A Share That Could Help You Duck A 40% Tax Hit

Published in Company Comment on 12 June 2012

A great business and a tax advantage into the bargain.

Inheritance tax (IHT) is one of the UK's most despised taxes, yet one people often pay little attention to until it's too late.

The threshold for being hit by this pernicious 40% tax is lower than you might think -- an estate valued at £325,000 for an individual, and £650,000 for married couples and registered civil partners.

Moreover, as a Foolish investor, you can justifiably hope to have assets in excess of this come the day you shuffle off this mortal coil. To learn why, grab the latest Motley Fool report -- "10 Steps To Making A Million In The Market" -- which is free to download right now.

Fortunately, there are a number of ways to escape or mitigate IHT. One weapon in the armoury is to invest in a portfolio of qualifying companies listed on the Alternative Investment Market (AIM).

There are some long-established, quality businesses on AIM, and a fantastic opportunity to invest in one of these firms looks like it could be brewing.

AIM to avoid tax

In an article last year, I wrote at length about the type of company that I believe is suitable for a portfolio as part of your IHT planning. In short, larger, established, dividend-paying AIM firms with net cash or modest debt fit the bill.

Conservatively run family businesses, such as James Halstead (LSE: JHD), Nichols (LSE: NICL) and F W Thorpe (LSE: TFW), are particularly attractive, not least because the very reason they're listed on AIM is often the IHT benefit to the family shareholders.

It's a company of this ilk -- pub group Young & Co (LSE: YNGA) -- that I'm going to tell you about today.

Young and good-looking

Young & Co has all the qualities I've mentioned and, in addition, I like its geographical focus on the seemingly ever-resilient London market. The company released its annual results recently and the directors were confident on the future despite the fragile economy.

Young & Co has two classes of shares: voting shares (LSE: YNGA) and non-voting shares (LSE: YNGN). There's no difference between the two other than the voting rights, but, at the time of writing, the YNGA shares are 627.5p and the YNGN shares are 515p.

Young's adjusted earnings per share came in at 33.41p for the latest year, so you're paying 18.8 times earnings if you buy the voting shares but 15.4 times earnings if you buy the non-voting shares. Also, the yield on the well-covered dividend of 13.93p is 2.2% for the voting shares but 2.7% for the non-voting shares.

It's also worth considering the asset valuation of a company like Young & Co with quality London properties on its balance sheet. The estate has actually been revalued recently at £497m, a large net uplift of £174m to book value. Net asset value per share now stands at 659p (or 616p excluding goodwill).

I think the non-voting YNGN shares look pretty attractive at 515p -- but I'm not rushing to buy just yet, because I think there's every chance I may be able to pick them up at a real bargain-basement price in the not-too-distant future.


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Opportunity beckons

Young's largest single shareholder is a listed investment company, Guinness Peat Group (LSE: GPG). GPG owns 15% of the voting shares and a whopping 34% of the non-voting shares.

Last year, GPG's shareholders voted for an orderly realisation of GPG's investment portfolio over time. The company has already sold many of its investments, but so far appears to have made no progress on disposing of its substantial holding in Young & Co.

It may well be very difficult for GPG to find a 'trade' buyer for its Young's shares, and GPG's directors have said:

"In relation to substantial assets where realisation at an acceptable value proves unachievable within a reasonable time frame, the Board will consider alternatives which give shareholders direct access to the assets concerned."

In other words, GPG's individual shareholders could end up holding Young's shares directly. I think it can be assumed that many such shareholders would be looking to sell their Young's shares as soon as possible.

If this scenario plays out, I'm convinced there'll be an opportunity to buy into Young's great business at a rock-bottom price. Hence, I'm keeping a very close eye on the situation!

Want to learn more about shares, but not sure where to start? Download our latest guide – "What Every New Investor Needs To Know" – it's free. The Motley Fool is helping Britain invest. Better.

Further investment opportunities:

> G A Chester owns shares in James Halstead, Nichols and F W Thorpe, but no other companies mentioned in this article. The Motley Fool owns shares in F W Thorpe.

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The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

dhorsley 12 Jun 2012 , 3:55pm

Theres a typo on the first mention of share prices. You have the voting shares cheaper than the non voting shares. Its the other way round when you mention the price again.

M0byDick 12 Jun 2012 , 4:03pm

Thanks! I'll alert my editor - MobyDick (G A Chester)

OxonianCambion 12 Jun 2012 , 4:32pm

Actually, inheritance tax is thought by many, including some leading economists, (Paul Krugman springs to mind), to be a very appropriate tax. It encourages people to do good with their money rather than horde it and create a dynasty.

Philanthropy in one's lifetime (or at the end of it) is hardly new; here's a quote from Andrew Carnegie:

"Surplus wealth is a sacred trust which its possessor is bound to administer in his lifetime for the good of the community."

goodlifer 12 Jun 2012 , 8:28pm

"Actually, inheritance tax is thought by many...to be a very appropriate tax."
FWIW I'm with you too.

MaynardPaton 14 Jun 2012 , 7:40am

Did not have long to wait

Further to the strategy announcement released on 11 February 2011 in relation to undertaking an orderly realisation of its investment portfolio over time and regular updates to the market as to the implementation of this strategy, Guinness Peat Group plc ("GPG" or "Selling Shareholder") announces its intention, through its wholly owned subsidiary, GPG (UK) Holdings plc, to sell up to 4,472,924 A ordinary shares at a price of £5.50 per share and up to 6,544,216 non-voting ordinary shares at a price of £4.50 per share (the "Placing Shares") in the Company. The Placing Shares represent approximately 15.4% and 34.2% of the Company's A ordinary shares and non-voting ordinary shares, respectively, and constitute GPG's entire holding in the Company.

Afrosia 14 Jun 2012 , 4:17pm

As a fan of capitalism, I too consider IHT to be a perfectly reasonable and fair tax. Why should someone that has taken no risk and done nothing to earn it receive large amounts of capital? Seems perfectly commonsensical.

norfolkandgood 15 Jun 2012 , 9:50am

Someone who has taken no risks and receives large amounts of capital? Sounds like HMRC to me!

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