Et Alia

Occasionally - really very rarely - we have a thought or bit of news that we think worth sharing. 

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CGT rising under Labour?                                                          July 2024

• The chatter is that Labour will raise CGT significantly in the next parliament.
• FWIW, we don't think that they will raise it immediately - its "no plan" denials are too recent - and it will likely only be incrementally higher in time as a hiked CGT rate won't bring in more money (it's an optional/transaction tax) and Rachel Reeves isn't a plonker.
• Nevertheless, we've been running through various scenarios for our own money.
• The main option being to sell out of our investments now and then reinvest in 30 days - "bed and breakfasting" - so as to crystallise gains at today's CGT rate.
• Below is the result of our thinking. This is not investment advice. We're just sharing something that we're (not) doing with our own money.

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Here's our Maths:

Scenario	Bed & Breakfast	Do Nothing
Original Investment	£100	£100
Assume Doubled - Value Today	£200	£200
CGT Realised at 20% Rate	£20	£0
Amount Reinvested	£180	£200
Assume Doubles over 10 Years	£360	£400
CGT Realised at 40% Rate	£72	£120
Final Capital	£288	£280

• This makes a compelling case for "Do Nothing".
• Investors are only 3% better off by selling and re-investing, and this assumes 3 things:
  • The CGT rate goes to 40%. We think unlikely. CGT is a transaction tax. It's highly dubious that hiking CGT to 40% will bring in more money.
  • If it were 40%, that CGT stays at 40%. When transaction taxes are high, the economy stops moving (cf. stamp duty on houses). We'd wager a great deal that CGT wouldn't stay at 40%.
  • Most importantly, that an investor chooses to sell their holding when the CGT rate is 40%. Unless absolutely forced by circs, we couldn't imagine doing this.
• What are the main counter arguments?
  • This is only one piece of maths. e.g. if the investment doesn't double, one is better off selling at a lower rate.
  • If not a long-term investment - i.e. will likely need the money soon - then better to sell at lower rate.
• Our take on the counter arguments:
  • Doubling every 10 years is what we expect and hope for our investments given historical data. Guaranteeing a loss today (by selling) rather than investing for future growth doesn't appeal.
  • If the investment isn't long-term, we'd be more inclined to sell. We still wouldn't! We don't believe CGT will be hiked significantly, but that's a subjective call reading the political runes...

• To repeat, this is not investment advice. Just our take for our own money.​ Please tell us if we're missing something...

Short-Term Gilts vs. Cash in bank                                                            October 2022

• We recently came across an investment idea that we think is under-appreciated - a rare thing given investment is generally the triumph of the optimists...
• This is not investment advice. We're just sharing something that we've done with our own money.
   
  On 3rd October 2022, shortly after Kwasi’s mini-budget somewhat distorted pricing, we bought some short-dated UK Government gilts at a yield of c. 4.3%. (e.g. Treasury 0.125% 31/01/2024 Gilt)
   
  So far, so dull. The reason we did it is that the interest coupon on the gilt is only 0.125%, so most of the yield comes from buying the gilt at a discount to its par value. (e.g. you buy the gilt for £96 and a year later the UK government pay you £100 to give you c.4%+ capital gain).
   
  This capital gain on UK gilts is tax free, so the 4.3% yield is the equivalent of earning a risk free c. 8% interest in the bank and then paying income tax (if higher rate tax payer)
   
  Two further reasons we did it:

1. UK gilts are very liquid, so unlike locking your cash up for 12 months at the bank for a higher interest rate, you should be able to sell your gilts at any time.
2. Our counter-party risk is lower since we’d rather lend money to the UK government (who can print more to repay us), than to a UK bank lending it out to goodness knows who.

• It's important to note we intend to hold these gilts to maturity so we're relaxed about the impact of interest rate movements on the pricing in the interim.
• These gilts can be bought on many of the usual platforms with differing maturities: Jan 2024 gilt on Interactive Investor or Hargreaves Lansdown 

 
To repeat: the above is not investment advice. Just something we've done with our own money which we hope is smart and might be helpful to others. ​ If you think interesting, get your own advice, read everything you possibly can and then decide independently what to do.

Carbon Free Eggs                                                                                          December 2021

• In 2017, Vanneck EIS was the first/only investor in Entomics, a start-up from Cambridge University trying to improve waste efficiency in the poultry sector by feeding chickens black soldier flies instead of grain. 
• 4 years and a name change to "Better Origin" later, the company has just announced a deal to get carbon neutral eggs into Morrisons in 2022. The FT went big on it here. 
• We don't tend to join in the investment industry chatter on ESG as it's generally unnuanced and virtue signalling. So let's leave all that to one side and instead focus on what's important here...

​...This is very cool!

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Our original investment was a total moonshot. We'd have never made it without the EIS tax breaks to mitigate any losses, nor in isolation; i.e. you need a portfolio of moonshots. This initial project will save 5,737 tonnes of CO₂-eq emissions per year – an equivalent of taking 1,240 cars off the road. It will also save 1,500 tonnes of food waste – which is what c. 21,420 Brits throw away annually.​

​Long-term, the Better Origin team need to make a success of this deal. There are 26 million free range laying hens in the UK. If their solution was adopted across all of them, the carbon saving would be over 472,000 tonnes of CO₂ each year. 

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Lifetime ISAs                                                                                              March 2018

This is our first – and probably last – "blog", and it’s about savings. This reflects two things. First, we don’t get out much. Second, we think this is worth reading.

Jumping straight in, our friends and investors (and their children) should consider the government’s Lifetime ISA scheme.
​
The basic proposition is:

• Anyone aged between 18-39 years old can put £4k into a lifetime ISA (alongside a further £16k into a regular ISA.)
• The government will add £1k to it. Free money.
• The augmented £5k grows entirely tax free.

It gets better:

• Provided you (or your children) do your first Lifetime ISA before you’re 40, you can do it every year until you are 50.
• E.g. a 35 year old can put in £4k annually for 15 years and the government will contribute £15k over the period. Again, free money.

The catch?

• You can’t get the money out until you are 60 without paying a 25% charge. And fair enough. The government is incentivising people to save for their old age. They're just taking back some of their original money they put up as an incentive.

Our perspective is that unless you are a Premier League footballer, taking 5mins to open a Lifetime ISA and get a £1,000 contribution from the government is likely to be a productive use of your time.
We’ve done our Lifetime ISAs with Hargreaves Lansdown here.

What to invest the money in?
You can leave the money in cash or invest in shares or funds, including our VT Global Equity Income Fund which is where we invest - well we would...

Equally, there are lots of other good funds, and please remember that investments can go up or down in value.

If you do invest with us, let us know; that way we can notify you when our next blog hits in c. 2025. Do get in touch if none of the above makes sense or send any questions to [email protected]

Lastly, we want to make clear that none of the above should be considered advice, we’re just highlighting the government’s Lifetime ISA scheme. You should get your own advice, read everything you possibly can and then decide independently what to do.

Our motivation is simply to bring the Lifetime ISA to the attention of our friends and investors. Frankly, we’re a little embarrassed to blog on such a boring subject, but thought the potential benefits are worth a little embarrassment!
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