Buy resur­gent pub group Young’s for grow­ing prof­its and to beat death du­ties

The Daily Telegraph - Business - - Business - Port­fo­lio

SURG­ING stock mar­kets mean that in­her­i­tance tax is a po­ten­tial prob­lem for grow­ing num­bers of Questor read­ers. (Those Questor read­ers who don’t yet con­front such a prob­lem will, we hope, ar­rive at it in due course.)

The thresh­old at which as­sets can be passed on tax-free has been frozen at £325,000 per per­son since 2009-10, with the only in­creases com­ing via new al­lowances at­tach­ing to prop­erty.

In an at­tempt to help read­ers – many of whom have writ­ten in with ex­plicit re­quests for ad­vice on this topic – Questor to­day be­gins a new se­ries of reg­u­lar tips on stocks that, if owned on death, should fall out­side of the owner’s es­tate for in­her­i­tance tax (IHT) pur­poses.

The will ap­pear here once a month, com­ple­ment­ing Fri­day’s usual

Those of you who fol­low the

will still see the full hold­ings pub­lished here on the first Fri­day in each month. All ar­ti­cles are avail­able on­line at tele­ Firms listed on the ju­nior Al­ter­na­tive In­vest­ment Mar­ket (Aim) can qual­ify for 100pc re­lief from IHT as long as they are held for two years and re­main in own­er­ship at death. Since 2013 there has been an es­pe­cially at­trac­tive as­pect to this perk: Aim shares have been al­lowed within Isas. Pen­sions are al­ready IHT-ex­empt but Isas on the other hand are tax­able. The hold­ing of Aim shares is thus an ex­cel­lent way to limit death du­ties on what for many is their big­gest pool of non-prop­erty, non­pen­sion as­sets. The dif­fi­culty is that not all Aim shares qual­ify. The tax break ex­ists only for busi­nesses (or parts of busi­nesses) that HMRC deems “trad­ing” com­pa­nies. Orig­i­nally in­tro­duced to en­sure fam­ily busi­nesses could pass to heirs tax free, in­vest­ment busi­ness are ex­cluded. In­vest­ment trusts, both con­ven­tional and real es­tate, fail the test but so too can tra­di­tional trad­ing firms that build up ex­cess cash or as­sets that may be seen as in­vest­ments. In th­ese cases, IHT re­lief may be granted par­tially or not at all. HMRC makes this de­ter­mi­na­tion based on the tax year when death oc­curs.

We aim to build a list of 15 to 25 qual­i­fy­ing and at­trac­tive Aim stocks. Founded in 1890 Young’s is now fo­cused solely on man­ag­ing over 250 pubs (some of which are also ho­tels) af­ter shed­ding its brew­ery busi­ness in 2011.

The com­pany is split into three: man­aged pubs un­der the Young’s brand; the Geron­imo brand; and ten­anted pubs run as part of the Ram Pub Com­pany. Pubs are in the prime ar­eas of the South East, par­tic­u­larly wealthy south-west Lon­don close to where the busi­nesses orig­i­nated.

Pre-tax prof­its rose to £37m in the year to April 2017, up 13pc on last year, an in­crease of al­most 100pc over five years. This is even more impressive when viewed against pub in­dus­try chal­lenges of ris­ing al­co­hol duty and busi­ness rates.

The at­trac­tive port­fo­lio of prop­er­ties is now only lightly mort­gaged.

In many cases, there is not an in­cen­tive for busi­nesses to re­tain the tax break, tech­ni­cally known as “busi­ness prop­erty re­lief ”. For this rea­son Questor favours firms with large fam­ily stakes – and Young is one such, with fam­ily mem­bers own­ing a sig­nif­i­cant pro­por­tion of the busi­ness via in­di­vid­ual stakes. Their self­in­ter­est in re­duc­ing their own tax li­a­bil­ity is com­fort­ing.

Re­spected in­vest­ment firm Lind­sell Train has a large share­hold­ing as does Oc­to­pus In­vest­ments, one of the lead­ing providers of port­fo­lios aimed at lim­it­ing IHT for clients.

Un­usu­ally with Young, in­vestors have a choice of “A” or­di­nary shares (ticker: YNGA) or or­di­nary shares with­out vot­ing rights (YNGN). In­vestors’ eco­nomic rights, the share of prof­its, as­sets and so on, are iden­ti­cal. The dif­fer­ence is that “A” shares give share­hold­ers’ the right to at­tend, speak and vote at the an­nual gen­eral meet­ing.

For the ma­jor­ity of pri­vate in­vestors with rel­a­tively small in­vest­ments, the non-vot­ing shares of­fer a bet­ter yield right now, as div­i­dends are paid equally. At yes­ter­day’s price of £10.28, the non-vot­ing shares trade at a 24pc dis­count to the vot­ing shares and yield 1.8pc. The vot­ing shares yield 1.4pc.

Over time “A” and non-vot­ing shares have tended to per­form in line. Questor says: Buy Ticker: YNGA / YNGN Price: £13.51/ £10.28

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