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Questor: the inheritance tax portfolio was left unscathed, but this will not last long
Questor Inheritance Tax Portfolio: HM Treasury knows business property relief is too generous and will act soon
Another Budget has passed and it is another sigh of relief for followers of Questor’s Inheritance Tax Portfolio. The rules underpinning its existence have been left untouched.
The idea of business property relief being abolished, or at least changed, gathered momentum in 2020. However, as the world changed so did the Chancellor’s plans. Questor did not expect such generosity this time. It would be wise to assume this will not last for long.
Business property relief, in its current form, is generous and the Government knows this. The Alternative Investment Market (Aim) has changed and now has several multinational and £1bn-plus companies, not small plucky upstarts the relief was aimed at.
The rules state that if a BPR-qualifying company is held for two years or more, the entire holding can be inherited tax free. But it was designed to ensure a business owner’s heirs did not have to sell the business to cover any IHT liability.
The type of investor in Aim stocks has changed, particularly since 2013 when businesses were allowed to be owned via Isas.
Investors now buy stocks for the tax benefit, rather than through conviction. It’s fair to say there would be little impact on £4bn+ fast fashion retailer Boohoo if a do-it-yourself investor sold to meet a tax liability.
Questor is not criticising these rules. It supports the loophole and wants investors to be able to both invest in good businesses and mitigate their tax bills.
However, investors must be prepared for such reliefs to either be tapered back or abolished altogether.
Update: Gamma Communications
A long-term favourite of the IHT portfolio has been Gamma, a mobile telecoms business that focuses on small and medium-sized businesses. Since Questor first noticed the stock, back in 2016, the share price has risen by 234pc.
The numbers have filled investors with confidence, and an acquisition this week will have caught the eye of many. Gamma has bought Mission Labs, a developer of cloud contact centres, which will add another feather to its bow.
Gamma has said Mission Labs specialises in providing “unified communications” systems, an area where Gamma has planned to grow its turnover. While it sounds like this is just another basic business line, it isn’t. The acquisition of new capability will allow Gamma to make the step up from servicing small and medium-sized businesses to much larger ones.
The market Gamma now wants to play in, using Mission Labs’ expertise, is growing. According to Gartner, a research firm, the “cloud contact centre-as-a-service” market will double this decade. As it stands, only 25pc of Britain’s contact centres currently use this technology and this will rise to 57pc by 2025. And this does not include Gamma’s potential revenue streams abroad.
The deal was also paid using existing cash, so there are no major concerns about Gamma becoming over-leveraged.
Gamma has been a fruitful member of the IHT portfolio since its entry in 2018 and Questor remains confident the management has a clear idea of how to exploit a growing market. Investors should stick along for the ride.
Questor says: buy
Ticker: GAMA
Share price at close: £15.60
Update: Scapa
In late January, tapes maker Scapa received a takeover offer which sent its shares soaring by 25pc. However, Blackmoor Investment Partners, a shareholder with 3.2pc of the business, called on the chairman Chris Brinsmead to reject the bid from Schweitzer-Mauduit International.
Blackmoor claimed its stance was supported by fellow shareholders. The rationale is that the offer does not represent the true value of the business.
It seems Blackmoor is set against selling out and said it would wait up to five years for Scapa to reach its potential. However, Schweitzer-Mauduit International may return with a higher offer or a bidding war could take place.
The current share price of 214.5p is still below Questor’s buy price of 471.3p in March 2018.
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