meeting by introducing the board, including new CEO Paul Noland who is based in the USA where they now have 5 offices apparently. He also covered that morning’s trading statement which was positive and mentioned deals with Henry Ford Health System and an extension to an existing agreement with Cedar Fair Entertainment. Expectations for the year remain unchanged. Questions were then invited – I have just covered a few below.

I raised a concern about the low return on capital in the company (now less than 5% irrespective of how one cares to measure it). I suggested the reasons were large increase in administrative expenses (up 43% last year) and the cost of acquisitions. Did the board have any concerns about this? Apparently not. The reason is partly the acquisitions and the costs might come down as they rationalise operations but they are in no rush to do so.

The Ford deal was mentioned and Tom said this is one deal where the acquisition of TE2 has provided the technology to assist closure. This is what the company said about TE2 when they bought it: The Directors of accesso believe that TE2’s cloud-based solution offers market-leading personalisation capabilities and data orchestration technologies which capture, model and anticipate guest behaviour and preferences not only pre- and post-visit online, but in the physical in-venue environment.  Personalisation is achieved via many heuristics, including machine-learning-based recommendations, in order both to enhance guest experiences and to provide actionable analytics and insights to the operations, retail and marketing organisations.”. I am sure all readers understand that. Hospital systems are clearly one target for this technology.

The vote was taken on a show of hands so far as I could tell, although the announcement the next day of the votes suggested it was done on a poll which is surely wrong. But there were significant numbers of votes (over 2 million) against several directors and against share allotment resolutions. I asked why and was told it was because of a proxy advisory service recommending voting against, allegedly because of some misunderstanding. The answer to my question seemed somewhat evasive though.

In summary, shareholders are clearly happy with the progress of the company but with a prospective p/e of 41 (and no dividends), a lot of future growth is clearly in the share price. Corporate governance seems rather hit and miss.

I then drove into London to the offices of Foresight in the Shard, again journey time a lot more than it should have been due to road closures, lane removal for cycle lanes, etc, etc. Interesting to note a large hoarding on the elevated section of the A4 inviting anyone who had a complaint against RBS and the GRG operation to contact them.

Also interesting to note when I stopped for fuel at a service station on the M4 that at the desk they were serving Greggs food and coffee as well as taking payment for fuel. I know that Greggs have kiosks in some motorway service areas but this is perhaps a new initiative to expand their market. It’s rather like the small Costa coffee outlets that are in all kinds of places. I am a shareholder in Greggs but this was news to me. Obviously I need to get out more to see what is happening in the real world.

The visit to Foresight was to attend the AGM of Foresight VCT (FTV) one of my oldest holdings. Effectively I have been locked in after originally claiming capital gains roll-over relief. It’s also one of the worst of my historic Venture Capital Trust holdings in terms of overall performance over the years.

I did not need to tell them again how dire the performance of the company had been over the last 20 years because another shareholder did exactly that. But I did query whether the claimed total return last year of 6.5% given by fund manager Russell Healey in his presentation was accurate. It was claimed to be so. Perhaps performance is improving but I am not sure I want to stick around to see the outcome.

One particularly issue in this company is the performance fee payable to the manager which I wrote about in my AGM report and on the Sharesoc blog last year. You can see why the manager has such plush offices as they have surely done very nicely out of this and their other VCTs over the years while shareholders have not, and will continue to do so.

Several shareholders raised questions about the reappointment of KPMG bearing in mind that in Foresight 4 VCT the accounts were possibly defective and a dividend might have been paid illegally. But the board seemed to know nothing about this matter. KMPG got about 6 hands voting against their reappointment and the board is going to look into the matter.

The above is just a brief report on the meeting as I understand Tim Grattan may produce a longer one for ShareSoc.

To conclude, both AGMs were worth attending as I learned a few things I did not already know. For example it seems my holding in Ixaris, an unlisted fintech company where Foresight have a holding, may be worth more than I thought. But I still think their valuation is a bit optimistic.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Musings on Mortality, and Year-End Tax Planning

The death of Steven Hawking at the age of 76 gives those who are trying to figure out how long we may live some cause for thought. He was given only a few years life expectancy soon after he was diagnosed at the age of 21 as having motor neurone disease. This problem of forecasting how long you may live is a key concern of many elderly people like myself as it has a big impact on investment and tax planning.

I am likewise living much longer than my doctors forecast 20 years ago. Despite one near death experience I have reached the age of 72 in reasonable condition, although I do get offered seats on tube trains of late. Do I really look that knackered?

But can I live another 7 years? That’s how long you need to do so to avoid tax on gifts. It can even be as long as 14 years if you have made gifts in prior periods. Now even allowing for the pessimism of doctors who seem to err on the downside on the principle that at least if their forecasts are wrong the patient may be pleased, I think tax planning will have to take another approach in my position.

Gifts of £3,000 per year are possible regardless, and gifts out of “surplus income” can also be made so now is the time of year to work out what you can do in this regard before the tax year ends. Of course it means that you need to have kept track of all your income and expenditure during the tax year which many people do not. If you have not, perhaps it’s time to start for the new tax year? The wealthiest man in the world at the time, John D. Rockefeller, was reported in his biography as keeping a pocket notebook with him at all times where he recorded the smallest expenditure. Perhaps no need to go to such extremes but the principle is worth following.

As it’s coming up to the end of the tax year, now is the time to review holdings and transactions that are not in ISAs or SIPPs in case you are likely to be paying capital gains tax. I get my accountant to work out my capital gains tax position a few weeks before the year end, then if I have gains exceeding the annual allowance (£11,300 for the current tax year), I sell any losing positions to reduce the liability. If I have gains less than that I might sell profitable holdings to maximise the use of the allowance. One can always buy any holdings back later that you prefer to keep them (more than a month later, or buy them in your spouse’s name).

This year, with the stock market being buoyant and not having made any big investment mistakes, I don’t seem to have much in the way of losses to realise. So I thought I would take a quick look at an EIS fund which was the subject of a mailing I received (EIS funds are also topical because of the Government consultation on future options for them). I previously expressed some doubts about EIS funds, but the one I received information on (Guinness AIM EIS) has been around for some time and AIM listed stocks should be less risky than unlisted investments. But when I look through the information on “historic” investments it lists the following: Chapel Down, Coral Products, Fishing Republic and Yu Energy which I do not view very positively although the last one is growing rapidly. The charges on the fund are high – 5% initial, 1.75% annual and a 20% performance fee.

You don’t get the EIS tax relief certificate until the funds are invested which could be a year or more after the closing date according to the prospectus. You also need to stay invested for at least three years to retain the income tax relief and bear in mind in any case that these are long-term investment vehicles. The immediate tax relief might be substantial but it could be a long time before there is a good return on your investment. If you die holding an EIS investment then the capital gains relief you obtained still applies (i.e. there is no tax due), but the complications of death are mind boggling on EIS investments. Anyone considering EIS investments should certainly consult an accountant who is expert in this area.

EIS funds might be one way of deferring capital gains tax liabilities, but I think I might pay the tax instead. Capital gains tax rates are currently low (10% or 20% on shares depending on your total taxable income), and there is no knowing what future Chancellors might do to change the rates and EIS rules.

There is one change in tax rates to bear in mind for the new tax year. This is that the dividend tax allowance reduces to £2,000 from April. So wealthy investors will be paying a lot more tax as a result of the dividend tax credit system being dismantled. Just to remind you, the companies you have invested in get taxed on their profits, and now you are also being taxed on the profits they distribute as dividends to you. So investors are being taxed twice on the same profits!

The conclusion is that you should avoid receiving dividends if possible. If you wish to hold high dividend paying stocks then put them in your ISAs or SIPPs. For direct holdings, it’s preferable to achieve gains by buying growth stocks rather than low growth mature companies that pay high dividends. You can always sell a few shares to generate cash income if needed. Alternatively buy such holdings indirectly in investment trusts and funds, who do not have to distribute the income, although it’s generally a good idea to avoid “income” funds. Such funds tend to underperform as Terry Smith recently pointed out. That’s probably because they tend to buy low-growth mature businesses which is a sure recipe for pedestrian stock market performance. High dividends do not compensate for lack of growth.

Another way to minimise dividend income taxes is to put money into Venture Capital Trusts. Dividends on those are tax free.

Lastly, don’t forget that giving money to registered charities can minimise your tax bill so that’s another subject to consider before the tax year end.

In conclusion, I would suggest three mottoes to follow: 1) Don’t bet on your life expectancy – it could be much longer, or shorter, than you think; 2) Keep your tax affairs simple; and 3) Encourage the Chancellor to simplify the tax system, and not keep changing the rules.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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