Each week, a professional investor tells us where he’d put his money. This week: Alex Davies of Wealth Club.
Four years ago, on 5 August 2013, a change to the rules governing individual savings accounts (Isas) enabled investors to hold stocks listed on the Aim junior market within the tax-sheltering accounts for the first time. Since many Aim stocks qualify for inheritance tax (IHT) relief, the rule change created an opportunity for investors to mitigate tax upon death by constructing an “IHT-free Isa”.
Such Isas allow you to pass on assets to whoever you wish without a penny due in inheritance tax, assuming you held the shares for at least two years and at the time of death. Not all Aim stocks qualify for IHT relief and they are often deemed as being higher risk. However, many Aim companies are far from being start-ups. The top ten holdings on Aim are worth more than £19bn.
Picking your own IHT-free Isa stocks is not for everyone. You need to ensure the stocks continue to qualify for IHT relief, and to keep meticulous records of when you bought them. A popular no-hassle solution is to choose a ready-made Aim Isa portfolio. We like those run by Octopus, Unicorn and Puma. But for those who want to go it alone, the following Aim stocks are among our favourites.
CVS Group (LSE: CVSG) is the UK’s largest veterinary group. Growth has been acquisition-led and resulted in multiple earnings upgrades each year. Interim results showed profit before tax up 47.1% to £16.5m and there has been a recent expansion into Holland. Although the shares trade on a 29 times premium, analysts believe that is well deserved. This is a predictable growth company with plenty of opportunity for further expansion.
Young & Co’s Brewery (LSE: YNGN) has a heritage stretching back to 1831. The company now owns and manages more than 250 premium pubs in London and the southeast and its prevalent riverside locations and beer gardens are especially popular and have benefited from the hot summer weather, helping deliver 8.6% like-for-like sales growth across managed houses in the first 13 weeks of its financial year. The company last reported full-year underlying pre-tax profit growth of 13.5% to £40.4m and produced a record level of £63.5m of operating cash, enabling continued investment in the pub estate while also growing the dividend by 6% to 18.5p.
NWF (LSE: NWF) is a UK distributor of fuel, animal feeds and food. Established in 1871, today it supplies more than 4,750 farmers from Scotland to Cornwall. All divisions are profitable and cash generative, with profit before tax of £8.3m (31 May 2016). The company has an attractive 4% dividend and growth is expected to come from acquisitions as well as modest organic growth. It could also experience a boost from the recovery in weak feed revenues seen over the last few years.