What records do I need to keep for unwrapped investments?

pip895

bowlhead99 wrote: »

I don't know if you are missing something or I am missing something.

Probably me. :rotfl:I just find it easier to deal with Accumulation units – all the little bits of cash seem to complicate things. I like to know how well a fund is doing and what it has done for me – with accumulation units it is all there in one place. I have always assumed that the income tax side is taken care of in the Consolidated Tax Certificate??! Or have I got that wrong?:eek:
With regard to the CGT side of things realistically if he take his profits as he goes along (by selling and reinvesting) to avoid building up capital gains, it is going to be quite a few years before the OP needs to consider the income increment in his accumulation units. He will need to fill in a tax return but he could safely ignore the complication until he is actually at a point when he has to exceed the limit – couldn’t he?. At least that is what I have been doing up to this year and the tax office has never questioned it.:o

bowlhead99 wrote: »

Finally I would disagree a bit with the comment about VCTs, which though giving you an extra opportunity for a tax free return are not really suitable for everyone due to risk and complexity (obviously less of an issue for a wealthy person who has already used his ISA and pension wrappers).

I wasn’t/didn’t mean to suggest the OP should go down the VCT route – but they are potentially useful once you have the sort of size of portfolio that is going to require you to pay CGT.
I am interested in your comments on the riskiness of VCT’s – how much more risky is a VCT than a small companies fund? Some of the Generalist VCT’s seem less risky if anything – Say Baronsmead VCT – it has a Fe risk score of only 55 and has been going since 1995 – much longer than most sc funds. It is very easily bought & sold on HL. As I understand it the rules have changed so new issues are intrinsically more risky – but the old ones just keep going & giving tax free returns for not a huge amount of risk – until the government changes the rules at least.
I am genuinely interested in your/anyone else's thoughts on this – I recently bought into a couple of VCT’s – Baronsmead & Unicorn Aim. So far they have done exceptionally well for me – they were a little more expensive up front than the average investment trust, but other than that.. I would like to be for warned if there is more risk involved than I am aware of.

bowlhead99

pip895 wrote: »

I am interested in your comments on the riskiness of VCT’s – how much more risky is a VCT than a small companies fund? Some of the Generalist VCT’s seem less risky if anything – Say Baronsmead VCT – it has a Fe risk score of only 55 and has been going since 1995 – much longer than most sc funds. It is very easily bought & sold on HL. As I understand it the rules have changed so new issues are intrinsically more risky – but the old ones just keep going & giving tax free returns for not a huge amount of risk – until the government changes the rules at least.
I am genuinely interested in your/anyone else's thoughts on this – I recently bought into a couple of VCT’s – Baronsmead & Unicorn Aim. So far they have done exceptionally well for me – they were a little more expensive up front than the average investment trust, but other than that.. I would like to be for warned if there is more risk involved than I am aware of.

There is plenty of risk. The fact that Baronsmead (BDV) just bobbles along with decent dividends and no steep plummets during the 5 year market boom cycle from end of 2008 to end of 2013 during which time smaller company funds have typically doubled their unit price or better, might give it a low "FE risk score", whatever you feel that's worth to you, but the nature of the investments (smaller privately held, not publicly listed, illiquid companies) are far from low risk.

You mention it has been around a while. If you had waited for the 5 year track record to be in place by late 1999 / early 2000 before piling in for a nice long hold period, would you have been happy with your returns on a 190p 1999 investment that went down to 70p during 2002/3? And then after recovering to 100p by 2007, was down to 50p again by 2008?

Sure, headline price is not the whole story as there was 70p of dividends paid out between 2000 and 2008 but as you've lost 3/4 of your share price in that time you are still down 35-40% after an 8 year hold. And worse than that over a 1 year hold from summer 2007.

Sure, you say you can "buy and sell easily with HL" but do you want to sell a 50% loss or are you going to wait another 5 years for it to nicely recover again while hoping it doesn't implode? In the last week from last Thursday to this Wednesday there have been 3 billion trades reported on the London stock exchange. Literally five (0,000,000,005/ 3,000,000,000) of them were to buy or sell BDV.

So sure, there is usually a price (and if there is not one for online dealing you can pay extra for a telephone trade and speak to someone to work an order in excess of the official 'normal market size' of a paltry 500 shares, and cross your fingers you get a reasonable price), but that is how liquid the market is if you want or need to get out fast. In other words - not very liquid at all.

Look at the BDV investment portfolio - only 40% is listed or smaller AIM or PLUS shares or other collective investment vehicles. This chunk of the portfolio is at the riskier end of the same scale as your average "small companies fund", because small companies funds can sometimes include companies valued at a billion pounds which are nowhere near the types of things that VCTs hold.

The rest is riskier still ; another 35-40% is unquoted loan notes instruments with largely unquoted private companies; another 15-20% is equities in unquoted companies. The loans add some stability to the NAV as the interest is fixed or libor-linked, but only where the companies are in positions where they can repay or refinance which over a normal economic cycle, won't be all of them. Typically for these sort of unquoted, not listed, holdings - if the market turns and the VCT wants out, it can't get out. It is not like holding Tesco shares or bonds and thinking profits and valuations may decline so I'll sell tomorrow morning at market open. There is no ready market for private holdings as you have to convince someone to buy the whole company off you.

The top 10 investments change from time to time but can include companies turning over only 8-10m of revenue each year who are half owned by Baronsmead/Isis funds. Sure, some like Staffline are properly listed on AIM and making 200m of revenue but that's one of the rather bigger ones that they were lucky to acquire as a minnow.

And fees wise they take 2% of NAV each year and a performance fee of 10% of all profits over a pretty low return threshold. That general structure is pretty common for private equity but a tougher hurdle (with larger carry percentage) would be better in some cases, and perhaps more usual. To some these fees would sound expensive, though obviously its net performance after fees that really matters. Tellingly, they didn't actually pay a performance fee from 2008 to 2013 because even though the hurdle return to trigger the fees is super low, they had fallen back so far below 2007 levels nothing was due until you had caught up again or reset the clock.

So, does that sound like "not a huge amount of risk" as you put it? One person's idea of risk is different from another, but by comparison to other fund investment opportunities I would struggle to sell that type of fund to anyone who was even the slightest bit cautious. I have to say I have no interest to declare for or against Baronsmead, clearly it has made profits for some and not for others and I only used it as an example because it was one you mentioned and five minutes on the website gave me the above info.

Here is a thought though. The government recognises that small busnesses find it hard to access equity and loan finance because small businesses present huge risks to investors compared to large businesses. The returns can be great if the companies succeed, but that in itself is perhaps not enough for the free market to want to take enough of a punt on them to absorb the losses on all the venture capital failures they will invest in along the way.

So, the government wishes to boost the market by incentivising investment and telling private retail investors they can get a significant income tax break if they subscribe new blind capital in a new VCT issue and hold it for long enough for their capital to do good work in the business community. Very noble I'm sure, and a good opportunity for a savvy investor with a high tax bill and an appetite for risk.

When you add together the opportunity for tax-free returns on the superstar deals, with the day-one income tax write-off, an investor may find it worth his while taking the punt, because those superstar taxfree returns plus the day-one gain will hopefully offset the inevitable deals in the portfolio which are absolute dogs.

However, what you are advocating doing, is just coming along a few years later, NOT taking the day-one free tax break, and buying in at a large price spread in a thinly-traded market while pretending it is just like any other plain vanilla fund opportunity offered by the likes of HL or your broker/platform of choice. Plainly it is not. There are substantial risks made more palatable by the various tax breaks, most importantly the large day-one new-issue tax break.

To come along and take the risk and not the new-issue tax relief because you believe that long term, ISIS is a decent fund manager that will make you so much money you don't even need that day-one tax break of 30% of your initial cost... and believe you will be happier with your risk adjusted returns from a VCT even without that tax break than you would with any other opportunity... seems foolish.

Sure, there is money to be made like there is everywhere in a booming market but a couple of good years shouldn't be an excuse to throw logic out of the window.

HTH - and sorry this is nothing to do with OP's original question

pip895

Thanks for that bowlhead99 - I accept that VCT's are relatively illiquid but ultimately they will reflect the volatility of the underlying investments (in as much as investment trusts do) and I am happy to take the risk at the moment - Unicorn Aim my biggest holding has made 50% this year tax free - realistically anything that does that is going to be pretty risky. On the other hand I suspect I wont be increasing my 5% allocation to VCT's.;)

On the Allocation/Income unit issue, you are right if you are a higher rate tax payer then income units could be much simpler - I am lulled into a sense of security in that it is all taken care of in the notional tax credit for me. I hadn't twigged the CGT implications before - I have some work to do as I am up to the limit this year.

For anyone else who is unsure on this issue, I found this article a nice clear summary:-
http://monevator.com/income-tax-on-accumulation-unit/