Fund choice: Capital Gearing Trust
Share price: 4,641.8p
Market cap: £627.5m
At this stage, you are probably looking to preserve the capital you have built up so have something you can continue to draw from and maybe fund later life care costs. And if you don’t use up your capital doing this within your lifetime, you may wish to pass it onto to children or other beneficiaries.
If this is the case, a good portfolio inclusion could be Capital Gearing Trust (CGT) which aims to preserve its shareholders’ real wealth and achieve total returns greater than zero over the medium to longer term. It has made positive net asset value (NAV) total returns in each of the past 10 calendar years and positive share price total returns in all but one. The trust delivers a different pattern of returns to equity markets and can make positive returns when the latter are falling, such as in 2018 and 2020.
Capital Gearing Trust invests directly in assets such as index-linked government bonds, which accounted for 30 per cent of its assets at the end of January, and gets a lot of its exposure to other assets via funds.
It has a highly experienced investment team, with co-manager Peter Spiller having run it since 1982.
Share choice: Quartix
Share price: 449p
Market cap: £215m
When it comes to deciding what happens to your money when you are gone, Aim comes into its own. Many of the companies listed on London’s junior market qualify for business relief, meaning they are exempt from the 40 per cent inheritance tax paid on your estate above the threshold.
Aim is also a stockpicker's market – doing your research properly can unearth excellent companies which are both IHT exempt and growing both profits and dividends to support you in your retirement.
Like Quartix (QTX). In 2020, the company – which sells software to help businesses track their fleets of vehicles – added almost 43,000 new vehicles across the UK, US, and five European countries taking the total number of vehicles subscribed to its services up 15 per cent to 174,000. Over 85 per cent of the company’s revenue now comes from the fleet subscription business, which is highly reliable. At the end of 2020, annualised recurring revenue stood at £22m.
The attractiveness of the company’s growth and business model has recently captured the attention of Keith Ashworth-Lord, manager of the Sanford DeLand UK Buffettology Fund (GB00BF0LDZ31) who bought a 15 per cent stake in the company worth nearly £30m off the company’s founder and chief executive Andy Walters in January.
IC model asset allocation – twilight investor
Towards the end of your life, if there is still plenty of money in your retirement portfolio, you’ll be thinking about how best to pass it on to your loved ones and mitigate inheritance tax (IHT) as much as possible.
Choosing an asset allocation primarily to avoid tax when you die is a bit like putting the cart before the horse. That said, if you're considering IHT for your investment portfolio on top of other wealth, the chances are that you have plenty of capital. After all, the first point of call in IHT planning is using up personal allowances and the extensions to these that cover family homes. In short, if these boxes are ticked and you’re not expecting to live for decades more, then maybe you can take a little more risk in your investment portfolio. Our model asset allocation can help you plan.
What's in it?
Cash – 2 per cent. It’s assumed that there is no need to hold a great deal of cash for defensive purposes, as the assets generate the income the portfolio owner needs.
Other – 20%
There is always a liquidity risk (ease of buying and selling) with alternatives, but there are some assets within this group that can be used to mitigate IHT. If you’re wealthy and liquidity is not an issue, it could be worth having a higher allocation to take advantage.
Fixed Income – 35%
As this is still a retirement pot, there is a need to mitigate the risk of big falls in equity markets and for a portfolio to provide income for the remainder of your life.
Equities – 43%
This portfolio has this additional risk because it is assumed that there is sufficient money for the portfolio owner not to be ruined by any market falls. Within this asset class, there are some options to invest in shares that are IHT efficient. For example, there are exemptions on some Aim-listed shares. These investments are high risk, but thanks to the tax exemptions, it may work out that you are just risking capital that would otherwise eventually be lost to the estate in IHT anyway. Although, safer blue chips should still make up the bulk of your share holdings.