2017

BUSINESS PROPERTY RELIEF

INDUSTRY REPORT
DISCLAIMER
This report is provided for general
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without notice.
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FOREWORD
Welcome to the third edition of the
annual BPR Industry Report.
We know that investors are increasingly aware of their
EDITORIAL
potential Inheritance Tax (IHT) liability and have shown an
Ryan Zeng unprecedented demand for estate planning as IHT receipts
Daniel Kiernan have reached a new peak. The government collected a record
Lisa Best amount of 4.7 billion in IHT in the 2015/16 tax year, thanks
to rising property value and a buoyant stock market. In
addition, the Office for Budget Responsibility has forecast IHT
receipts to rise by another 1.5 billion to 6.2 billion by 2022.
CREATIVE
Despite the governments effort to reduce the IHT burden by
Mar Alvarez
introducing the Residence Nil Rate Band (RNRB), research
shows the IHT cut will only benefit about 0.04% of the
population and will only benefit the countrys richest (estates
SUB-EDITING valued between 500,000 and 1 million). Many other estates
Daniel Kiernan will still face IHT, and even beneficiaries of the RNRB will still
Lisa Best be looking at substantial bills. However, conventional solutions
can be complex and time-consuming, making them unsuitable
Ryan Zeng
for the very elderly, people in poor health and those who
just want to protect a marginal amount of assets from IHT.

RESEARCH A tax shelter via BPR, on the other hand, can potentially
be achieved within a relatively short period of time
Lisa Best
and many structures are quite simple meaning that
Ryan Zeng they can be utilised in a variety of client scenarios.
Alan Sheehan
The advantages of BPR investment have been increasingly
Ari Levitan recognised by advisers. Our market research shows 81%
Katie McCarthy of advisers recommend BPR qualifying investments to
Roshan Jethwa their clients and 68% of them expect to see their use
increase in the next two years. Moreover, advisers are
now more concerned with the quality of underlying
investments rather than focussing mainly on provider
MARKETING
reputation when selecting a BPR investment.
Michelle Powell
This year, we will publish our first Advisers Guide to BPR, so
this edition of the report has slightly tilted its focus: there
is less information on the basics and more information on
PRINT market developments, new investment opportunities and
Palina Limited current issues that are impacting the sector. Advisers who
want to have the most comprehensive overview of the BPR
market, from the rules and key issues, advising on BPR to
the offers that are currently open and how they compare,
should read both the Industry Report and the Guide.

I hope you find the report useful and informative,

and that it continues to be an important resource
for you over the next twelve months.

GUY TOLHURST
Managing Director
Intelligent Partnership
Copyright Intelligent Partnership 2017
3
CONTENTS

INTRODUCTION OVERVIEW OF BPR ADVISING ON BPR

11 IHT STATISTICS

03 FOREWORD 15
RESIDENCE NIL RATE
BAND 30 BENEFITS OF BPR
06 OPENING STATEMENT
19
POWER OF ATTORNEY 31 SUMMARY OF THE RULES
07 KEY FINDINGS ISSUES
32
OTHER ESTATE PLANNING
08 REPORT OVERVIEW 20 CONCLUSIONS SOLUTIONS

09 EXECUTIVE SUMMARY 21 2017 OFFERS 35 BPR CASE STUDY

* Please note: unless otherwise stated, all charts and graphs have been provided by Intelligent Partnership

Intelligent Partnership is committed to the very highest

professional standards as embodied by its accreditation
and membership to these industry associations.

4
 2017
MARKET RESEARCH INDUSTRY ANALYSIS FINAL CONCLUSIONS

53 TERMINOLOGY

54 OVERALL MARKET

60 CONCLUSIONS

37 ADVISER SURVEY 61 MANAGERS IN FOCUS

40 ADVISER ROUNDTABLE
42 INDUSTRY ROUNDTABLE
80 REPORT CONCLUSIONS
69 BPR COMPARISON
81
USEFUL MEMBERSHIP
78 PROVIDER DIRECTORY ORGANISATIONS

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future generations, and other controlled sources.

5
OPENING STATEMENT
A WORD FROM THE SOCIETY OF LATER LIFE ADVISERS

In the 2015/16 tax year, HMRC collected the highest annual

inheritance tax (IHT) intake in history, and the current trend indicates
LEARNING OBJECTIVES
that IHT receipts will continue to accelerate, catching an even greater
proportion of estates in the IHT net. We are required to state these in
order to qualify as accredited for
As a result of a buoyant stock market and rising property prices,
Structured CPD. By the end of the
IHT is no longer an issue that only concerns the very wealthy. Many
report readers will be able to:
ordinary UK households may start recognising their IHT liability
and looking for ways to mitigate it. This is especially true for those Identify product offering trends in
residing in the South East of the country, where the highest national the BPR market
property values are found.
List the different advantages BPR
However, estate planning will not necessarily be a straightforward qualifying investments have over
process for them. There are tough decisions to be made and trade- other estate planning solutions
offs to be considered. For example, setting up a trust can be both
Identify the latest BPR offers,
costly and involve considerable paperwork. In some cases, it may
and describe how this years open
also mean giving up control of the assets if it is to be effective for
BPR offers compare with previous
IHT. In addition, there are likely to be both tax and legal issues which
years offers
make it even more difficult to do without taking advice.
Benchmark current BPR offers
These considerations are reasons why late life planning is an area
against each other and against
where advisers can add real value to their clients and even grow
previous years, based on key
business with their clients intergenerationally. Nevertheless, when it
investment criteria such as cost,
comes to estate planning no two clients are alike, so there is no single
target returns, liquidity and
solution that works for all and each case has to be considered on its
minimum investment levels, and be
own merits.
able to break this information down
Therefore, in order to provide the best possible service to their by investment strategy
clients, it is important that advisers have a good understanding of
Interpret HMRCs latest statistics
all of the possible options that are available both traditional and
on IHT, including IHT receipts,
non-traditional.
estate composition and the amount
Investments that qualify for Business Property Relief (BPR) have of BPR set against estates
shown an increasing popularity in recent years among advisers
Explain how the RNRB works and
and investors, as they offer greater flexibility and speed than many
the implications it has on IHT
conventional solutions.

However, the BPR market is constantly evolving. Many new entrants

have come into play with varying strategies and underlying trades.
It is therefore essential that advisers stay up to date with the market
and have a grasp of the current market offerings, as well as how the
open investment opportunities compare to the past in terms of key
investment metrics.

This report provides readers with the latest developments in the BPR
market, so that advisers can be more confident when recommending
BPR qualifying investments to their clients and also have easily
accessible benchmarking statistics to assess individual BPR products.

TISH HANIFAN
Founder and Joint Chair
SOLLA (Society of Later Life Advisers)

6
 KEY FINDINGS
HIGHLIGHTS FROM OUR RESEARCH

THE TRUST BETWEEN 6.5%

ADVISERS AND PROVIDERS AIM BPR AVG TARGET RETURN OF NEW OFFERS
is improving as the
number of advisers who
POPULARITY 2.4% higher than historical offers

picked provider reputation is increasing: 75% of

as their top investment new offers are AIM
criterion has reduced listed
HISTORICAL 2016/17

RESIDENTIAL PROPERTY AMC INITIAL

CHARGE
LONDON &
securities and cash are the
SOUTH EAST
largest asset classes held in have shown
estates, making up 85% of all the highest
AVG AMC AND INITIAL CHARGE
estates on death in 2013/14 IHT receipts
have both fallen amid this
years new products

4.7 bn THE NEW RESIDENCE NIL RATE BAND

will only benefit 0.04% of the
NON-DOMS WILL BE DEEMED DOMICILED
for tax purposes where they
IHT IN 2015/16 population of England have been UK resident in at least
To rise to and Wales 15 of the past 20 tax years
6.2 bn
by 2022
15-20 YEARS
IN THE UK

68% OF ADVISERS
98% 85%
see their use of BPR
qualifying investments
increasing over the
GROWTH OF OPEN OFFERS next two years
in the amount of target growth
BPR assets set
against estates

7
REPORT OVERVIEW
WHAT CAN READERS EXPECT?
This report has been written with
advisers in mind. We want to provide
our readers with a balanced and
informative review of the current
state of play in the BPR market, so the
report will cover negatives as well as
positives and is therefore NOT sales or
marketing literature.
The report comprises a summary
of the BPR market, an update on
estate planning and HMRC IHT
statistics, an analysis of open
investment opportunities, and
surveys and interviews with both
IFAs and investment providers to get
a temperature check on how they
perceive the sector. We dont expect
readers to pick it up and read it from
cover to cover (although wed love it
if you did). Instead, we expect that
most people will dip in and out of
the report, picking out sections of
interest and using it as a resource over
the next twelve months whenever
they are considering BPR qualifying
investments.
All of this content is CPD accredited,
so by the end of the report readers
will be better informed about BPR
and have the knowledge they need to
approach the market with confidence
Readers can expect to:
Find out what their peers are thinking
by reading the Market Research section.
Intelligent Partnership surveyed 190
advisers to find out what they thought
was good and bad about BPR, and
hosted a roundtable discussion to
discover how some of the most active
advisers use BPR with their clients
Use the Industry Analysis to help
them benchmark open offers against
each other based on key investment
criteria such as costs, target returns,
liquidity and minimum investment
levels
Evaluate the latest open offers in the
market, and see how they compare to
8
each other and to previous years companies as Intelligent Partnership.
We also carried out our own extensive
Read our Industry Roundtable
desktop research, examining
Discussion to see what the fund
brochures, investment prospectuses,
managers themselves have to say
mystery shopping providers and
about the current state of play within
crawling through the websites to
the Business Property Relief market,
verifying their product data.
what impact the RNRB might have on the
market and their underlying investments The report is made possible by our
sponsors, who have contributed copy
Learn more about research on
to the report on pages 62 to 77 and
BPR funds and client suitability in our
supported us by helping to meet
special Advising On section, which
production and printing costs.
includes a BPR case study.
So a big thanks to: Deepbridge Capital,
As we are launching an Advisers
Downing, Octopus Investments, Stellar
Guide to BPR this year, this report
Asset Management, Strata Residential
will mainly be looking at new
Finance, TIME Investments and Triple
developments, latest statistics and
Point.
interesting areas that we havent
covered before. Advisers who are new
to BPR and want more depth on some DEFINITION OF TERMS
of the basics, such as the benefits of
a portfolio approach or how to carry Just to be clear from the beginning
out due diligence, should read the we will use the terms BPR qualifying
Advisers Guide to BPR for more detail. investments, BPR products or BPR-
based products interchangeably.
ACKNOWLEDGEMENTS AND THANKS What we are referring to are
discretionary portfolios, private
We couldnt do this without the help
company structures or collective
and support of a number of third
investment schemes that are run
parties who have contributed to
by professional fund management
writing this report. Their contributions
groups with the primary objective of
include inputting into the scope,
saving their investors beneficiaries
sharing data, giving us their insights
from paying inheritance tax on the
into the market, providing copy and
investment amount.
peer reviewing drafts. Some of them
have inputted directly and some of Business Property Relief is actually
them were good enough to share their no longer the correct term, the
thoughts and ideas over coffee or at relief is now officially known as
various conferences and events. Business Relief (BR). However, as
nearly everybody we speak to from
So a big thanks to Tish Hanifan of
investment providers to advisers
SOLLA, Ian Smyth, Jane Bligh, John
still refer to BPR, so we will use the
Cornelius and all of the advisers who
two terms interchangeably.
took the time to stop and chat after
one of our events or who sent us Of course, it is perfectly possible
feedback on the last repot. Their input to make private arrangements to
is invaluable, but needless to say any benefit from BPR by investing
errors or omissions are down to us. directly in private companies without
engaging the expertise of a fund
We have relied on MICAP for the
manager but that kind of activity
data we have based the report upon.
is outside the scope of this report.
MICAP are part of the same group of
EXECUTIVE SUMMARY
WHAT IS THE STATE OF PLAY IN THE BPR MARKET?

1 RECORD AMOUNT OF IHT COLLECTED

According to the HMRCs latest IHT statistics, 4.7 billion was collected in the 2015/16 tax year - mainly attributed to the number
of properties surpassing the nil rate band. We have found that on average IHT receipts have increased year-on-year by 12% since
the 2009/10 tax year. The Office for Budget Responsibility has estimated that IHT receipts will rise to 6.2 billion by 2022.

2 NOT EVERYONE WILL BENEFIT FROM THE RESIDENCE NIL RATE BAND

From April 2017, each individual can claim an additional allowance of 100,000 on top of their nil rate band (325,000) to offset
the value of a family home in an estate. The new band begins at 100,000 and will rise by 25,000 each year to 175,000 by 2020.
However, the headline of passing on an IHT-free estate of up to 1m may be misleading. It is estimated that only about 0.04% of
the population of England and Wales will benefit from it.

3 THERE IS A GROWING NUMBER OF AIM LISTED BPR PRODUCTS

This year we are seeing an increasing number of AIM-based BPR products coming into the market. Our industry analysis has
shown about half of all currently open BPR investment opportunities are AIM-based which is 20% more than their market share
last year. As a result, this years average level of diversification is higher, as AIM-based products typically target a holding of 20 or
more investee companies.

4 QUALITY OF UNDERLYING INVESTMENTS IS KEY

Last year, our survey respondents picked provider reputation as the most important investment criterion when selecting a BPR
investment. Although it still remains a major consideration, this years top criterion is transparency of underlying investments.
In our opinion, this represents a logical shift as new providers are entering this space with little or no track record, so the quality
of underlying investments automatically forms a key part of advisers due diligence process.

5 COMPETITION IS INCREASING

There have been many new entrants coming into the market in the last two to three years which is a healthy trend in general
as existing providers will have to broaden their underlying investments and/or lower their fees in order to keep their
competitiveness. In addition, more competition should also lead to increased transparency on underlying trades, fees and
performance, making comparison between products easier for advisers.

6 THE POPULARITY OF BPR IS STILL GROWING

From our Adviser Survey and Roundtable we found that advisers are generally very positive about their experience of using BPR.
Our survey shows 68% of advisers see their use of BPR increasing over the next two years, which is 8% higher than we recorded
in last years survey.

9
 MARKET UPDATE

10
IHT STATISTICS
HMRCS LATEST STATISTICS ON IHT

IHT COLLECTED INHERITANCE TAX RECEIPTS (2001-2016)

According to HMRCs July 2016 IHT
statistics, the Government collected a
5,000
record amount of 4.7 billion in IHT in
the 2015-16 tax year, thanks mainly to 4,500
an increase in the number of properties
4,000
surpassing the 325,000 IHT threshold.
3,500
The amount of IHT collected in the
2015-16 tax year is 22% more than the 3,000
amount collected in the previous tax
2,500
year and a 95% increase on 2009-
10. On average, IHT receipts have 2,000
increased year-on-year by 12% since
1,500
2009/10. Rising asset values and a
stagnant nil rate band are the main 1,000
drivers behind the rise.
500
The percentage growth in house
0
prices between 2014 and 2015 was
2004-05

2008-09
2002-03
2001-02

2003-04

2005-06

2006-07

2010-11

2012-13
2007-08

2014-15
2009-10

2011-12

2013-14

7% on average. Although house prices
have slowed of late due to a variety
of reasons including Brexit, recent
stamp duty changes and changes to
the taxation of landlords, the Office
for Budget Responsibilitys forecast
of year-on-year house price growth in
the next five years is just below 5%.
A spike in winter deaths in the final
months of 2014-15 is another factor
highlighted by HMRC to explain the
increase in IHT receipts. The number of
deaths between December 2014 and
March 2015 was 232,162, 17% more
than the number of deaths in the period
December 2013 to March 2014 (197,706).
This six month lag means the spike in
deaths in the final month of 2014-15
would have caused an increased IHT
revenue in the subsequent tax year.
While HMRC releases IHT receipts
data in great detail, the data relating
to the composition of estates, the
use of reliefs and the tax due on
estates has a three year time lag. The
latest data published by HMRC is for
estates passing on death in 2013-14.
HMRC stated The delay is due to
both the six month lag from date of
death to when the IHT becomes due
and subsequent time lags while the
data from tax returns is prepared for
analysis on HMRCs databases.
2015-16
SOURCE: HMRC
NUMBER OF ESTATES CAPTURED NUMBER OF ESTATES FOR WHICH
TAX IS DUE BY YEAR
In the 2009/10 tax year, the number
of estates that paid IHT fell to 14,723
from 16,412 in the previous tax year, NO. OF ESTATES
TAX YEAR
as a result of the increase in the nil LIABLE FOR IHT
rate band. However, as the threshold
has been kept frozen since then, the 2008-09 16,412
number of estates liable for IHT has
increased considerably between
2009-10 14,723
2009/10 and 2013/14, giving a total
increase of 31%.
2010-11 15,584
The chart on the following page
arranges the number of estates for
which IHT is due by estate band. 2011-12 15,976
The number of estates liable for IHT
has been rising for every band since
2012-13 17,917
2011/12. The most notable increase is
observed in the 500,000 to 1 million
band, where the number of estates 2013-14 19,277
subject to IHT has increased from just
over 7,500 to about 9,000 between
SOURCE: INTELLIGENT PARTNERSHIP
2011/12 and 2013/14. In addition, the
largest proportion of estates subject
to IHT are within this band.
Furthermore, the proportion of deaths
resulting in a charge to IHT has also
been rising since the revision of the nil
rate band.

11
Receipts have been revised up over the forecast period due to slightly higher equity and house
prices. - The Office for Budget Responsibility

NUMBER OF ESTATES FOR WHICH TAX IS DUE BY ESTATE BAND FORECAST

The Office for Budget Responsibility
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
(OBR) has estimated that by 2022 IHT
receipts will rise by another 1.5 billion
14,000
to 6.2 billion. In terms of the number
12,000 of UK estates liable for IHT, the body
has forecast the number of deaths
10,000 subject to IHT will reach 54,500 in the
period between 2013/14 and 2018/19,
8,000
equivalent to 10% of deaths.
6,000 The forecasts are mainly attributable
to rising house prices and a buoyant
4,000
stock market. The OBR commented:
2,000 Receipts have been revised up over
the forecast period due to slightly
0
higher equity and house prices.
LESS THAN 500,000 500,000 - 1 MILLION 1 MILLION - 2 MILLION MORE THAN 2 MILLION
With a frozen nil rate band and
SOURCE: HMRC rising asset prices we expect that
the number of estates exposed
PROPORTION OF UK DEATHS LIABLE TO IHT to a charge to IHT will continue to
grow in the foreseeable future, and
7%
therefore it is logical to assume that
6% the demand for estate planning
services is also likely to increase.
5%
UK residential buildings and securities
4%
are the biggest asset classes within
3% average estates, contributing 66%
(12,830 million) of the total average
2%
estates in 2013/14. This demonstrates
1% why property values and financial
0% securities have had a significant
impact on the statistics above. Cash is
2004-05
2002-03

2008-09
2001-02

2003-04

2005-06

2006-07

2010-11

2012-13
2007-08

2009-10

2011-12

2013-14

in third place totalling 3,752 million,

or 19% of the total estates in 2013/14.
SOURCE: HMRC Other asset types are in much smaller
proportions and include loans, other
ESTATES BY ASSET TYPE OF PEOPLE WHO DIED IN THE YEAR 2013-14 (M) buildings and land and insurance
policies.

1,286 SECURITIES
932
CASH
5,790
INSURANCE POLICIES

UK RESIDENTIAL BUILDINGS
7,040
OTHER BUILDINGS & LANDS
3,762 LOANS AND OTHER ASSETS
543
SOURCE: HMRC

12
 Most of the vocal IFAs have been forthright in that they do not just want to source a savings on IHT
for their clients; they actually want an opportunity to actually generate returns. - Kieran OGorman,
Technical Partner, Deepbridge Capital

IHT FORECAST ESTATE ON DEATH BY GENDER

AND AGE
FORECAST
There are two main conclusions
YEAR 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 we can draw from these charts.

First, the amount of estates passing

BILLION 4.7 4.7 5.0 5.2 5.5 5.8 6.2 on death is positively correlated
with age, and its consistent with
all asset classes. People under 45
generally have no chargeable estates
ESTATE PASSING ON DEATH (2013-14) on death while the chargeable estate
peaks for individuals aged 85 and
TAXPAYERS ONLY, FEMALE
over. However, it is also important
to note that the number of deaths
UNDER 45 45-64 65-74 75-84 85 AND OVER for individuals aged under 45 is
much lower than individuals aged
that of 85 and over - so the total
2,500
chargeable estates passing on death
by this age group is the lowest.
2,000
Second, female taxpayers passed
NUMBER OF DEATHS

on a greater amount of chargeable

1,500
estates than male tax payers. The
difference between the two genders
1,000 is about 20%. Female taxpayers
who are 85 and over passed on
500 significantly more securities, cash
and residential property than men
0 in the same age band. However, men
SECURITIES CASH INSURANCE UK RESIDENTIAL OTHER BUILDINGS LOANS & have higher estates passing on death
POLICIES BUILDINGS & LAND OTHER ASSETS than women in all other age bands.

SOURCE: HMRC

TAXPAYERS ONLY, MALE

UNDER 45 45-64 65-74 75-84 85 AND OVER

2,500

2,000
NUMBER OF DEATHS

1,500

1,000

500

SECURITIES CASH INSURANCE UK RESIDENTIAL OTHER BUILDINGS LOANS &

POLICIES BUILDINGS & LAND OTHER ASSETS

SOURCE: HMRC

13
The amount of unquoted BPR qualifying investments recorded has grown by 144% between 2010
and 2014.

AMOUNT OF IHT DUE BY REGION AMOUNT OF IHT DUE BY REGION

London and the South East of England
are, by far, where the most IHT was
collected in 2013/14. Northern Ireland
800k+
had the least IHT receipts in the
same period. To a certain degree,
the table also demonstrates how the 700k-800k
amount of IHT due is proportional
to house prices, as shown by the 600k-700k
heat map of UK property values. On
the map, regions with the highest
500k-600k
property values are highlighted in
red and the lowest are in blue.
400k-500k
Clearly, London and the South East,
where the most IHT was collected,
300k-400k
are home to the most expensive
properties in the country. Other
regions where a significant amount 200k-300k
of IHT has been collected are the East
and South West of England. From the
100k-200k
heat map we can see that property
values in these two regions fall into
the high to medium range. Property 0k-100k
values are typically between medium
and low in regions where the amount
of IHT due is relatively small, for SOURCE: ZOOPLA

instance, Wales and Northern Ireland.

AMOUNT OF BPR CLAIMED AMOUNT OF BPR QUALIFYING INVESTMENTS SET AGAINST ESTATES IN THE YEAR TO 2013-14
The chart on the right shows the
amount of BPR relief set against assets UNQUOTED SHARES OTHER BUSINESS PROPERTY RELIEF
in the estate between 2010/11 and
1,600M
2013/14. The amount of unquoted 1,443
BPR qualifying investments recorded 1,400M
1,246
has grown by 144% over this time 1,200M 1,115
period. Although there has been some
1,000M
fluctuation in the amount of BPR
qualifying assets other than unquoted 800M
shares, the amount has increased 590 551
600M 491
by 132 million from 2010/11 to 419 408
400M
2013/14. In particular, there was a 35%
increase in 2013/14 which we believe 200M
is a result of the inclusion of AIM
0
shares held within ISAs. In contrast,
2010/11 2011/12 2012/13 2013/14
the increase in unquoted shares was
merely 16% over the same period. SOURCE: HMRC

Unfortunately, there is a two-year lag in HMRCs data so we are unable to make observations on the latest trend in the amount of BPR
claimed. Nevertheless, we expect the upward trend to continue in the years after 2013/14. The next update from HMRC will be released
in July 2017 and it will include data on IHT statistics for the 2014/15 tax year.

14
RESIDENCE NIL RATE BAND
HOW IT WORKS
POLITICAL UPDATES ON IHT
The main IHT announcement made
during this years Spring Budget was
the reform of domicile rules. The
government originally intended to
introduce the heavily-trailed deemed
domicile rules in the Finance Act 2017,
bringing IHT into line with changes
also made to income tax and capital
gains tax. From April 2017, the ACT
was to deem non-doms as domiciled
for UK for tax purposes where they
have been UK resident in at least 15
of the past 20 tax years. In addition,
people who were born in the UK
with a UK domicile of origin but
have acquired a domicile of choice,
would be deemed UK domiciled
for all tax purposes while they are
UK resident, and all UK residential
property would be liable to IHT even
property indirectly held by a non-
dom through an offshore structure.
However, the above provisions were
in fact omitted from the Finance
Bill 2017. This means non-doms
who would have been deemed UK
domiciled for tax purposes from 6
April 2017 are still non-UK domiciled.
The omission leaves many non-doms
uncertain about their tax planning,
especially for those who have
already taken actions in response
to the proposed provisions.
Having said that, the omission doesnt
imply that the changes have been
scrapped, it is probable that the
new rules will come into effect at a
later date. While nothing has been
confirmed by the government, it
seems likely that the new rules will
be included in a future Finance Bill
following the early General Election.
And this may be the case regardless
of who comes into power in June 2017.
Therefore, we suggest that non-doms
keep a close eye on updates in this
area and what it means for their tax
position. Those that have already
acted, may benefit from retaining
their new arrangements on the
assumption that the new rules have
simply been deferred to a future date.
POLITICAL COMMENTS
ON NIL RATE BAND
Currently, the nil rate band for IHT
is 325,000, and has been frozen
at this level since April 2009.
The Treasury has no intention
of reassessing the threshold
until at least April 2019. Based a
calculation by Wilsons, a private
client law firm, the threshold for
IHT would need to be increased
to 391,000 if it were to be kept
in line with inflation since 2009.
RESIDENCE NIL RATE BAND
The new Residence Nil Rate Band
(RNRB) was announced in the
Summer Budget 2015 in an effort to
reduce the IHT burden for middle
income families where house inflation
has brought them within the scope
of IHT. It has been estimated that the
new band is set to cost the Exchequer
almost 1 billion a year. The 2017
Spring Budget confirmed there
are no changes to the introduction
of the RNRB and the rules remain
as previously announced.
As the new RNRB began in April
this year and given how dominant
residential property assets are in
chargeable estates as we have seen
above, we will discuss in more detail
on how the new RNRB works and
the implications it has on IHT.
How does the new RNRB work?
For deaths on or after 6 April 2017,
an estate will be entitled to claim
a RNRB of 100,000 to offset some
or all of the IHT arising when a
residence is passed on death to a
direct descendent in addition to the
existing nil rate band of 325,000.
RNRB ALLOWANCE
INDIVIDUALS MARRIED COUPLE
/ CIVIL PARTNERS
2017/18 100,000 200,000
2018/19 125,000 250,000
2019/20 150,000 300,000
2020/21 175,000 350,000
SOURCE: INTELLIGENT PARTNERSHIP
An estate will be entitled to the RNRB
if the:
Individual dies on or after 6 April
2017
Individual owns a home, or a share
of one, so that its included in their
estate
Individuals direct descendants
inherit the home, or a share of it
Value of the estate isnt more than
2 million
Individual had downsized to a less
valuable home or sold or given away
their home after 7 July 2015
The RNRB allowance begins at
100,000 per individual and will rise
by 25,000 each year to 2020. From
the 2021/22 tax year and beyond,
the maximum RNRB will increase in
line with inflation on the basis of the
Consumer Prices Index. Therefore, in
the 2020/21 tax year a married couple
(or civil partners) can pass on an
estate of up to 1 million to their heirs
without incurring any tax.
15
It has been estimated that the new Residence Nil Rate band is set to cost the Exchequer almost
1billion a year.

Similar to the basic nil-rate band
for IHT, any unused RNRB can be
transferred when the surviving
spouse or civil partner dies after 5
April 2017. Likewise, it doesnt matter
when the first of the couple died (it
can be before the inception of the
RNRB). So if the first of the couple
died before 6 April 2017, when the
RNRB became available, 100% of the
RNRB will be available for transfer.
Couples who arent married or in
a civil partnership, or who have
divorced, will still be able to benefit
from the RNRB individually, but they
wont be able to transfer any unused
RNRB to each other. In addition,
it is the unused percentage of the
RNRB that can be transferred rather
than the unused amount. Hence,
any increases in the maximum
amount of RNRB in the future will
also benefit the survivors estate.
How to Calculate and
apply the RNRB
The amount of the RNRB due for
an estate will be the lower of:
The value of the home, or
share thereof, thats inherited
by direct descendants
cant be applied to other assets in former home would have been
the estate. But, the unused amount included in their estate before
can be transferred to the deceaseds the downsizing or disposal.
spouse or civil partner when they die
The deceased can leave only a share of
and have a home in their estate to
the home to their direct descendants.
leave to their direct descendants.
In the case of inheriting only a share
Readers should note that the of the home, both the value of the
RNRB doesnt apply to any lifetime home and the amount of RNRB
transfers such as transfers into available must be apportioned.
trusts and gifts made within 7 years
When multiple properties are
of a donors death. The NRB will be
owned, the RNRB can only apply
applied to any lifetime transfers first,
to one of the properties and it is
leaving a smaller amount of NRB
up to the personal representatives
to set against the total value of the
to nominate which property to
estate after applying the RNRB.
use for the purpose of RNRB.
Direct Descendants
Eligible homes can be located in
A child, grandchild or other lineal countries other than the UK but they
descendant and a spouse or civil have to be within the scope of IHT
partner of a lineal descendant and must be included in a persons
(including their widow, widower estate, depending on the deceaseds
or surviving civil partner) are domicile and country of residence.
all considered as an individuals
direct descendant.
For RNRB purposes, a
direct descendant of an
individual can also be:
A child who is, or was at any
time, that persons step-child
An adopted child of that person

The maximum RNRB available for A child who was fostered at

the estate when the individual died
Here the value of the home is
determined by the open market value of
the home after subtracting any liabilities
secured on it such as a mortgage.
When calculating the value that
IHT is due on, the amount of the
RNRB is deducted from the total
value of the estate first, and then
the NRB is subtracted from the
remaining estate value. This way of
calculating the RNRB ensures that
the RNRB can only be applied to the
value of the home in an estate.
In cases where the value of the home
is less than the maximum available
RNRB, the unused amount of RNRB
any time by that person
A child where that person
is appointed as a guardian or
special guardian for that child
when theyre under 18
Eligible Homes
A home is eligible for the RNRB if
its both included in the deceaseds
estate and lived in at some stage
by the deceased before their
death. So, if a property has always
been held as a buy-to-let, it will
not be eligible for the RNRB.
If the deceased downsized or
disposed of their home before they
died, the RNRB only applies if the
TAPERING AWAY THE RNRB
For an estate that is valued at 2
million or more, the RNRB will be
gradually clawed back when leaving
the home to direct descendants.
The RNRB will be reduced by 1
for every 2 that the value of the
estate exceeds 2 million. This
means the RNRB will be tapered
away completely when the total
value of an estate is 2,200,000
or more in the 2017/18 tax year.
The taper threshold will be kept
at 2 million until the 2019/20 tax
year, but it may increase in line with
inflation after the 2020/21 tax year.

16
As a result of its rules and restrictions on the composition of the estate and the relationship
between the deceased and their heirs, the new allowance is not applicable to everyone and many
people will lose out from its benefits.
Downsizing
The deceased may protect the RNRB
if their estate doesnt qualify for
the full amount of RNRB, provided
that the deceased has downsized
to a less valuable home or sold or
given away their home after 8 July
2015 and the former home would
have qualified for the RNRB if it had
been kept in the estate until death.
SECOND THOUGHTS ON THE RNRB
Direct Descendants
Despite the benefits of the new
family home allowance, its rules
and qualifying criteria mentioned
above mean that some households
will not be able take full advantage
of the new allowance or will
lose out from it completely.
The new allowance is only available
to properties being passed onto
direct descendants, which means
brothers, sisters, nieces, nephews
and other relatives are not eligible to
benefit from the RNRB. This rule still
applies if the deceased has no direct
descendants to inherit a property.
Homes Held in A Trust
A home held in a discretionary
trust is not eligible for the RNRB,
as discretionary trusts are owned
by the trust and controlled by the
trustee rather than the beneficiaries.
Properties put in other types of
trust would be eligible for the
RNRB with HMRC stating that the
availability of the RNRB will depend
on the type of the trust. This is
because the type of trust will affect
whether HMRC treat the home as
part of a persons estate for IHT
purposes. It will also affect whether
HMRC treat that persons direct
descendants as inheriting the home.
Clearly, there are two criteria that
HMRC is particularly keen to assess
when deciding whether a home held
in a trust can be eligible for the RNRB:
Whether the person who
benefits from the trust is a direct
descendant of the deceased.
Whether the home can be
treated as part of the deceaseds
estate for IHT purposes.
Law firms have warned that the
rules on trust mean that hundreds
of thousands of people could miss
out on the new allowance unless
they dismantle trust arrangements.
Estates over 2 million
In addition to homes held in a trust,
the new allowance also penalises
large estates. The new allowance
reduces by 1 for every 2 the value
of the estate exceeds 2 million. So
in the 2017/18 tax year, the RNRB
will be tapered away completely if a
couples estate is worth 2,200,000.
Nevertheless, the 2 million threshold
may increase in line with inflation
after the 2020/21 tax year and it is
worth noting that unused RNRB is
transferable, so for a surviving spouse
the RNRB will be lost only if the value
of the estate is more than 2,400,000.
Therefore, it is advisable to find
ways to reduce the total value of
the estate should the client want to
take the full benefit of the RNRB.
Buy-to-let properties
For RNRB purposes, a property must
be lived in by the deceased at some
point before their death, so a buy-
to-let property that has always been
rented out will not be eligible for
the allowance. It is estimated that
there are over 5 million buy-to-let
properties in the UK which wont
be able to benefit from the band.
Because of the above restrictions,
it is estimated that more than
100,000 families wont benefit from
the new band. In addition, new
research shows that the 1 billion
IHT cut will only benefit 26,000 of
the countrys richest households,
about 0.04% of the population of
England and Wales and mainly those
in Conservative constituencies.
Clearly, as a result of its rules and
restrictions on the composition
of the estate and the relationship
between the deceased and their
heirs, the new allowance is not
applicable to everyone and many
people will lose out from its benefits.
Therefore, even under the scope of
the RNRB we expect the demand for
IHT planning services will be high
and BPR remains a convenient and
effective way of mitigating IHT and an
important business area for advisers.
FEES FOR GRANTS OF PROBATE
In England and Wales, probate is the
process of applying for the legal right
to deal with the deceaseds property,
money and possessions. The probate
service is also known as a grant of
representation. You can apply yourself
or use a solicitor or another person
licensed to provide probate services.
Currently there is a flat probate
fee of 215, or 155 if the
application is made by a solicitor.
No application fee is charged if the
estate is worth under 5,000.
However, following the governments
consultation between February
and April 2016, the flat fee is set
to change to a banded approach,
depending on the value of the estate.
It was originally proposed that,
starting from 1 May this year, the
minimum threshold for an application
fee would increase to 50,000, but the
fee itself would increase significantly
with the value of the estate.
17
 With pensions now being relatively benign from an IHT perspective we are seeing interest in
keeping pension pots intact and building up parallel sources of funds which should ideally also be
IHT efficient. - Laurence Callcut, Partner and Head of Sales, Downing
IMPORTANT NOTE
On 20 April it was confirmed by
the Ministry of Justice (MoJ) that
the plans to change probate
fees have been scrapped as the
relevant statutory instrument
(SI), a form of legislation that
allows a parliamentary act to be
made or altered without a vote
by MPs, would not be completed
in time before the snap general
election on 8 June. It will be up
to the next government to make
the decision on whether to bring
the proposed changes forward.
However, dropping the probate
fee increases will mean that the
MoJ will need to find alternative
ways to raise the projected 320
million revenue that would have
been collected through the
amended probate fees. At this
stage, no predictions can be made,
but it will be interesting to see
if there are any revisions to the
probate fees after the election.
The table below illustrates
the proposed changes:
For estates worth between 50,000
and 300,000 the proposed increase
% OF ALL ESTATES IN ENGLAND AND WALES
20,000
18,000
16,000
14,000
12,000
58%
10,000
8,000
23%
6,000
4,000
2,000
0
UP TO 50,000 50,000
- 300,000
18
is not significant, but for larger
estates the new fees cannot be
overlooked. For example, for estates
worth 2m or more the change
translates into an increase of 9,202%!
The Ministry of Justices impact
assessment states that the policy
aim is to ensure that HM Courts
& Tribunals Service (HMCTS) is
resourced in such a way that access
to justice is protected, whilst reducing
the cost to the general taxpayer. It
explains that only 700 million of
the cost of HMCTS in 2015-16 was
recovered through fee income and the
rest was from the taxpayer. And as a
result of the changes, HMCTS expects
to earn additional income of 320m
per annum, which is 70m more than
the previous estimate of 250m.
The initial proposal was generally
condemned by law firms and
professional bodies with 695 out of
829 respondents disagreeing with the
fee change. Duncan Bailey, partner
and head of private clients at law
firm Brabners, called the changes
in application fee a new IHT.
NOTES ON REGULATION
MiFID II (Markets in Financial
Instruments Directive) has been
PROPOSED PROBATE FEES
11%
6%
1%
0.3%
300,000 500,000 1M - 1.6M 1.6M - 2M ABOVE 2M
- 500,000 - 1M
SOURCE: INTELLIGENT PARTNERSHIP
postponed until 3 January 2018 to take
account of the exceptional technical
implementation challenges faced by
regulators and market participants.
In January 2017 the FCA published
MiFID II - Application and notification
user guide helping firms decide
what MiFID-related notifications and
applications they should make.
Firms impacted by MiFID II are
encouraged by the FCA to apply
for authorisation or variation of
permission as early as possible. The
final deadline for application is 3
July 2017 in order to obtain relevant
permissions before 3 January 2018.
The FCA has released two further
consultation papers on MiFID II
implementation, with the fourth
published in December last year and
the latest in late March 2017. Feedback
on the fifth consultation paper is
still welcomed until 23 June 2017.
The FCA has also published the first
policy statement alongside the fifth
consultation paper outlining their near
final rules on issues that were covered
in the first two consultation papers.
It was confirmed by the European
Council in December last year
that the PRIIPs (Packaged Retail
and Insurance-based Investment
Products) rules will come into effect
on 1 January 2018. The regulation will
require any investment structured
as an Alternative Investment Fund
to produce a prescriptive, three
page Key Information Document
to make information more
transparent and comparable.
Following the FAMR (the Financial
Advice Market Review), the FCA
and the Treasury have published
a progress report providing an
update on the implementation of
the 28 recommendations that the
FAMR set out in its final report.
0.5%
A review of the outcomes from
FAMR will be conducted by the
FCA and the Treasury in 2019.
POWER OF ATTORNEY ISSUES
POA AND BPR INVESTMENTS
As the population ages, and the costs
of putting a Power of Attorney (POA)
fall, POAs are becoming increasingly
popular. A POA is a legal document
that lets a donor appoint one or
more people, known as attorneys,
to help the donor make decisions
or to make decisions on their behalf
if they no longer have the mental
capacity for making decisions.
However, there has been an
ongoing discussion on the degree
of authorisation an attorney
has when it comes to making
investment decisions. Although
the attorney can help the donor
make decisions, many POAs do not
give the attorney express power to
delegate investment decisions.
Guidance set out by the Office of the
Public Guardian makes it clear that
express instructions should be given
by the lasting power of attorney (LPA)
to delegate investment decisions by
appointing a Discretionary Investment
Manager (DIM). This means the
decision to appoint the DIM could
be open to challenge in the future.
Depending on the sequence of events
and the nature of the complaint,
the adviser, attorney, solicitor or
manager could all find themselves at
potential risk of non-compliance.
According to the Office of the
Public Guardian, the suggested
wording that should be included
in the POA is: My attorney(s) may
transfer my investments into a
discretionary management scheme.
If I already had investments in
a discretionary management
scheme before I lost capacity to
make financial decisions, I want the
scheme to continue. I understand
in both cases that managers of
the scheme will make investment
decisions and my investments
will be held in their names or the
names of their nominees.
The lack of express power to delegate to amend the POA will need to be
investment decisions could have a made to the Court of Protection. Fees
significant impact on BPR services are generally higher and the process
as over 80% of BPR services are would normally take longer than
structured as discretionary. BPR is a drafting a new POA. The total cost
popular estate planning option where is likely between 2,400 and 2,900
a POA is in place, as the only options including the costs of a doctors
available to the attorney are gifting report confirming the donor does not
or placing assets in a trust, provided have capacity, and the process could
that the express permission of the take 4 to 6 months to complete.
Court of Protection is granted.
However, these methods take 7 years
for the estate to become fully exempt
from IHT, whereas the minimum
holding period is 2 years for BPR
qualifying investments (assuming they
are not replacement property) and
they dont require the permission of
the court, because BPR investments
are written in the clients name.
Dave Robinson, a financial planner
who is also a member of the Court of
Protection Practitioners Association,
said: It is absolutely vital that
financial planners review their
fiduciary clients to make sure they
havent unwittingly advised them to
breach their powers. Failure to do
that could have major repercussions,
particularly if investments do
not perform to expectations.
Once a POA has been granted,
the donor cannot extend the
attorneys authority informally.
So, to give an existing attorney
the authority to delegate a DIM, a
new POA would need to be drafted
while the donor still has mental
capacity. The process can be costly
and time-consuming. Legal fees are
likely to be around 650 - 700 plus
VAT per POA and it would need to
be registered with the Office of the
Public Guardian at a cost of 110.
The whole process takes about
5 to 7 weeks from instruction.
In cases where the donor does not
have mental capacity, an application
19
CONCLUSIONS
MARKET UPDATE

IHT RECEIPTS
The amount of IHT collected reached another peak point in the 2015/16 tax year due to rising property prices, and this
upward trend shows no sign of stopping despite the governments efforts to try to reduce it with the introduction of
the Residence Nil Rate Band. Furthermore, IHT receipts have not only grown in monetary terms, the HMRCs official
data shows that the number of estates that are liable for IHT has also been accelerating in recent years.

ESTATE COMPOSITION
UK residential buildings, securities and cash are the three biggest components of aggregated death estates in the UK.
This explains why property prices are so relevant when it comes to IHT and why the government has introduced the
new IHT allowance on property value. Female taxpayers possessed larger estates on death than men in 2013/14, and
people aged 75 and over passed on considerably higher estate values than those in the younger population.

RESIDENCE NIL RATE BAND

The Residence Nil Rate Band is designed to reduce the rising IHT burden faced by UK households as a result of
soaring property prices. However, the headline of 1 million IHT allowance can be misleading. First, the RNRB
allowance begins at 100,000 and only increases to 175,000 in the 2020/21 tax year. Second, the rules and caveats
around it mean that only a small proportion of the population will be in a position to make full use of it.

PROBATE FEES
Fees for grants of probate are changing from a flat structure to a banded approach. While the fee is cancelled
for estates that are worth below 50,000, the highest level of fee is 20,000 for the largest estates.

POWER OF ATTORNEY ISSUES

BPR qualifying investment is a popular choice when a POA is in place because, unlike gifting and transferring into
a trust, making BPR investments under the clients name doesnt require the permission of the court. However,
formal express instructions should be included in the POA to authorise the attorney to delegate investment
decisions. Failure to do so may result in unnecessary costs and time spent on amending the POA.

20
2017 OFFERS
INDUSTRY ANALYSIS
BY INVESTMENT TYPE
6% 10%
84%
ALTERNATIVE INVESTMENT FUND
DISCRETIONARY PORTFOLIO SERVICE
SINGLE COMPANY
More than eight in ten BPR offers
have a Discretionary Portfolio Service
structure, where an investment
manager makes investment
decisions on behalf of their clients.
A Single Company structure is the
least common investment type in
the market with only three such
offers open to new investment.
One-tenth of the open offers
are Alternative Investment
Funds. We noticed the level of
diversification of Alternative
Investment Funds is significantly
lower on average and none of
them are AIM-based BPR offers.
BY INVESTMENT STRATEGY
23%
35%
27%
15%
CAPITAL PRESERVATION & GROWTH
CAPITAL PRESERVATION & INCOME
GROWTH
GROWTH & INCOME
The above pie chart shows that
offers with a Capital Preservation &
Growth/Income strategy dominate
the market, accounting for exactly
half of the open offers. Within
this sector, there are more Capital
Preservation & Growth offers than
Capital Preservation & Income offers,
which is not surprising given that
the market has always had more
Growth than Income investments.
Pure Growth BPR offers form the
second most common strategy with
27% of market share, followed by
Growth & Income (23%). This makes
the total proportion of offers with
a Growth element equal to 85%.
BY INVESTEE COMPANY TYPE
49%
25%
20%
4%
2%
AIM ASSET EARLY EARLY/LATER LATER
LISTED BACKED STAGE STAGE STAGE
About half of the BPR market invests
in the AIM market (49%) and we
have seen an increasing number of
AIM-based offers in the market. All
AIM listed BPR investments belong
to the General Enterprise sector.
20% of the market is asset-
backed. These assets may include
property, machinery, significant
stock or contractual income.
Most investments in the Industry &
Infrastructure sector were made to
Later Stage Companies, which account
for a quarter of the open market.
Very few BPR managers hold
Early Stage companies in their
portfolios, totalling 6% only.
21
 As the BPR market evolves, we think investors should be able to receive better annual returns by
investing directly in trading companies. - Hugh Colville, Director, Strata

MARKET COMPOSITION BY INVESTMENT SECTOR

6% 17% 12% 63% 2%

ENERGY GENERATION FINANCIAL SERVICES INDUSTRY & INFRASTRUCTURE GENERAL ENTERPRISE MEDIA & ENTERTAINMENT

BY INVESTMENT SECTOR mainly refers to lending activities FEES AND CHARGES

often the business of making loans
General Enterprise is the biggest The following table summarises
to creditworthy borrowers such as
sector with 63% of the market some key statistics on fees and
asset-backed property developers.
share. A number of AIM-based charges quoted. In addition to fees
investments have been launched Industry & Infrastructure, which charged to the investor, some BPR
in recent years and all of them fall accounts for 13% of the market, fund managers also apply fees to
under the General Enterprise sector. is the third biggest sector in the their underlying investee companies,
BPR market. Businesses in this which one would assume reduces the
17% of the open market comes from
sector are usually rich in tangible value of the investment upon which
investments in the Financial Services
assets which make them a popular relief can be claimed. Therefore, it is
sector. Readers should note how the
area for BPR fund managers. important for advisers to understand
term Financial Services is defined here.
The smallest sector is Media & the fees quoted by a manager. We
Traditionally, the term is often used to
Entertainment, with only one BPR found aggregating fees of a similar
describe services such as banking, stock
offer operating in this space. type can be a useful practice, for
brokerage, investment management
example, Initial Charge and Initial
and accounting. However, BPR is not Over half of the BPR managers Deal Fee, which are both charged
available to a company or business deploy their funds across multiple up-front and often on a percentage
that is wholly or mainly dealing sectors. Other specialist BPR basis, can be combined together
in securities, stocks or shares or in funds mostly provide finance to derive an aggregate initial fee.
making and holding of investments. to asset-backed companies or Another example can be aggregating
Here, the term Financial Services secured lending opportunities. Annual AMC and Annual Admin Fee.

NUMBER OF OFFERS THAT CHARGE EACH FEE

60
98%
50
69%
NUMBER OF OFFERS

40
56%
30
40% 37%
20
15%
10 10% 2% 4%
0

TOTAL INITIAL TOTAL INITIAL TOTAL AMC ANNUAL PERF FEE EXIT PERF FEE ANNUAL PERF EXIT PERF EXIT DEAL FEE TOTAL ANNUAL
CHARGE DEAL FEE HURDLE HURDLE ADMIN FEE

22
My overall experience has been very positive, because when you show people all the available
options, it is clear that BPR is a simpler and more straightforward solution. - Jane Bligh, Director of
Financial Planning, TWP Wealth

FEES AND CHARGES

AVG MODE MIN MEDIAN MAX
INITIAL CHARGE TO INVESTOR 1.27% 0.00% 0.00% 1.50% 3.50%

INITIAL CHARGE TO INVESTEE 0.28% 0.00% 0.00% 0.00% 7.00%

TOTAL INITIAL CHARGE 1.53% 0.00% 0.00% 2.00% 7.50%

INITIAL DEAL FEE TO INVESTOR 0.39% 0.00% 0.00% 0.00% 1.00%

INITIAL DEAL FEE TO INVESTEE 0.01% 0.00% 0.00% 0.00% 0.35%

TOTAL INITIAL DEAL FEE 0.37% 0.00% 0.00% 0.00% 1.00%

AMC CHARGED TO INVESTOR 1.02% 1.00% 0.00% 1.00% 2.00%

AMC CHARGED TO INVESTEE 0.43% 0.00% 0.00% 0.00% 2.00%

TOTAL AMC 1.42% 1.50% 0.00% 1.50% 3.50%

ANNUAL PERFORMANCE FEE 2.02% 0.00% 0.00% 0.00% 30.00%

EXIT PERFORMANCE FEE 0.38% 0.00% 0.00% 0.00% 20.00%

ANNUAL PERFORMANCE HURDLE 0.78% 0.00% 0.00% 0.00% 10.00%

EXIT PERFORMANCE HURDLE 0.14% 0.00% 0.00% 0.00% 4.50%

EXIT DEAL FEE 0.57% 1.00% 0.00% 1.00% 1.00%

ANNUAL ADMIN FEE TO INVESTOR 0.07% 0.00% 0.00% 0.00% 1.00%

ANNUAL ADMIN FEE TO INVESTEE 0.23% 0.00% 0.00% 0.00% 2.50%

TOTAL ANNUAL ADMIN FEE 0.29% 0.00% 0.00% 0.00% 2.50%

ANNUAL MANAGEMENT CHARGE

4%

3.5%

3%

2.5%

2%

1.5%

1%

0.5%

0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 45 46 47 48 49 50

PRODUCTS

The Annual Management Charge (AMC) is by far the most common fee charged by BPR managers. 98% of the open offers
listed on MICAP apply some form of an AMC and we found only one investment which has no AMC at all. The total AMC is
1.42% on average and ranges from 0% to 3.5%. Although it is generally lower than the Initial Charge, readers are reminded
that in many cases AMC is charged every year regardless of the managers performance, and given that BPR is a long term
investment it can add up to a substantial amount over time.

23
In the current unstable investment environment investors are looking for BR providers with
an investment track record of positive consistent performance during full economic cycles.
- Belinda Thomas, Head of Sales and Investor Relations, Triple Point

INITIAL CHARGE

8%

7%

6%

5%

4%

3%

2%

1%

0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36
PRODUCTS

INITIAL CHARGE
The Initial Charge is quoted by 69% of
open offers making it the second most
quoted charge. The Initial Charge is
normally deducted from an investors
subscriptions and not invested. It is
usually quoted as a percentage so
that the larger the initial subscription
the larger the Initial Charge. Total
Initial Charges range from 0% to
7.5% with an average of 1.53%.
Another type of up-front charge is
the Initial Deal Fee, quoted by 40% of
open offers. It includes fees payable
on the acquisition of any investee
companies, if not included in the initial a large proportion of Growth BPR
charge. Dealing charges also cover available in the market, the levels
nominee, custodian or administrator of returns targeted by them are
fees at the point of investment. not comparable to that of EIS so its
The Initial Deal Fee is significantly logical that the performance fees are
lower than the Initial Charge on less favoured by BPR managers.
average. The maximum quoted is
Managers who charge a performance
just 1% and the average is 0.37%.
fee usually specify a hurdle rate
Compared to other tax-advantaged so that the performance fee is
investments we cover in our Industry only payable when the hurdle rate
Reports (EIS and VCTs), performance is met by the manager. Note that
fees are less common with BPR a hurdle rate is not necessarily
products. An Annual Performance associated with a performance fee.
Fee and an Exit Performance Fee For example, in some cases the
are specified by 5 and 1 open hurdle rate is applied to the AMC.
offers respectively. While there is

KEY INVESTMENT METRICS

AVG MODE MIN MEDIAN MAX

ANNUAL TARGET RETURN 4.06% 3.00% 1.50% 4.00% 10.00%

MINIMUM SUBSCRIPTION 45,783 25,000 10,000 30,000 250,000

CURRENT FUNDRAISE 108,527,755 25,600,000 550,000 28,920,000 2,054,000,000

DIVERSIFICATION 13 1 1 6 35

24
Advisers and investors need to consider the risks managers offering double digit returns need to
take in order to achieve those returns. As ever, research and due diligence is key. - Simon Housden,
Sales and Marketing Director and Partner, TIME

ANNUAL TARGET RETURNS

12%

10%

8%

6%

4%

2%

0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
PRODUCTS

The annual target return ranges from 1.5% to 10% and averages 4.06%. In spite of the large range, the annual target return
of BPR typically falls between 3% and 5%. It is also clear from the bar chart above that the 10% annual target return is an
outlier. In addition, half of the market didnt specify a target return rate.

DIVERSIFICATION - TARGET NO. OF INVESTEE COMPANIES

40%
35%
30%
25%
20%
15%
10%
5%
0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49
PRODUCTS

We used the target number of investee companies to measure the level of diversification in the BPR market. The number of
companies held by a BPR investment is 13 on average. The least diversified BPR holds only one underlying company, while the
most diversified offer invests in 35 companies. It is worth highlighting that the target number of investee companies for AIM BPR
is considerably different from that of trading company BPR offers: they generally invest across 20 or more different companies.

MINIMUM SUBSCRIPTION
300,000

250,000

200,000

150,000

100,000

50,000

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
41 42 43 44 45 46 47 48 49 50 51 52
PRODUCTS

As its name suggests, the minimum subscription is the minimum amount an investor can subscribe for shares in the offer. On
average, the minimum initial investment required by a BPR manager is 45,783. The mode value is 25,000, down from 50,000
last year. The maximum remains at 250,000 and its from the same manager. Overall, the minimum subscription has decreased
since last year which means the asset class is now even more obtainable by retail clients.

25
2017 OFFERS BY STRATEGY
INDUSTRY ANALYSIS

In this sub-section we break down the market by strategy and repeat the previous analysis. We will
take a look at fees first, but as some fees are only charged by a small number of offers we have only
prepared the breakdown analysis for the most common fees the Initial Charge and the AMC.
There is no income-only strategy BPR offer in the market open to new investment at the time of writing.

AMC OF OPEN OFFERS BY INVESTMENT STRATEGY

Capital Preservation & Income
offers have the highest AMC on
AVG MODE MIN MEDIAN MAX average and its higher than last
years figure, so investors who
4% want to use BPR as a source of
3.5% income may pay a premium.
Growth & Income offers have the
3%
lowest AMC on average followed
2.5% by pure Growth offers.

2%

1.5%

1%

0.5%

0%

CAP. PRESERVATION CAP. PRESERVATION GROWTH GROWTH INCOME

& GROWTH & INCOME & INCOME

INITIAL CHARGE OF OPEN OFFERS BY INVESTMENT STRATEGY The statistics for the Initial Charges
are very similar to the AMC.
AVG MODE MIN MEDIAN MAX Capital Preservation & Income
offers charge the highest Initial
8% Charge on average (2.56%) and
the maximum (7.5%) is also found
7%
within that group.
6%
Again, offers that have a growth
5% element have a lower Initial Charge
in general, as shown by their
4%
average and median values. The
3% average Initial Charge is 0.89% and
0.92% for Growth and Growth &
2%
Income strategies respectively.
1% Furthermore, their maximum values
0%
are also lower than the other two
capital preservation strategies.
CAP. PRESERVATION CAP. PRESERVATION GROWTH GROWTH INCOME
& GROWTH & INCOME & INCOME Capital Preservation & Growth
strategies sit in the middle with
an average of 2% and a range
between 0% and 3.5%.

26
 We are very happy to share information on request and we are strong supporters of the work that
independent researchers and investment review providers do, and are always open in sharing how
returns to investors are generated. - Jonathan Gain, CEO, Stellar

ANNUAL TARGET RETURN OF OPEN OFFERS BY INVESTMENT STRATEGY

Contrary to our expectation, Growth
offers have the lowest level of target
AVG MODE MIN MEDIAN MAX return (1.5%) significantly lower
than that of Capital Preservation
offers. However, with only one
12% quoted from all Growth offers, no
conclusion should be drawn from
10% this.

We noted that all Growth strategy

8%
BPR offers focus on AIM listed
investment and some of them aim
6%
to outperformance of the FTSE AIM
index, so for this reason they dont
4%
specify a numerical target return.

2% The average annual target return

of Capital Preservation & Income
0% strategy BPR offers is 4.29% and
3.67% for Capital Preservation &
CAP. PRESERVATION CAP. PRESERVATION GROWTH GROWTH INCOME Growth strategy BPR offers.
& GROWTH & INCOME & INCOME
The average annual target return is
the highest among Growth & Income
strategy offers (6.33%), quoted by
three offers with this strategy.

MINIMUM SUBSCRIPTION OF OPEN OFFERS BY INVESTMENT STRATEGY

Capital Preservation & Growth
strategies have the highest average
AVG MODE MIN MEDIAN MAX minimum subscription which we
believe is mainly attributable to the
outlier of 250,000. The maximum
250,000,000
value is 100,000 for all the other
strategies.
200,000,000

150,000,000

100,000,000

50,000,000

CAP. PRESERVATION CAP. PRESERVATION GROWTH GROWTH INCOME

& GROWTH & INCOME & INCOME

27
 The number of BPR offers focussing on investing in AIM shares has increased and it is now the
most common type

DIVERSIFICATION OF OPEN OFFERS BY INVESTMENT STRATEGY

On average, Growth strategy offers
are the most diversified with an
AVG MODE MIN MEDIAN MAX
average target of 23 underlying
40 companies. This reflects the fact that
they all invest in portfolios of shares
in AIM listed companies. The average
NO. OF UNDERLYING COMPANIES

30 number of investee companies is 22

for the Growth & Income strategy,
which is also dominated by AIM-based
20 investment. Compared to the Capital
Preservation & Income strategy,
Capital Preservation & Growth
10
strategy offers are holding more
investee companies. Nonetheless,
as both strategies mostly offer a
small portfolio of trading company
0
investments, their average levels of
CAP. PRESERVATION CAP. PRESERVATION GROWTH INCOME diversification are significantly lower
GROWTH
& GROWTH & INCOME & INCOME than growth BPR.

CURRENT FUNDRAISE OF OPEN OFFERS BY INVESTMENT STRATEGY

Capital Preservation & Growth
strategies have the most success in
AVG MODE MIN MEDIAN MAX
raising funds. The average amount
of funds raised by an offer with such
400M
a strategy is 181,251,176, while the
Growth & Income strategy raised the
300M least amount of money on average.

For the sake of presentation, we

200M have taken out an outlier value
of 2,054,000,000 from Capital
100M Preservation & Growth. Thus, we
can conclude that a majority of the
0
money raised by the BPR market
is managed under the Capital
CAP. PRESERVATION CAP. PRESERVATION GROWTH GROWTH INCOME
Preservation & Growth mandate.
& GROWTH & INCOME & INCOME
Growth BPR strategies come
second with an average holding of
111,103,077. There has long been
Growth strategy Income-only strategies structures also exist,
concern over the potential for a
offers dominate the are disappearing from but only in very small
bubble in the AIM market driven by
BPR investment market the market numbers
the money invested for tax planning
TRENDS IN THE MARKET

General Enterprise is
the largest sector
The number of offers
focussing on investing
in AIM shares has
increased and it is now
the most common type
The majority of the AMC and Initial purposes (which also includes EIS
BPR fund managers Charge remain as the and VCT money). Considering all
provide a Discretionary most common types of current Growth strategy BPR offers
Portfolio Service (DPS) fees found in the market investing in AIM and the amount
Performance fees they have raised it is logical that
Alternative
are only charged by a such concerns exist. However,
Investment Funds
few managers some managers dispute whether
and Single Company
this is actually the case when you
examine stock price movements.

28
ADVISING ON BPR

29
BENEFITS OF BPR
A SUMMARY OF THE KEY BENEFITS
This report is the third iteration from
the BPR series, we have therefore
reduced the amount of information
here. Interested readers and those
who are new to BPR investing can read
our Advisers Guide to BPR for more
information and detail on the basics.
SPEED OF RELIEF
Many estate planning solutions
require a client to survive a period
of seven years from implementation
and for the elderly or clients in poor
health the fact that planning involving
BPR is effective within two years
can be a tremendous advantage.
This aspect can be further enhanced
where the adviser is dealing with a
couple who may both be elderly and/
or infirm. On the assumption that their
wills pass any BPR qualifying assets
to each other on first death, and
then provided just one of the couple
survives a period of two years from
investment, the relief will be available
on the value of the investment
irrespective of who dies first.
ACCESS TO FUNDS
Investors in BPR qualifying
investments can request to withdraw
their funds at any time, subject to
liquidity, so they do not have to
sacrifice access and control. This
is one of the biggest attractions of
using BPR as part of estate planning
the flexibility can help clients deal
with changing life circumstances,
such as the need to fund long-term
residential care or the desire to help
children onto the property ladder.
However, it is important to note
that the IHT benefit is lost once
money is withdrawn by the investor
(unless reinvested by the investor in
replacement qualifying assets within
three years).
30
INVESTMENT GROWTH
With BPR qualifying investments,
estate planning does not necessarily
mean having to sacrifice growth.
The levels of return targeted by BPR
managers typically range from 2% to
7%. It is difficult to know the investment
horizon at the time of investment,
so returns offered by BPR services
can potentially protect the real value
of the assets against inflation and
provide additional capital appreciation
when passing onto beneficiaries.
SIMPLER PROCESS
As an investment, there is no
medical underwriting or complex
legal structures required (aside from
some services which offer insurance
policies as an extra service alongside
the investment). This means that BPR
investment is also an option where
a power of attorney is in place
attorneys need the approval of the
court of attorney to make gifts, but as
BPR services are simply an investment,
attorneys can use BPR investment
as an estate planning strategy
REPLACEMENT BUSINESS
PROPERTY
If an investor disposes of BPR qualifying
assets after the minimum two-year
holding period, there is broadly a three
year timeframe to reinvest the proceeds
into other BPR qualifying assets and
retain the relief, without having to
restart the two year qualifying period.
The relief is useful for a fund manager
running a BPR qualifying portfolio to
switch clients from one AIM stock to
another, or where clients choose to
switch their strategy from growth to
income or to change manager. It is a
feature that allows investors a lot of
flexibility once an investor has passed
the two-year qualifying period.
It can also be used after exiting
an EIS qualifying investment as
these generally qualify for BPR.
Note that the rollover relief does
not work if someone dies before
they have re-invested their money.
COMPATIBLE WITH
POWER OF ATTORNEY
When an individual loses mental
capacity, their financial affairs may
be dealt with under a Lasting Power
of Attorney (Property and Financial
Affairs) by either an Attorney or
a Court-Appointed Deputy.
In these circumstances significant
limitations are imposed in relation
to lifetime gifts (for Attorneys, this is
in Section 12 of the Mental Capacity
Act 2005). Similar limitations are
normally placed upon Deputies,
and while it is possible to make gifts
under a Continuing Power of Attorney
in Scotland, it is still unusual.
As the individual who has lost capacity
cannot make gifts either outright
or into trust directly or via his
Attorney/Deputy the ability to make
an investment that will potentially
qualify for 100% BPR after two years
can often be the only solution.
IHT FREE ISA
Market research shows that as many
as 92% of people did not realise that
their conventional ISAs would be
subject to IHT and many advisers will
have clients with significant amounts
held in ISAs that are liable to IHT.
However, this changed in 2013 when
AIM shares became eligible for ISAs,
as the AIM market is not considered as
a recognised exchange by the HRMC
for BPR purposes. As a result, many of
the AIM estate planning services now
wrap their offering in an ISA, aiming
to give investors tax free growth
and income, as well as IHT relief.
Existing ISAs can be transferred
to an AIM BPR provider retaining
tax advantages of an ISA, and
after two years the value of the
shares will benefit from BPR.
SUMMARY OF THE RULES
RULES ON QUALIFYING INVESTMENTS AND INVESTORS
Similar to other tax efficient
investment wrappers, there are rules
on what type of investments qualify
and ongoing conditions which must
be satisfied in order to enable an
individual or estate to claim BPR.
This subsection provides a summary
of the key conditions and rules that
advisers and investors must be aware
of when considering BPR qualifying
investments. The tax relief can be
lost in part or in full if any of the
conditions are breached or not met.
Interested readers can find
more detailed information in
our Advisers Guide to BPR.
BPR QUALIFYING INVESTMENTS
Depending on the nature of the
underlying investments, BPR offers
IHT relief at either 50% or 100% of
the value of the investment at the
date of death or any other chargeable
lifetime transfer. The table on the
right summarises the different types
of qualifying investments and the rate
of relief associated with each type.
CONDITIONS ON BPR INVESTORS
There are also conditions that
investors in BPR qualifying assets
must meet in order to claim the relief.
Debt and anti-avoidance
If a debt has been raised in order to
purchase an asset qualifying for BPR,
there are anti-avoidance provisions
that negate the value of such planning
so that the debt does not reduce
the value of the estate. The liability
attaches to the qualifying assets,
and only any value in excess of the
debt is outside of a charge to IHT.
Minimum holding period
The minimum holding period to
qualify for BPR is two years, but
there can be breaks as long as the
ownership periods total at least
two years in a five year period.
It is worth noting that unlike EIS
BPR QUALIFYING INVESTMENTS AND RATE OF RELIEF
BPR QUALIFYING INVESTMENT RATE OF RELIEF
A BUSINESS OR INTEREST IN A BUSINESS 100%
SHARES IN AN UNLISTED COMPANY 100%
SHARES CONTROLLING MORE THAN 50% OF THE VOTING RIGHTS IN A
50%
LISTED COMPANY
LAND, BUILDINGS OR MACHINERY OWNED BY THE DECEASED AND USED
IN WHICH THEY WERE A PARTNER IN OR THEY CONTROLLED 50%
LAND, BUILDINGS OR MACHINERY USED IN THE BUSINESS AND HELD IN A
TRUST THAT THE TRUST HAS THE RIGHT TO BENEFIT FROM 50%
SOURCE: ROSSMARTIN.CO.UK, NOVEMBER 2015
COMPANIES NOT ELIGIBLE FOR BPR
BPR is not available on shares in a BPR is also not available on an asset
company: if it:
That is mainly dealing with Also qualifies for Agricultural
securities, stocks or shares, land or Property Relief (APR)
buildings, or in making or holding
Wasnt used mainly for business in
investments
the 2 years before it was either passed
Is a not-for-profit organisation or on as a gift or as part of the will
not run on a commercial basis
Isnt needed for future use in the
Is being sold, unless the sale is business
to a company that will carry on the
business and the estate will be paid
mainly in shares of that company
Is being wound up, unless this
is part of a process to allow the
business of the company to carry on
investments where Advanced successful lifetime transfer).
Assurance can be obtained,
To obtain IHT relief using BPR, the
qualification for BPR is retrospective
executors of the estate will need to
in the sense that it cannot be
fill in both form IHT400 (IHT Account)
guaranteed upfront. HMRC only make
and schedule IHT413 (Business or
an assessment when a claim is made.
partnership interests and assets) and
Claiming the Relief return these to HMRC as part of the
overall probate process. HMRC will
BPR has to be applied for by the
then assess the claim. These forms
deceased investors estate and,
must be sent within twelve months
therefore, cannot be guaranteed
of the end of the month of death.
upfront (unless there has been a
31
OTHER SOLUTIONS
COMPARISON TO OTHER ESTATE PLANNING SOLUTIONS

Here we compare BPR qualifying
investments to other more
conventional IHT solutions, such
as gifts, trusts and pensions. We
will first explain how each of the
solutions work and then update
on any changes to them. Finally,
we will compare these solutions
to BPR qualifying investments.
GIFTS
According to HMRC, a gift can be
anything that has a monetary
value attached to it such as cash,
shares, property and possessions.
In addition, a loss in value of the
estate of the donor when something
is transferred is also considered as a
gift. For instance, if you sell an asset
to someone who is a connected
party for a value that is less than
the assets fair market value, the
difference in value counts as a gift.
Gifts are taxed on a sliding scale
depending on the number of years
between gift and death - the older
the gift, the lower the rate of IHT. The
gift is known as a potentially exempt
transfer (PET) within the 7 year period
before getting 100% IHT exemption.
YEARS BETWEEN GIFT AND DEATH TAX PAID
LESS THAN 3 40%
3 TO 4 32%
People can give away up to 3,000 a
year, known as the annual exemption,
to anyone of the donors choice to
reduce the total value of the donors
estate. Any unused annual exemption
can be transferred to the following
year but only for one year. However,
the threshold has been frozen since
1981 and its real value is a lot lower
because of inflation. If the allowance
had increased with inflation it
would now be at around 10,000.
Industry professionals have urged
the new Chancellor to revise the rules
on gifts and make the allowance
more generous. Rachael Griffins, tax
and financial planning expert at Old
Mutual Wealth, commented: There
is a good case for the 3,000 limit to
be increased after 35 years of stasis.
AGRICULTURAL PROPERTY
An individual can pass on a farm
free from IHT (subject to certain
conditions and minimum ownership
periods). But certain farm assets
arent outside of the scope of
IHT, such as farm machinery.
WOODLAND PROPERTY
If an individual passes on woodland
property, the land itself is not subject
to IHT. But the trees on the property
are subject to the tax if they are
sold or given away as timber. The
executor of the estate must include
the value of the woodland when
applying for probate even though its
not considered for IHT purposes.
HERITAGE ASSETS
Individuals who own a building,
land, or objects of national scientific,
historic or artistic importance, could
claim relief from IHT. There are,
however, certain conditions that must
be met in order to get this relief.
CHARITY
Leaving money to charity can reduce
the total IHT bill. If 10% or more of the
estates net value is left to a registered
charity, the estate can pay IHT at a
reduced rate of 36%. It is also worth
noting that donations to charities
or political parties made during the
donors lifetime are IHT exempt.
TRUSTS
A trust is a legal arrangement where
the settlor gives cash, property
or investments to a trustee to
look after for the benefit of a third
person (the beneficiary). Trusts
have all the IHT benefits of a gift,
but give the settlor more control,
so that they can potentially retain
some control (but should not be
able to benefit from the asset).
Definitions:
The settlor is the person who
has set up the trust and puts or
settles the assets within it, they
can tell the trustees what to do
with the assets and have control
over who the beneficiaries are.
The trustee is the person who owns
the assets in the trust. They have

OTHER EXEMPTIONS
4 TO 5 24%
Wedding or civil ceremony gifts of up to 1,000 per person, 2,500 for a
grandchild or great-grandchild and 5,000 for a child
5 TO 6 16%
Normal gifts out of your income such as birthday or Christmas presents

6 TO 7 8% Payments made to an elderly relative or a child under 18 to help their

living costs.

7 OR MORE 0% Gifts to charities and political parties

32
Investments that qualify for Business Property Relief have shown an increasing popularity in
recent years among advisers and investors as they offer greater flexibility and speed than many
conventional solutions. - Tish Hanifan, Founder and Joint Chair, Society of Later Life Advisers
the same powers as a person would
have to make financial transactions
and investments, but the trustees
job is to run the trust and manage
the assets properly and responsibly
on behalf of the beneficiaries.
The beneficiary is the person who the
trust is set up for and usually does
not have a control over the assets.
The settlor can specify when
the assets are distributed to the
beneficiary and how the assets are
invested, usually to prevent the
beneficiary spending the money
unwisely. Trusts can also be set up
in a way that the settlor can benefit
from the assets, for example,
the settlor can receive income
from the assets held in trust.
Lifetime gifts into trusts may trigger
an immediate IHT charge if, together
with any other chargeable transfers
made by the same person within the
previous seven years, the gift exceeds
the NRB. The charge is one half of
the rate of IHT (so currently 20%).
There is no further IHT to pay on the
gift as long as the settlor survives
for seven years after making it.
The biggest drawback with trusts is
similar to gifts the loss of control.
Although the settlor can exercise
some degree of control over the trust,
assets put in trust are still owned and
managed by the trustees. If the settlor
exercises control then it is likely that
the asset is still deemed to form part
of the donors estate for IHT purposes.
There are a wide variety of trusts
and trust law is complex, so
specialist knowledge is required.
The complexity means a high cost
setting up and running a trust can
be expensive and it is only worth
setting up one for large amounts
(typically for 100,000 or more).
According to research by the
Financial Times, discounted gift
trusts are the most popular trust
for IHT purposes, voted by over
70% of advisers surveyed.
PENSIONS
Thanks to pension liberalisation,
originally announced in 2014, saving in
pensions has become a popular way to
shelter wealth from IHT and maximise
the amount passed on to heirs.
From 6 April 2015 the 55% death
tax, which applied to defined
contribution (DC) savings passed
on at death, was abolished.
In addition, the changes included:
If the pension holder dies before
they are 75, then either a lump
sum or the income can be paid
out to the beneficiary tax-free
If the holder dies after 75, the
unspent amount can be passed
on to the beneficiary as a lump
sum taxed at 45% or as income at
their marginal rate of income tax
Therefore, contributing money
to pension pots and preserving
it intact for as long as possible
is now an alternative way to
protect wealth from IHT.
Nevertheless, the latest statistics
have shown that over-55s have
been making withdrawals after the
rule changes. It was revealed in the
2017 Spring Budget that the rule
changes have raised five times more
in income tax for HM Treasury than
its original forecast. The original
forecast was tax revenue of 0.3
billion in its first year but the total
amount raised was 1.5 billion.
The Treasury has also revised its
forecast of tax revenues from the
pension changes for 2017/18 to 1.6
billion from an initial estimate of
910 million made in 2014, and it
is estimated that the tax revenues
collected were 1.1 billion for 2016/17.
Arguably, the amounts raised from
the pension changes are primarily
a result of people withdrawing big
amounts more quickly than expected
and triggering higher tax rates.
LIFE INSURANCE
Life Insurance is a different type of
estate planning solution. It doesnt
mitigate an IHT bill but simply sets
aside some money to pay for it so that
the estate can be passed on intact.
Generally the policy is written in
trust and the payout is made outside
the estate, so the death benefit
is used to meet the IHT liability. It
can be paid for with a single lump
sum or monthly premiums, but
the cost of the policy and access to
this product will depend upon the
insurers assessment of age, lifestyle
and health status - in cases of poor
health it may not be available at all.
EIS
The Enterprise Investment Scheme
is a long-standing government
initiative to encourage investment
into small and medium sized
businesses. The rules which govern
whether a company qualifies as EIS
are stricter than the rules for BPR,
so EIS qualifying investments are
generally eligible for BPR, subject to
minimum holding periods. Therefore,
in most cases this means after two
years the value of the investment
would be available for 100% BPR.
In addition to qualifying for BPR,
the scheme offers other tax reliefs
including 30% Income Tax relief, CGT
relief and loss relief. However, greater
tax reliefs come with stricter rules. EIS
qualifying companies are generally
smaller, so they would be expected
to be exposed to higher risks and
lower liquidity than BPR qualifying
investments and would envisage a
longer investment horizon before exit.
33
IHT planning is a complex issue so depending on a clients circumstance a combination of
solutions may be used to deliver the most desired outcome.

ESTATE PLANNING SOLUTIONS COMPARISON TABLE

TYPE TIMEFRAME COSTS RISKS FLEXIBILITY MITIGATION

Subject to
Asset Typically 2% Initial Charge Medium to liquidity
BPR Replacement
2 years
and 1.5% AMC p.a. high provided by the
100%
fund manager

Low, but there will be a

Asset Lose access and Tapers (100% after 7
GIFTS Reduction
7 years charge for financial advice None
control years)
if taken

As soon as the Low, but there will be a

Asset Lose access and Reduce IHT rate to
CHARITY Reduction
donation is charge for financial advice None
control 36%
made if taken

No access, but
Can be 100%,
Depends on some control
Asset depending on the
TRUSTS Reduction
7 years High costs how assets depending
structure (after 7
are invested on the legal
years)
structure

Depends on Pension management Depends on Can be 100%

Asset Limited
PENSIONS Replacement
the investors fees and financial advice how assets
access
depending on the
longevity cost are invested age at death

Monthly premium or
As soon as Can cancel the No mitigation, it
LIFE Asset
the policy is in
lump sum, total amount
None policy, subject pays the bill with
ASSURANCE Replacement will depend on sum
place to costs sum assured
assured, age and health.

About 2.5% Initial Charge Subject to

Asset and 1.5% AMC and 20% Medium to liquidity
EIS Replacement
2 years
Performance Fee and a high provided by the
100%
charge for financial advice fund manager

SOURCE: INTELLIGENT PARTNERSHIP

BPR qualifying investments are
outside of the charge to IHT after
a holding period of two years. The
biggest advantage of BPR is its speed
most other solutions require a longer
time frame. Some speedier solutions
either dont offer the same level of
mitigation or have higher risks.
Another benefit is that most BPR
products are easy to understand
and have simple legal structures.
The most common legal structures
in the BPR markets are:
Discretionary portfolio service and funding for residential care.
Alternative investment fund Nevertheless, we are by no means
claiming that BPR is a superior strategy
In addition, BPR qualifying
to other solutions. IHT planning is
investments are more flexible and
a complex issue so depending on a
often more liquid than most other
clients circumstances, a combination
solutions. Common IHT planning
of solutions may be used to
tools gifts and trusts both
deliver the most desired outcome.
require the donor to lose control
Therefore, professional advice is
of their assets to a certain degree
always required for IHT planning
which makes it difficult to cope with
and it is an area where advisers can
unexpected expenditures such as
add real value for their clients.
a longer than expected retirement

34
BPR CASE STUDY
HOW BPR WORKS IN PRACTICE
SCENARIO
Consider the case of Iris, who
is a widow aged 89. She has an
estate of 900,000, comprising
500,000 real estate assets and
400,000 of securities (some held
in ISAs), cash and other assets (see
table). Iris has three properties
with respective market values of
200,000, 120,000 and 180,000.
The first property has always been
held as buy-to-let. She lived in
the latter two in the past and is
currently residing in the second
property (worth 120,000).
Iris realises the potential IHT
liability could levy an unnecessary
financial burden on her heirs
when she dies, so she decides to
seek professional advice from
a financial adviser. She tells the
adviser that she does not have any
estate planning in place and her
objective is to eliminate her IHT
liability completely.
She has inherited her deceased
husbands Nil Rate Band and
therefore has 650,000 of NRB
available. In addition, from 6 April
2017, she also qualifies for the new
Residence Nil Rate Band. Because
the RNRB can be transferred to the
surviving spouse regardless of when
the first of the couple died, her total
RNRB available is 200,000.
However, as the RNRB can only
be applied to a property that
the deceased lived in at some
stage before death, she cannot
use the allowance on her buy-
to-let property. The personal
representative can choose which
property to apply the band on
(the band can only be applied
on one property). In this case, a
logical choice is to nominate the
third property for the purpose of
RNRB as a greater portion of the
allowance can be utilised.
Iris can gift away her taxable estate and,
since she has not made any gifts before,
her unused annual exemption from the
preceding year can be transferred to
the current tax year. This means that
she would have 6,000 tax free gifting
allowance and the rest will be taxed on a
sliding scale depending on the number
of years between gifting date and death
her taxable estate will only become
free from tax after seven years. Given
Iris age, gifting is clearly a risky choice as
it requires her to live for another 7 years
to achieve her objective.
Setting up a trust can be expensive
and complex and often involves a high
volume of paperwork. The amount of
Iris taxable estate is relatively small
(less than 100,000), and the total IHT
payable is only 28,000. Therefore, the
benefits from setting up a trust may
not offset the associated costs.
Iris adviser suggests investing all the
taxable estate 70,000 into BPR
qualifying investments. After holding the
investments for two years this portion of
her estate will be free from IHT.
In addition, at her present age, the
probability of living for another two years
is higher than living for seven more years,
making it a more suitable option than
gifting in terms of timing and retaining
access to her assets. Although Iris has
no previous experience with estate
planning, BPRs simple structure
ASSET CLASS
RESIDENTIAL PROPERTY
BUY-TO-LET PROPERTY
SECURITIES
CASH
OTHER ASSETS
TOTAL ESTATE
RESIDENCE NIL RATE BAND AVAILABLE
NIL RATE BAND AVAILABLE
BPR QUALIFYING INVESTMENTS
TOTAL ALLOWANCE
TAXABLE ESTATE
IHT PAYABLE
RESIDUAL ESTATE
makes her feel comfortable that she
understands what will happen to her
money after an investment is made. She
is also happy about the fact that she
doesnt lose control of her wealth and
can liquidate the investment should her
circumstances change.
Her adviser tells her that despite its
benefits, BPR qualifying investments are
inevitably more risky than conventional
solutions. However, as the average
minimum subscription has been falling
over the recent years, Iris can invest
with more than one BPR provider to
provide an extra layer of diversification
and hence further mitigate risk.
Iris likes the idea but she tells her
adviser that there is only 50,000
cash available in her portfolio and she
doesnt want to sell any of her tangible
assets because of her emotional
attachment to them. After further
investigation into her portfolio, the
adviser finds Iris hold several Stock &
Share ISAs with different providers. The
adviser tells her that she can transfer
her Stock & Share ISAs to BPR qualifying
AIM ISA provider. This means she can
keep all the ISA benefits on her existing
ISA holdings and remove the assets
from her estate after holding the new
BPR qualifying AIM ISA for two years.
After considering the advisers
recommendation, Iris decides to invest
in BPR qualifying investments.
WITHOUT BPR WITH BPR
300,000 300,000
200,000 200,000
300,000 280,000
50,000 0
50,000 50,000
900,000 900,000
180,000 180,000
650,000 650,000
0 70,000
830,000 900,000
70,000 0
28,000 0
872,000 900,000
35
 MARKET RESEARCH

36
ADVISER SURVEY
VIEWS FROM ADVISERS AND KEY STAKEHOLDERS
Every year we gather the thoughts and opinions of advisers through our annual Adviser Survey. This year we
collected a record number of 190 responses. Readers should note that there is some bias in these results as in
many cases the advisers we reach out to are already involved in tax-efficient investments to various degrees.
DO YOU RECOMMEND BPR TO YOUR
CLIENTS?
2%
2%
25%
25%
56%
57%
16% 17%
FREQUENTLY NEVER
SOMETIMES NO RESPONSE
The overall response for this question
was very similar to the results we saw
in 2016. 25% of advisers surveyed said
they recommend BPR investments
frequently to their clients, while the
other 56% are sometimes users.
Compared to last years figures, there
is a 2% reduction in the number
of advisers who recommend BPR
products and the proportion of
advisers who never recommend BPR
increased to 17% this year from 11%.
However, in our opinion these figures
do not necessarily mean that the asset
class is becoming less popular among
advisers instead we think these
small fluctuations can be attributed to
the expansion of our survey sample. It
is worth noting that only 2% of survey
respondents didnt respond to this
question, compared to 6% last year.
WHAT ARE YOUR TOP 3 REASONS TO
RECOMMEND BPR?
80% IHT PLANNING
41% DIVERSIFICATION / RISK
28% GROWTH
17% TAX PLANNING (NON IHT)
14% INCOME
8% EXPOSURE TO A SPECIFIC SECTOR
3% OTHER
1% POSITIVE SOCIAL / ECON IMPACT
Advisers picked IHT Planning,
Diversification/Risk Management and
Growth as their top three reasons to
recommend BPR, which mirrors last
years survey and isnt a surprising
finding given what BPR investments
can do in a portfolio. However, the
number of advisers who cited Growth
as one of their top three reasons
increased by 5% to 28% this year. It
may indicate that advisers now view
BPR not only as a way to mitigate IHT
but also an asset class that can deliver
capital appreciation.
Income was the least cited reason
in last years survey, only ticked by
7% of survey respondents. This year,
however, the proportion of advisers
who ticked Income doubled to 14%.
Again it shows how BPR investments
are moving beyond pure capital
preservation and IHT planning.
WHAT ARE YOUR TOP 3 CRITERIA
WHEN SELECTING A BPR INVESTMENT?
64% TRANSPARENCY OF UNDERLYING ASSETS
50% PROVIDER REPUTATION
49% PERFORMANCE HISTORY
33% THIRD PARTY REVIEWS
30% PREVIOUS EXPERIENCE WITH PROVIDER
9% INVESTMENT PROCESS
6% OTHER
Transparency of underlying
investments, provider reputation and
performance history remain the top
criteria, but the order has changed
slightly in comparison to last year.
Provider reputation, the most cited
criteria last year, has been substituted by
transparency of underlying investments.
In addition, 10% fewer advisers than
last year cited previous experience
with provider as a key criteria. We can
conclude that advisers are becoming
less biased towards the biggest
providers in the market a healthy
trend that maintains competition in the
market and gives advisers a wider range
of investment options.
More advisers ticked performance
history this year and we speculate that
the same reasoning applies here too.
The overall response for this question
shows that advisers started shifting
their focus from subjective criteria
such as provider reputation and
past experience to qualities that are
comparable and more objective.
37
Each client scenario is unique so an IHT calculator, such as www.IHTcalculator.com, can prove useful
for financial planners, allowing them to input assumed growth rates for the value of different assets
and calculate potential future IHT liabilities on the rising value of the estate. - Simon Housden, Sales and
Marketing Director and Partner, TIME
WHAT ARE YOUR TOP 3 CONCERNS
WHEN SELECTING A BPR INVESTMENT?
49% INVESTMENT RISK
43% LACK OF LIQUIDITY
34% EXIT RISK
33% LACK OF TRANSPARENCY
27% COMPLIANCE & DUE DILIGENCE
21% SUITABILITY
19% NO TRACK RECORD
3% SECTOR REPUTATION
18% HMRC CHALLENGE
About half of advisers (49%) cited
investment risk as one of their top
three concerns, the same as last
year. Lack of liquidity was the second
top concern, cited by 43% of the
respondents which is slightly lower
than last years figure (49%).
Surprisingly, only 27% of advisers
indicated their concerns regarding
compliance & due diligence, a 10%
reduction from last year. Perhaps
advisers have already become more
comfortable with the requirements
when recommending BPR.
The number of advisers who cited no
track record increased significantly,
from 3% to 19%. This mirrors the
conclusion we drew above that
advisers have shown a greater interest
in underlying investments and
measurable performance. We also
noted that exit risk is now a greater
concern to advisers, which echoes their
top selection criterion - transparency of
underlying investments. More morbidly,
it may also reflect ageing clients who are
already invested in BPR services, where
advisers are starting to think about
what will happen once they pass away.
38
WHAT ARE YOUR PREFERRED SECTORS WHEN SELECTING A BPR INVESTMENT?
50%
40%
30%
20%
10%
0%
SECTOR MEDIA & INDUSTRY & GENERAL FOOD & DRINK FINANCIAL
AGNOSTIC ENTERTAINMENT INFRASTRUCTURE ENTERPRISE SERVICES
Sector agnostic and the General Enterprise sector can be considered as much
the same, which suggests over half of the advisers surveyed do not have a
preference for a particular sector.
Industry & Infrastructure was the most preferred specialised sector (31%),
followed by the Media & Entertainment sector favoured by 13% of survey
respondents. However, we speculate that there is a shortage of funds in the two
sectors. On the MICAP platform we found 13% of open BPR offers that invest
in the Industry & Infrastructure sector but only 1 Media & Entertainment BPR
investment. Therefore, we recommend advisers who want to make investments
in these two sectors act quickly to avoid disappointment.
ARE ONLY HNW/SOPHISTICATED CLIENTS SUITABLE FOR BPR INVESTMENTS?
4%
YES
40%
NO
56%
NO RESPONSE
56% of advisers believed BPR investments are NOT only suitable for high net
worth and sophisticated investors. This is higher than last years finding of
53% but we cannot conclude any changes in advisers view on this issue as the
proportion of advisers who responded yes has also increased by 3%. Therefore,
the changes are most likely the result of the larger survey sample and the lower
rate of no response.
It is understandable that more conservative advisers preserve their view on
this issue, as offering the asset class to retail clients will inevitably add more
regulatory risk to their business which makes them hold back from using the
investment for their retail client base.
On the other hand, it is also not surprising to see more than half of the advisers
believe BPR investments can also be suitable for retail clients as BPR investments
are still the quickest route to IHT mitigation.
The headline looks like each individual is getting another 100,000 in allowance so the total can go
up to 1 million, but there are a number of caveats and restrictions. - Ian Smyth, Business Development
Manager, Johnston Campbell
DO YOU SEE YOUR USE OF BPR
INCREASING OR DECREASING OVER
THE NEXT TWO YEARS?
68%
INCREASING
17%
STAY THE SAME
2%
DECREASING
3% 10%
NO RESPONSE DONT RECOMMEND
The percentage of advisers who
reported that they expect their
BPR business to increase has gone
up from 60% to 68%. Only 2
survey respondents said they would
decrease their use of BPR in the near
future, while 17% believed their use
will remain the same.
DO YOU PREFER EXPOSURE TO AIM
OR PRIVATE COMPANIES FOR BPR
INVESTING?
80%
60%
40%
20%
0%
PRIVATE AIM NO PREFERENCE
Most advisers remain open to both
AIM-listed and private company BPR
investments. However, the preference
for private companies continued to
grow this year. Exposure to private
companies was favoured by 23% of
advisers surveyed, significantly higher
than last year (7%). It is also true for
AIM investments, increasing from 4%
to 10%.
Unlike the small fluctuations observed
in previous questions, the changes
here are large enough to conclude that
advisers preference on underlying
investments is changing. It makes sense
as advisers use of BPR investments
increases and they possess more
experience with the asset class - it may
be natural for them to also develop a
preference on underlying investment.
Furthermore, this again mirrors
what we found above that advisers
are paying more attention to the
underlying investments a BPR offer
holds.
ARE BPR INVESTMENTS ONLY
APPROPRIATE ONCE BOTH ISA
AND PENSION LIMITS HAVE BEEN
MAXIMISED?
5%
13%
82%
YES NO NO RESPONSE
Unlike the responses we had from the
last question, the general consensus
is that BPR investments can coexist
alongside ISA and pensions. As the
main benefit of BPR investments is IHT
mitigation, the chart demonstrates
that advisers understand how the BPR
tax wrapper is different from ISA and
Pension.
Despite that, 13% of advisers stated
BPR investments are only appropriate
after maximising ISA and Pension
limits. We speculate that this group
consists of advisers who stated they
never recommend BPR in question 1
and therefore perhaps have a much
more conservative stance in general.
This may mean more education is
needed to raise the awareness of BPR
services, what they can do, and what
distinct features they have.
39
ADVISER ROUNDTABLE
INSIGHTS FROM ADVISERS
WILL THE INTRODUCTION OF
THE NEW RESIDENCE NIL RATE
ATTENDEES BAND HAVE A BIG IMPACT ON
THE ESTATE PLANNING YOU DO
WITH YOUR CLIENTS?
I dont think it will because
of the restrictions in it. The
headline looks like each
individual is getting another
100,000 in allowance so the
total going up to 1 million,
IAN SMYTH
but there are a number of
JOHNSTON CAMPBELL LTD
caveats and restrictions. So
it will certainly help when
planning, depending on
what the client wishes, but
overall I dont think it will
have a big impact, especially
with property prices
continuing to rise over the
JANE BLIGH medium to long term. As an
TWP WEALTH LTD example, a couple with no
lineal descendant wishing
to leave their property to a
nephew or niece wont have
the RNRB.
Yes, it does have an
impact. Weve got a lot of
clients who will be eligible
JOHN CORNELIUS for it and also I deal a lot
WARWICK BUTCHART ASSOCIATES with elderly clients. There
LTD
is an issue with them
understanding whats going
to happen and what the
impact will be if they go into
care, or downsize, so weve
done a lot of education on it
to our clients.
RYAN ZENG Yes. A lot of my clients
INTELLIGENT PARTNERSHIP own fairly valuable houses
(MODERATOR)
and a lot of planning we
have done in the past is now
obsolete.
ARE CLIENTS AWARE OF THE
RNRB AND IF SO, HOW WELL DO
THEY UNDERSTAND IT?
Yes they know its coming
through and are aware of
what the headline is, but
40
MODERATOR: RYAN ZENG INTELLIGENT PARTNERSHIP
they often do not realise
the restrictions. Especially
if you look at the HNW with
estates over 2 million
where the RNRB will be
reduced 1 for every 2
over 2 million. So if youre
looking at HNW really they
will lose the impact of the
new band. Again it comes
down to educating the
client into looking at their
own circumstances and see
whether it can be applied
or not.
They probably read
something about it but dont
understand the complexity
of it. In fact, most of them
wont qualify for it. And I
think they only demonstrate
very little understanding of it
at the moment.
DO YOU THINK THEY
UNDERSTAND HOW IT WORKS?
No I dont, I actually
completed a session with
solicitors in Belfast yesterday
and even they were not
aware of all the caveats
around it and necessary IHT
calculations
Yes, I think they are
aware of it, but are not
quite understanding it. Even
clients who are very bright
are still struggling with it
which is odd as I think its not
that difficult but weve seen
it for a long time.
WHAT KIND OF EDUCATION
DO YOU PROVIDE TO YOUR
CLIENTS?
For solicitors we run a
number of CPD training
sessions for their legal teams
in Belfast. For our clients we
have produced a step-by-
step guide to IHT planning
outlining their options and
allowances in a clear and
concise format.
Weve got a presentation
that we use with them and to
help each client specifically
we have an IHT calculator
that shows what happens to
their estate.
WILL RNRB HAVE ANY
IMPLICATIONS FOR HOW YOU
USE BPR?
We would still continue
to use BPR as a part of a
blended strategy. Obviously
it is dependent on the
clients objectives and
attitude to risk, now overlaid
with the restrictions that
come with the RNRB.
I think it actually opens
the conversation about
BPR more than anything
which is actually what we
want. Because a lot of our
clients still have IHT liability
despite the RNRB, using BPR
is definitely something wed
bring into our conversation
with our them.
I dont see a direct
correlation between the two,
but we use BPR a lot. BPR
is a growing part of estate
planning, as a majority of my
clients wont qualify for the
new Residence Nil Rate Band
because their estate will be
well above 2 million.
HOW ARE YOU USING PENSIONS
IN YOUR ESTATE PLANNING
PROCESS AS THEY ARE NOW
MORE IHT EFFICIENT?
We are using them quite
a bit. Clients are restricted
with the lifetime limit and
what you can put into
 IAN
SMYTH
your annual allowance as
well. Clients now have the
option to ring fence funds
held in their pensions and
create income streams
from other assets that
can be IHT liable. This is a
complete turnaround from
where we were five years
ago where we would have
said spend your pension
and ring fence your other
assets from IHT. Having said
that, HNW clients are very
much restricted because
of the annual and lifetime
allowance. So in their case
BPR planning is still an
option to be considered.
What we do is we tell
clients to build up other pots
in increments of time before
anything else, because ones
pension pot is most tax
efficient on death. So what
we are trying to do with
bigger clients is to build up
pots of VCTs and offshore
bonds etc., so they can take
their income from that and
leave the pension as the last
thing to open up because of
the IHT efficiency of it.
They are the ultimate
estate planning tool now.
We ask our clients to stop
withdrawing their money.
I have a lot of clients who
have accumulated large
pension pots that produce
high income, more than
what they really need. So we
are using the fact that they
can be transfered down the
generations.
JANE
BLIGH
OUR NEW MARKET RESEARCH
HAS INDICATED THAT, THIS
YEAR, ADVISERS ARE MORE
CONCERNED WITH UNDERLYING
INVESTMENTS AND LACK OF
TRACK RECORD, BUT ARE LESS
CONCERNED WITH PROVIDER
REPUTATION. WHAT ARE YOUR
THOUGHTS ON THESE?
Yes thats key. As an
example when we look at
EIS investments we would
not use any provider that
has not got a track record
of exit and I would tend to
drill down into the individual
trades myself. Because the
key thing is understanding
exactly what the underlying
trades are, you can have,
for example, a provider that
was doing renewables and
has a track record there
but all of a sudden starts
doing something completely
different and we wouldnt
feel comfortable working
with such a provider.
I actually think provider
reputation matters and
we do look at track record.
Our clients also care about
underlying investments
and they often prefer
investments that they
can relate to. There are
certain sectors that people
dont like. In terms of track
record, we look at what
track record a provider has
although some providers
havent been around long
enough to publish any.
Underlying investments
and track record of
the manager are very
important to us. When
it comes to selecting a
BPR investment, I focus
on the experience of the
management and that
JOHN
CORNELIUS
includes track record as
well as their reputation.
WHAT HAS YOUR EXPERIENCE
OF USING BPR BEEN LIKE? HAVE
YOU HAD TO MAKE ANY CLAIMS
FOR ANY CLIENTS YET? HOW
DID THEY GO?
My experience of using
BPR has been very good. I am
very comfortable with the
panel that we are running,
the track record and what
they are delivering. To date,
we have several clients who
have lived past the two
years. Weve had two major
wealthy clients pass away
but regrettably both died
within the two-year mark.
Having said that, when
this sadly occurred their
portfolios were liquidated in
a very timely manner after
probate was granted. Again
the key to any BPR provider
is how much liquidity they
maintain verses share
matching. The latter is very
much dependent on their
pipeline new business.
My overall experience has
been very positive, because
when you show people all
the available options, it is
clear that BPR is a simpler
and more straightforward
solution. People dont want
all the hassle from setting
up a trust, and whole
life policies can be very
expensive. Gifting is also
very often not what clients
want because they always
have the fear of going into
care after having gifted their
money, and the deliberate
deprivation rule can also
cause a lot trouble. We
actually have done a few
cases where people are
RYAN
ZENG
already in a care situation
and their family realise they
have an IHT liability but still
want access to their money
to cover care costs.
We also havent made any
claims yet. One case Ive
had was somebody who
died when her husband
is still alive and thats an
elderly couple, and she was
18 months into her BPR
investments it when she died.
The other case we had was
one who died fairly early on
and unfortunately within the
two-year qualifying period.
My experience has been
good so far; I have had no
problem with it and will
continue to use it for my
clients in the future. I do BPR
because my clients tend to
be quite elderly. In terms of
making claims, thats one
thing that I havent done. All
my clients are still alive and
healthy!
I have a very old lady
in her 90s who sold an
investment property. We
did a combination of BPR
and EIS investments to save
some CGT and IHT. She just
completed her two-year
qualifying period back in
February and she is very
happy with her portfolio.
41
INDUSTRY ROUNDTABLE
MARKET DISCUSSION
WHAT CHALLENGES HAVE YOU
BEEN RESPONDING TO AND
ATTENDEES WHAT CHANGES HAVE YOU
MADE TO YOUR BUSINESS? HOW
DO YOU SEE THE 2017/18 TAX
YEAR GOING? HOW ARE YOU
POSITIONING YOURSELF FOR
THE NEXT 2-3 YEARS?
KIERAN OGORMAN The most important
DEEPBRIDGE change that we have seen
is that financial advisers are
increasingly asking what the
return generator is for our
Inheritance Tax planning
solution. Most of the vocal
LAURENCE CALLCUT IFAs have been forthright in
that they do not just want to
DOWNING
source a savings on IHT for
their clients; they actually
want an opportunity to
actually generate returns.
They are also looking for
JESSICA FRANKS an IHT-eligible company
which doesnt just trade
OCTOPUS INVESTMENTS
but also has physical and
traded assets behind it.
They want a really clear
business objective of the
company, so they dont get
JONATHAN GAIN caught by the HMRC which
STELLAR has seen a blurring of the
line between tax avoidance
and tax evasion. We believe
they are clapping down on
some of the more spurious
tax-advantaged investment
HUGH COLVILLE and saving schemes out
STRATA there. Also, IHT has been a
political focus over the last
few years, as represented
by the introduction of the
RNRB.
SIMON HOUSDEN The other thing we are
seeing from IFAs is that they
TIME INVESTMENTS
actually want to understand
the fee structures involved in
IHT planning vehicles. Having
clarity and transparency in
terms of fee structures is
the second most frequent
BELINDA THOMAS
question that we receive
TRIPLE POINT
from IFAs. Weve always
42
MODERATOR: RYAN ZENG INTELLIGENT PARTNERSHIP
sought to deliver an obvious
and upfront fee structure
so that IFAs can understand
what their clients are paying
for and also how clients can
see how their IFAs are being
remunerated in accordance
with the Retail Distribution
Review.
We havent had to make
too many changes to the
Deepbridge IHT Service
to reflect these investor
requirements because when
we entered the market in
July 2015 we took on board
what IFAs were looking for
and we actually engaged
with them and tried to work
out what their requirements
were, and then embedded
them into our product. So
far, we havent had to adjust
our product as we have
already embedded those
desirable items from IFAs in
our products.
The BPR marketplace
continues to see new
entrants and has now
become quite crowded.
This means we have to be
careful to maintain product
development initiatives and
promote the experience
that Downing brings to
this area. We give access
to one of the largest and
longest established BPR
services along with choice
of investment opportunity
- this message needs to be
continuously reinforced.
Another issue is the blurring
of how charges are referred
to, with the adoption of
different names for annual
management charges or
performance fees and
burying of charges within
underlying investments.
This causes confusion for
advisers that are used to
focussing on initial and
annual management charges
with traditional mainstream
products and could lead to
clients ending up in more
expensive structures than
they may realise.
We see the core features of
experience, transparency
and innovation, along with
our performance track
record, helping to drive new
business during 2017/18.
Downing will continue to
position itself as a provider
of specialist tax based
products of which BPR is
central but with a widening
remit into other areas.
The Octopus Inheritance
Tax Service is a pretty
mature investment, having
existed for a decade.
It invests into unlisted
companies that we have set
up and manage on a day-to-
day basis on behalf of the
shareholders, all of whom
are investors in the Octopus
Inheritance Tax Service.
This means that we can
make sure that the portfolio
companies always target the
same goals as our mandate
for the product, and that
they qualify for BPR.
Having the reach of a 6
billion fund management
business allows us to build
strategic relationships
and make acquisitions
to leverage our sector
knowledge and build
investment platforms to
provide scalable, Tier 1
investment opportunities.
We have invested heavily
in our investment teams,
growing our investment
 KIERAN LAURENCE
OGORMAN CALLCUT
professionals to more than
100 people. This has enabled
us to support the growth
of the product, remove
key man risk and manage
assets in existing sectors as
well as having the resource
to identify and analyse
opportunities for the future.
The portfolio companies
that we invest in have
evolved over time, like any
trading businesses, to take
advantage of those sectors
of the economy that our
investment teams have
identified as having the
best fit for our mandate.
Since 2007, weve grown the
investee companies within
the Octopus Inheritance
Tax Service from just one
trading company to a 200+
strong operating group that
employs more than 400
people.
This provides flexibility,
investment opportunities
and diversification for
investors. Accordingly, we
operate companies that are
well set up for the future,
so we dont expect our
approach to significantly
change in the near term.
I suppose the challenge
has been to continue to
raise awareness about
Business Property Relief
with new financial advisers
and explaining the benefits
of these services for their
clients.
Understanding how our
proposition fits within the
market and how Stellar
positions itself relative to
the competitor set are also
important considerations.
The most significant amount
JESSICA JONATHAN
FRANKS GAIN
of work that we have
been doing is providing
case studies and practical
examples of clients who are
using our services.
We dont just give the
reasons for which they
are choosing our services
but also, how the different
services that we offer can be
used in an attractive way for
a wide variety of investors.
If we use our flagship service
Succession as an example,
investors have their own
private limited company
in which they own 100% of
the shares, which in turn
invests into a variety of
asset backed investments.
We offer investors a
full administration and
investment management
service within this
bespoke structure and
the opportunity for them
to select the areas that
they might invest into. For
investors, it is very easy
to understand and very
transparent as they have
their own company instead
of being in a big pool or
fund. The investor can view
their company on Company
House and check their
accounts online.
Over the next 2-3 years we
will continue to develop
our estate planning suite
of services and expand the
adviser base that we engage
with. We have been working
in partnership with other
professionals within the
financial services industry
with a view to offering a
different approach. Its a
holistic, joined up service
proposition where specialist
advisers can come together
HUGH SIMON
COLVILLE HOUSDEN
for the benefits of their
clients.
Ive always talked about a
hub and spoke approach
where the client is at
the centre and qualified
professionals, for example,
tax advisers, financial
advisers, accountants and
solicitor, are all contributing
and adding value by
providing the best service
and the best outcome for
their clients. We can call on
and provide tax guidance, we
can help provide accounting
solutions and we can help
provide legal solutions for
the clients who are not
otherwise able to do this
themselves.
Strata is like an investee
company of an IHT Service
it is the trading company
itselfso for us, when we
say that the last 12 months
have been good thank
you, what that means is we
have seen a steady inflow
of new investors, but more
importantly, the company
has traded profitably, and
been able to hit its target
returns. So, YES, we did have
a good last 12 months since
we reported a 12% pre-tax
profit for the year ended
March 2016 and paid a 7%
Dividend, and we are on
track again for the current
financial year to hit our
target returns.
Typically Strata is making
new loans and having loans
redeemed every month.
Brexit certainly caused us to
slow lending for a period last
summer but the business is
now active again and has an
attractive looking loan book.
BELINDA RYAN
THOMAS ZENG
The Brexit negotiations
will of course create some
uncertainties, but we believe
that the residential market
in the South of England,
Stratas specific area, will
remain robust, with a severe
lack of supply. So we are
optimistic the companys
thorough due diligence will
stand the test of time. For
the record, over the last 10
years Strata has advanced 71
loans on about 328m worth
of property and rejected well
over 3bn.
We expect to double the
size of the ompany to a NAV
of 25m and review the
business in the 2018/2019
financial year, at the Autumn
2018 AGM.
New shareholders in Strata
have always come from a
few select wealth managers,
as well as close contacts
typically those who have
a good understanding of
property and finance. This
has always been the case
since Strata was formed 10
years ago. The reason why
we are talking to Intelligent
Partnership is to widen this
audience as the company
is well-positioned for some
modest growth over the
next couple of years.
For TIME Investments, its
been about not only keeping
advisers aware of how our
approach differs from the
growing competition and
our strength of track record
in this space (21 years) but
also providing education
on the sector and the
helping advisers add value
to their business. How we
responded to the challenge
of increasing our share
43
BR investors increasingly want to have a better understanding of what their funds are invested
in, what level of asset backing there is and to understand how liquid the investment really is.
- Belinda Thomas, Head of Sales and Investor Relations, Triple Point
of the BPR market is by
investing in our nationwide
business development team
(currently 23) and our client
services team (currently
10) to ensure we offer the
highest quality service for
our clients.
TIMEs regional coverage
means were always on
hand to meet face to face
with advisers and provide
support the length and
breadth of the country.
Weve also worked hard
to become a leader in
our industry and to stay
ahead of the market with
innovative products. For
example, in the AIM market
there are a lot of active
managers, so rather than
coming into the market
with a me-too offering, we
decided to build the first
smart passive solution
which runs by an innovative
screening process rather
than an active manager,
enabling us to reduce
volatility, costs and
importantly, stock picker
bias.
We raised over 100 million
of BPR qualifying funds over
our 16/17 financial year. I
think the 2017/18 tax year
will be an interesting year, as
the challenge we will have,
along with the rest of the
industry, is the introduction
of the new Residence Nil
Rate Band. There are some
clients who did have an
IHT problem who may
no longer be affected.
Potentially, the size of the
market may shrink slightly
this year as a consequence.
However, with one of the
44
biggest IFA support teams
in the market, TIME is well
positioned to continue to
take an increasing market
share so Im confident its
going to be a very promising
year for the business.
In terms of positioning for
the next 2-3 years, with
growing annual inflows,
TIME will continue to place
quality deal flow at the
core of everything it does.
The worst position for a
fund manager to be in is
to raise more money than
can be invested in sensible
deals, resulting in taking
higher risks than expected.
TIME:Advance, our private
client BPR service, has one
of the most diversified
BPR portfolios in the
market, with six different
trades, many of which are
complementary to each
other. For example, we have
a summer focused solar
trade hedged nicely with the
winter focused wind energy
trade; or the biomass trade
which hedges nicely with our
forestry business (wood chip
being the fuel of the biomass
trade). Our plan on the
investment side is to stick
to what we do best - secure,
asset backed investments
and those that provide
stable income streams
without taking undue risk.
Its about keeping our
investors exposure to
risk as low as possible to
preserve their capital. That
way, TIME:Advance should
be able to continue to
exceed its target return with
growing annual returns, as
it has done every year since
inception.
In the last twelve
months we have been
really pleased to see an
increased level of interest
in our BR products from a
wider variety of advisers,
possibly as BR products
seem to be becoming more
mainstream. To respond
to this we have added to
our sales team, so that we
can continue to support
advisers, and we have added
to our investment team to
enhance our origination and
monitoring capabilities. As
a business we have been
growing and we continue
to explore new and exciting
investments for our two BR
strategies; Generations and
Navigator, whilst sticking
to their core mandates
of capital preservation
and growth. We have
increasingly been asked for
more in-depth information
on the businesses and how
they are positioned; this led
us to improve our literature
to make it more descriptive
for when advisers are talking
to their clients including
producing strategy guides
alongside the information
memorandum. We also
produce quarterly trading
summaries for the two
businesses which give a
snap shot of the two trades,
how they are performing
over the various timeframes,
including since inception
along with a sector
breakdown so that people
can understand exactly what
we are doing.
With the Nil Rate band
freeze continuing and asset
values rising, increasing
numbers of estates are
falling into the IHT net
leading to more families
considering their options.
On the back of this I think
2017/18 tax year is really
going to be a continuation
of increased use of BR
products as a planning tool
for financial advisers and
with a resulting increased
level of scrutiny as they carry
out their due diligence on
the marketplace.
In terms of positioning
ourselves, we are not
changing our products
dramatically, its more of
a natural evolution of the
businesses. We have been
managing BPR strategies
since 2006, so have
extensive experience in
these sectors and are able
to take advantage of the
new opportunities which
are becoming available in
leasing and lending. Over
the next few years we expect
to see advisers blending
different products together
to increase diversification
for their clients and with
our unique trades of leasing
and lending we are well
positioned to help with
these changes.
WHERE ARE YOU INVESTING?
HOW STRONG IS YOUR DEAL
PIPELINE AND WHAT ARE
THE MOST INTERESTING AND
EXCITING INVESTMENTS IN
YOUR PORTFOLIO?
Our Deepbridge IHT
Service invests in Renewable
Energy assets. There are two
parts to this proposition:
build and hold, and buying
interests in existing
installations whether
they are wind power,
 KIERAN LAURENCE
OGORMAN CALLCUT
hydro power or anaerobic
digestion. As you know
there was a huge amount
of investor funds flowed
into the renewable energy
space under the Enterprise
Investment Scheme, and
the eligibility of renewable
energy investment under
EIS closed in July 2014. So,
in response to your query,
there are two aspects to
the answer. Firstly, we are
seeing subscriptions to the
Deepbridge IHT Service rise
exponentially. Secondly our
pipeline of opportunities to
investors is rising as those
EIS investments are seeking
an exit, on the completion
of the three year EIS holding
period. We are taking a
pragmatic view in terms of
valuation, in that we look
at what the future revenue
stream of these underlying
assets for their subsidy
period involved is and then
discount back this revenue
stream at an appropriate
discount factor to arrive at
an appropriate acquisition
price.
When selecting new
installations, we also look
at the subsidy involved - as
you know the Renewable
Obligation closed to new
generating capacity as of the
31 March 2017 in Northern
Ireland and 2016 in the UK
Mainland. Deepbridge has a
network of installation sites
that have already secured
the necessary permissions
to lock in those renewable
obligation subsidies that are
closed to new generating
capacity. We have a capacity
of 30 million in onshore
wind, 20 million in onshore
JESSICA JONATHAN
FRANKS GAIN
hydro power and 10 million
in anaerobic digestion. So,
not so much change to how
we are doing things, rather
we will be operating on a
greater scale in the 2017/18
tax year.
The most exciting part of our
IHT service is that we have
come to a position in the UK
energy industry in which
renewable energy is making
a material proportion of the
total electricity production
in the UK. Obviously we
have a big question about
the Brexit, there is quite a
lot of media comment that,
post-Brexit, the introduction
of potential tariff barriers
may make importing of gas
and coal more expensive.
In any event, electricity
generation is increasingly
reliant on renewable energy,
as the UK government
seeks to increasingly focus
on security of energy
generation and supply.
In terms of our pipeline,
we have spent 4 years
building a robust network
of developers, consultants,
and engineers. We have
also developed a number of
strong relationships with the
larger energy infrastructure
participants. All of these
firms are seeking to move
further upscale to bigger,
larger installation. Having
those relationships in place
often means that we often
see smaller installations for
our review before the rest of
the market.
Our investment focus
within the Downing Estate
Planning Service (DEPS)
continues to provide funding
to help UK asset-backed or
HUGH SIMON BELINDA RYAN
COLVILLE HOUSDEN THOMAS ZENG
renewable businesses to power plants. We think that
grow. We are seeing good this provides the portfolio
opportunities across a range companies with an attractive
of sectors, including care, balance of long-term
leisure, technology and revenues and risk mitigation
energy. We are supportive against short-term volatility,
of our existing portfolio as well as some short-
businesses and can provide term liquidity. Owning and
follow-on funding to help operating renewable energy
them expand, but we also assets also reduces the
spend a lot of time meeting reinvestment risk that comes
other management teams with operating solely a short-
who we can bring into the term lending business.
DEPS portfolio as new
The mandate of this
investment partners. Our
investment is to target
capital deployment strategy
capital preservation and
for DEPS prioritises capital
predictable growth for
preservation and stability
investors, so it would be
and therefore we do not
unusual for any of the
tend to make exciting
assets in our portfolio to be
investments per se
considered to be exciting
however, we believe each of
in a traditional sense.
member of our portfolio is
We are targeting asset-
interesting in its own right,
backed opportunities that
as ultimately it helps to
are capable of delivering
support the DEPS objectives.
predictable returns for
By way of specific example,
the portfolio. Our track
within the portfolio we have
record of delivering against
helped a care home business
this mandate is solid: our
successfully develop six
Octopus Property team has
homes, we have supported
lent more than 2 billion
the development of two new
with capital losses to date
data centre businesses and
of less than 0.1%; we only
we have provided funding
acquire Tier 1 renewable
for the construction of a
energy assets, which means
range of renewable energy
that they are built using
projects.
technology that mainstream
Understanding that banks will support.
diversification was
We only invest in sectors
important to our customers,
where we have significant
the portfolio now blends
investment experience and
debt and equity across
the expertise and resources
a range of sectors. In
to manage the assets going
addition to more than 200
forward. Our pipeline is
property loans, the portfolio
therefore spread across the
companies now own
sectors that we specialise
hundreds of commercial
in: property lending,
scale solar energy sites,
healthcare, construction
25 landfill gas sites, five
financing and renewable
biomass plants, four
energy. We have a solid track
windfarms and two reserve
record of deploying funds
45
Whilst we did not establish our company as a BPR product, it has proved itself to be an attractive
one. - Simon Hawley, Director, Strata
raised across these sectors,
and a strong pipeline of
opportunities spread across
them looking forward.
Current pipeline is around
500 million across these
sectors.
At Stellar, we invest in a
very broad range of sectors
that have one thing in
common, they are tangible
and are all underpinned with
significant amounts of asset
security. They are all exciting
and interesting investments
in a sense and thats what
makes Stellar different.
We continue to focus
on tangible assets such
as hotels, farming and
forestry and are starting
now to do more in property
development - both
residential and commercial.
We are seeing less deal flow
in the renewable space and
are more cautious in this
sector; as such, we dont
anticipate committing as
much capital in 2017 to
renewables as we have done
in the past. Thats going
to be offset by increasing
activity in the hotel and
property development
sectors and in areas such as
bridging finance.
We partner with highly
experienced asset
managers which helps to
maintain a strong deal flow
of high quality assets, in the
various sectors which Stellar
invests in.
Our portfolio of nearly 4,000
acres of forestry assets is
currently for sale and this is
a great example of how we
assembled and managed
46
a portfolio of assets over
time and are set to see a
very healthy return to our
investors from the sale.
Strata only lends finance,
it does not invest; either
itself or in other companies.
It has a very long list of
criteria that must be fulfilled
before any loan is made,
but the key one is the track
record of the developer
that is actually, by far and
away, the most important
criteria. A good builder does
not make a good developer.
Also, the site must be in the
South of England, it must
have planning permission,
the scheme must have a
20% plus profit on cost and
the sum of the senior debt
and Stratas mezzanine
must not exceed 75% of
the value of the property
though the reality is the
loan books total LTV is c65%
normally. The due diligence
completed is why Strata has
rejected over 3bn worth of
developments in the last 10
years.
Strata is very fortunate.
It gets a constant stream
of opportunities to lend
each week, if not each
day. These come from a
variety of sources; not only
developers themselves and
brokers, but also - and the
ones we like the best - new
opportunities presented
by the bank lending the
senior debt and previous
borrowers. We do a lot
of repeat business with
previous borrowers. We like
that a lot.
TIME:Advance and
its sister corporate BPR
service, TIME:CTC invest in a
diversified portfolio of asset
backed investments. We
are active in the renewable
energy sector, investing
in wind turbines, ground
mounted solar and biomass
energy. We also invest in
lending to UK property
developers and our BPR
service owns and manages
a number of self-storage
centres managed by Lok
N Store and Storage King.
Finally, we also invest in
UK forestry - the portfolio
currently owns over 3,500
acres.
The deal pipeline from
our diversified range of
asset-backed trades is very
strong and stable because
we source, appraise and
manage all of our dealflow
in house, rather than
outsource it. This also helps
reduce the costs of our
service because there is no
need to pay third parties
to undertake one or more
of those roles. Indeed we
have a far greater potential
pipeline than we could ever
wish to invest in because we
are very picky of the types
of deals we select for our
services.
As for the TIME:AIM, this
BPR service (which is also
available as an ISA) invests
in a select portfolio of
large AIM listed companies
with low volatility and
more modest growth
expectations.
To be honest, I wouldnt
describe any of our
investments as exciting;
what they offer are
predictable returns and
defined risk and we believe
that is exactly what advisers
and investors want. In my
mind, that definitely makes
them interesting though.
We manage two BR
strategies which are unique
in the market; Generations
and Navigator. Generations
is a leasing, lending and
infrastructure business
which seeks capital
preservation through
engaging with corporates
and the public sector (Local
Authorities and the NHS).
This trade has a strong
pipeline of opportunities
both in the public sector,
such as working with the
NHS to fund newer methods
to treat cancer using laser
technology, and providing
managed service contracts
to Local Authorities. We
are reviewing several
opportunities to lease
assets to the corporate
sector and reintroducing a
small, up to 10%, allocation
to SME businesses.
In the Navigator strategy, we
provide leasing and lending
to a large and diverse
range of SME businesses,
funding business critical
assets. For example on the
modern high street most
of shops you come across
are increasingly reliant on
cashless forms of payments.
In fact, last year for the
first time ever debit and
contactless transactions
overtook all other payment
types. At Triple Point,
through Navigator we
manage one of the largest
leasing programmes for
chip and pin machines
into over 45,000 different
 KIERAN LAURENCE
OGORMAN CALLCUT
SMEs. These card readers
might be individually small
in value, but have become
an absolutely essential tool
for modern commerce.
The sheer scale of Triple
Points diversity combined
with their mission critical
nature mean that they
are a proven, simple and
secure asset class. A further
example on the high-street
is a leasing programme
Triple Point run in support
of Uber. Previously
financing the private car
hire market was difficult,
but with the introduction
of in car telematics and
remote immobilisation
we gain genuine security
over these vehicles. Also
with the wealth of data
available such as driver
ratings, mileage and
revenues achieved we
are able to underwrite
with good precision
across a diversified
portfolio of drivers, cars
and geographies. We
are particularly proud
to support the new
introduction of wheelchair
accessible vehicles into
Ubers UK fleet, helping
customers, local authorities
and NHS Trust Hospitals
provide much better levels
of service in appropriately
adapted vehicles.
WHAT IMPACT HAS THE
RESIDENCE NIL RATE BAND
(RNRB) HAD ON YOUR
BUSINESS AND HOW HAVE YOU
RESPONDED TO IT?
The simple truth is that
a majority of our investors
are not just seeking to
mitigate inheritance tax,
they are also looking to
JESSICA JONATHAN
FRANKS GAIN
benefit from the underlying
investment proposition.
For many HNW individuals,
the additional RNRB makes
very little difference to their
investment position. If you
remove London altogether,
Surrey is estimated to
make up 40% of the entire
countrys GBP. Most of the
estates there are based
on property so I think any
changes to the NRB, even if
they double it, would have
minimal impact on the
attractions of our Service.
It doesnt seem to have
had a very significant impact
to our current business and
so we have not made any
directly related response. It
has to be said though that
most of the investors that
will be looking at Business
Relief products are probably
sufficiently affluent to
be impacted by IHT even
where they do benefit from
RNRB. Clearly there is an
educational issue and we
have case studies on this
topic which can be used by
advisers. There are many
clients with estates valued
over 2m that will not
benefit from RNRB in any
event.
We commissioned
independent research in
December 2016 to find out
what the public knew about
the new legislation and
how it could benefit them.
Results were worrying, with
82% of people never having
heard of the RNRB, and
only 3% knowing what it
actually meant. We realised
that that we needed to do
something to help.
HUGH SIMON
COLVILLE HOUSDEN
We created a new online
resource in the residence
nil-rate band calculator,
which is a tool for financial
advisers and retail
investors to estimate the
degree to which the RNRB
could benefit them or their
clients. This innovative new
tool was the first of its kind
and we have had excellent
feedback on it from
advisers, with over 20,000
hits to the site in the first
few weeks. Advisers are
already using it to educate
themselves, as well as their
clients, on this complex
topic.
Following positive
feedback on the RNRB
calculator, and to satisfy
the clear adviser demand
for information and
education on the topic,
we have developed a
spring workshop series
for advisers, taking place
in May and June this year.
Octopus Live will travel the
country, holding 17 two-
hour events for advisers.
The main objective is
to explain the recent
developments, and help
participants to understand
how the introduction of
this legislation could affect
their clients.
We also have a white
paper that is available
for advisers to take them
through some of the more
complicated nuances of
this legislation, and a retail
facing guide to inheritance
tax that includes an
overview of the new
rules and which has been
downloaded 2,000 times.
BELINDA RYAN
THOMAS ZENG
From our perspective, we
have seen no real impact
of this on our fundraising
capacity and we havent
made any changes to our
estate planning services
because of the RNRB.
We have been in regular
dialogue with investors and
advisers, but the types of
clients who are attracted to
our asset-backed services
are often those with capital
more than the Nil Rate
Band, so they are less likely
to be affected.
We know that the HMRC
revenue forecast from IHT
is only going to continue
to increase even after the
introduction of the RNRB.
Feedback from our IFA
customers is that the RNRB
is difficult for people to
understand, so from our
perspective, its there to
talk about but hasnt been a
barrier to fundraising.
Strata was not set up to be
a BPR qualifying business,
rather a good business
opportunity in its own right.
This is a point we like to
clearly make - we do not
have the tax tail wagging
the investment dog. This
is evidenced by most of
the early investors, back
in 2007, being SIPPs. The
Company still does get SIPP
shareholders, though it
has become more difficult
these days due to the SIPP
administrators seemingly
forgetting what SIPP stands
for. So to answer your
question, there has been
minimal impact on Strata
caused by the Residence Nil
Rate Band and so we have
not responded to it.
47
We created a new online resource in the residence nil-rate band calculator, which is a tool for
financial advisers and retail investors to estimate the degree to which the RNRB could benefit
them or their clients. - Jessica Franks, Business Line Manager, IHT Business Line, Octopus Investments
At TIME we understand
that the introduction of the
RNRB is one of the most
significate changes to IHT
legislation in recent years
and one that advisers
may take time to get to
grips with. To support the
IFA community, we have
run a dedicated series of
events nationwide along
with webinars and team
meetings over the last 12
months. We have also
equipped advisers with
a number of educational
case studies to provide
guidance and clarity around
the changes. On top of
this we have launched an
online IHT calculator tool
(ihtcalculator.com) to assist
advisers in calculating their
clients IHT liabilities both
now and in the future.
In terms of impact to the
market, potentially the
bottom end of the market
may shrink, as those
investors with estates
just over the current IHT
threshold find that their
IHT problem goes away.
However, the growth of
clients assets over time
means that those with
a sizable IHT problem
now will still have an IHT
problem when the full
RNRB is applied in four
years time. Overall I dont
think RNRB will make
a huge dent in the IHT
problem. There are still
plenty of clients at the
other end of the scale with
estates worth over 2
million who will not benefit
from the RNRB.
The RNRB has only just
come into legislation so it is
48
very early days. Any impact
will be on the investor base
so we expect to see changes
to our average investor,
but we dont see this
impacting the trades of the
underlying businesses.
OUR NEW MARKET
RESEARCH HAS INDICATED
THAT ADVISERS HAVE AN
INCREASING INTEREST IN
UNDERLYING INVESTMENTS
AND MANAGER TRACK RECORD.
WHAT ARE YOUR THOUGHTS ON
THESE ISSUES?
With respect to an
increasing interest in the
underlying investment,
we absolutely agree. As
we have seen, the HRMC
is challenging EIS, SEIS and
IHT eligible investments as
it has been charged by the
Treasury to increase the tax
take. So what investors fear
is investing in a company
that isnt compliant with
BPR. IHT investment-based
solutions can be categorised
generally into two camps:
one camp backed by a
trading company or physical
assets, and the other camp
invests in AIM-listed stocks.
It is important to note that
not all AIM-listed stocks
qualify as BPR-eligible.
This is why its important
for advisers to ask, during
the holding period, whats
the underlying companies
are doing; is it sitting on
cash or is it trading? Asking
questions such as these
should give advisers more
comfort, IHT planning, in
some cases, could be a plan
with a 20 or 25 year time
horizon. Due diligence on
the part of advisers should
ideally proceed beyond the
investment stage, and cover
the entire holding period
when it comes to ensuring
continuing eligibility for
Business Relief.
We have never received
a subscription to the
Deepbridge IHT Service
where those questions
havent been asked. Its
very comforting for us to
hear that as it shows that
advisers are taking a real
interest in undertaking due
diligence where previously,
up to about 3 or 4 years ago,
they were just taking the
proposition on faith.
We agree and think this
is particularly important
with the number of new
providers entering the
market who will not
have a track record that
can be demonstrated
as being directly linked
to their current offers.
With pensions now being
relatively benign from an
IHT perspective we are
seeing interest in keeping
pension pots intact and
building up parallel sources
of funds which should
ideally also be IHT efficient.
As the track record of
Business Relief services,
such as the Downing
Estate Planning Service,
become more and more
established and advisers
are increasingly aware that
they are looking at the
return profile and seeing
something that is attractive
for the pre, at and in
retirement markets. At
Downing, we are very keen
to demonstrate the under
the bonnet investments of
our Business Relief services
and indeed are one of the
few that actually allow
clients to select between
asset-backed and renewable
strategies.
We fully support this and
have been championing this
approach for many years.
Investments that qualify
for BPR are investments
first and foremost, and
if the adviser or client
is not comfortable with
the investment or the
risk associated with the
investment, then it is not
right for them.
Advisers should be applying
the same scrutiny to a
BPR manager and to the
portfolio as they would to
any other fund manager
and investment. We provide
detailed information on
the underlying investments
within both the Octopus
Inheritance Tax Service
and AIM Inheritance Tax
Service. In addition to
in-house due diligence
and independent third
party reviews, we conduct
monthly, product-specific
under the bonnet webinars
for advisers to learn more
or update themselves on
underlying investments,
and to ask questions of our
fund managers without
needing to leave their
offices. We also operate an
open house policy where
advisers and investors can
visit us and meet with our
fund managers at any time.
To make things easier for
customers, we have also
produced a series of videos,
which are available on our
website, that show our fund
 KIERAN LAURENCE
OGORMAN CALLCUT
managers explaining in
their own words what our
portfolio companies do.
We think that track record
is another important
consideration for advisers.
Advisers wouldnt tend to
consider a DFM service
with less than five years
performance record, so
why should a DFM service
investing into shares
that qualify for BPR be
any different? Having
over ten years worth of
performance history, a track
record of liquidity and BPR
qualification across each
of our portfolios allows
advisers to scrutinise
our performance over
the longer term in line
with other mainstream
investments, and the
detailed information
available in relation to our
investment approach allows
them to understand how
weve delivered it too.
Yes, they do and we
encourage even more
scrutiny in this space. We
have always been and will
continue to be clear and
transparent in the projects
that we invest in. Our offer
documentation sets out
clearly the sectors in which
we invest in and we are very
comfortable in providing
as much information as
possible to help clients,
advisers and independent
commentators to form a
view.
We are very happy to share
information on request and
we are strong supporters of
the work that independent
researchers and investment
review providers do, and
JESSICA JONATHAN
FRANKS GAIN
are always open in sharing
how returns to investors are
generated.
We were one of the
first organisations to
commission and provide a
due diligence questionnaire
for advisers and their clients
and thats something that
we developed about 15-18
months ago. On top of our
offer literature, the due
diligence questionnaire is
another 20-page document
which answers even further
questions about our track
record and experience.
We think this is a crucial
point, especially as there
also becomes more focus
on costs and fees, and
how these affect returns
to investors; at the same
time as there being more
opportunities for investors
to consider. Our view
is that Strata should be
compared to the underlying
investments made by some
of the big players in the BPR
market - those investing
in other companies. This
is perhaps why Stratas
shareholders can not only
get the BPR qualification, but
also perhaps a better return.
Our core values at TIME
are to be open, honest and
transparent about where
we invest, our structure
and the costs. We actively
encourage advisers to lift
the bonnet and investigate
the detail around the risk
and reward balance for the
underlying trades. That is
something our nationwide
sales team of 23 are able
to support advisers with,
both face to face and on
the phone. We also have
HUGH SIMON
COLVILLE HOUSDEN
an in house team of 19
investment specialists on
hand to talk to advisers
direct about any more
technical questions on
the phone or in our office.
Several independent
product researchers have
published reports on our
services and they typically
rate us either top or second
in the market. Indeed we
won the inaugural award
for Best BPR Manager at the
Growth Investor Awards in
2015, and were runners up
in 2016.
We believe that we hold
the longest track record
in the BPR industry
21 years and more
importantly a 100% track
record of exits successfully
achieving BPR. With client
circumstances liable to
change, consideration must
be given to liquidity of the
underlying investments.
TIME:Advance delivers
the potential for clients
to withdraw some or all
of an investment within
two weeks, something it
has delivered consistently,
even with our largest
redemption to date of 4m.
With so many new entrants
into this space advisers
are wise to look beyond
the headline returns
offered and focus more on
underlying investments and
diversification offered by
the provider.
That has been our
experience as well! If you
look back 5 years ago,
advisers were looking
at BPR products far less
frequently. We have been
working hard over the last
BELINDA RYAN
THOMAS ZENG
few years to make sure that
our products are easy to
understand and that our
literature is straightforward
and clear. For example, we
speak about and depict the
modern high street in our
literature, showing how our
BR businesses interact with
everyday life.
Increasing interest in track
record is reassuring to hear!
We have been providing
BR products since 2006
giving us one if not the
longest track record of a
single BR product in the
market. With a substantial
track record it enables
advisers and clients to
see the actual effect if any
of the various economic
cycles on a business and if
performance is correlated
to any other asset classes
rather than in theory.
WHAT CHANGES WOULD
YOU LIKE TO SEE IN THE BPR
MARKET? DO YOU HAVE ANY
CONCERNS FOR THE FUTURE
AND HOW DO YOU SEE THINGS
DEVELOPING OVER THE NEXT
12 MONTHS?
First of all, I would like
to see more obvious
pricing in the BPR market.
Its can be very difficult
for investors and their
advisers to undertake
due diligence on their
underlying propositions,
and understand how
BPR eligibility is achieved
and maintained, as well
as how provider fees are
met and by whom. The
IHT solutions market is
far from homogenous,
so understanding the
underlying rationale of
the IHT solution and the
49
 KIERAN LAURENCE
OGORMAN CALLCUT
underlying investments
is key. It is very important
when you accepting
investment from an
investor and commencing a
very long term relationship,
there is a disclosure of full
information so that the
investors can compare
different products in terms
of investment objective and
fee structure.
The second thing is that
it would be really helpful
to see HMRC bringing in
a mechanism of Advance
Assurance or some
certainty to the nature
of BPR products. This
would assist advisers by
providing comfort for
eligibility under Business
Relief. As you know,
the market has grown
dramatically over the last
few years, with a number
of young recent entrants,
Deepbridge included. As
such, Deepbridge is not
yet at a position where it
can deliver a performance
or track record. So in this
competitive environment,
I would like to see a more
level playing field, with
greater disclosure as to fees
and investment objectives,
thus enabling advisers
to know which essential
questions to ask.
There are no changes
that we would specifically
like to see currently in
the BPR market and no
particular concerns for the
future apart from the ever-
present risk of Government
tinkering with taxation and
impacting BPR. We expect
to see the BPR market
maturing further over the
50
JESSICA JONATHAN
FRANKS GAIN
next 12 months, with a
core group of providers
emerging to dominate the
market.
Were seeing more
products coming to
market that are pushing
the boundaries of the
BPR legislation. We want
advisers to continue asking
questions about underlying
investments, and for tax-
efficient investments to be
seen as investments first
and foremost. Were also
seeing clients pay too much
for add ons to services
which they dont need or
which wont guarantee
them any better returns or
security, which concerns us.
The rules around BPR
are very clear and in
my opinion they dont
need to be changed. The
responsibility for providers
is to ensure that estate
planning services work for
investors benefit and offer
them security, choice and
flexibility.
The range of qualifying
activities doesnt need
to be made wider, and
rather than trying to put
things into BPR qualifying
arrangements that
probably shouldnt be
there, Im more than happy
to retain the status quo
and provide our investors
with a sensible choice that
can help mitigate their IHT
liability and provide with
them as much security as
possible.
In my view, awareness
of estate and succession
planning outcomes that use
BPR still need to improve
HUGH SIMON BELINDA RYAN
COLVILLE HOUSDEN THOMAS ZENG
within the financial advisory services in order for them to
community. The number be able to properly assess
of clients who could be their risk. With relatively
using BPR solutions is still new entrants in the research
relatively small compared space, such as MICAP,
to other IHT solutions, so joining the respected Martin
I think raising awareness Churchill and Allenbridge
amongst advisers and research reports, the
their clients would be tools are there for a more
a positive thing for the thorough assessment
future, to help to grow this and comparison of costs,
market. Consequently, liquidity, underlying project
the downside effect of returns, levels of gearing
increased awareness might and risk between providers.
be that the government
We would prefer for the
brings BPR to the forefront
BPR market to remain
of their agenda.
unchanged to give
Nothing really, but confidence in the stability of
perhaps greater openness the relief. I think increased
and transparency about transparency on underlying
fees, costs and possible investments, fees and
conflicts of interest. performance are always
Obviously, tax legislation welcomed and that the
may change. But this is not industry has responded
a major worry for Strata to this, although we still
actually, since Strata was not use different words for
set up as a BPR opportunity. the same thing which can
As we mentioned before, be confusing. For the
we are confident the tax tail BPR market overall it is an
is not wagging the Strata exciting time with plenty of
investment dog. products for investors to
choose from.
At TIME we are confident
about the future of BPR; its
important to remember that
BPR has been around now
for over 40 years. While
there has been speculation
in the past about BPR being
withdrawn or dramatically
changing, all changes so far
have been positive changes,
for example, opening up of
the AIM market to ISAs is a
positive step for investors.
Advisers often tell us that
they would like to see
greater transparency in the
BPR market, in particular
over the underlying
investments within the BPR
CONCLUSIONS
CONCLUSIONS FROM OUR MARKET RESEARCH

This year our adviser survey is While the market is offering the
based on a larger sample and we desired levels of growth, advisers
found the following results. may not always be able to subscribe
to their preferred underlying
First, BPR qualifying investments
investments. Industry & Infrastructure
are still popular among advisers
and Media & Entertainment sectors
and an even greater proportion of
are the most preferred specialised
advisers than last year indicated
sectors, but there are only a small
that they would increase their use of
number of opportunities within each.
BPR in the next two years. Given the
increasing number of new entrants Our Adviser Roundtable participants
and new products in the market told us that advisers think their clients
we dont expect to see a mismatch are generally aware of the RNRB but
between demand and supply. do not have enough understanding of
it. They also expressed their concerns
IHT planning, diversification and
over the restrictions and rules that
growth are the three most cited
make the new allowance look less
reasons for using BPR investments.
appealing than the headline suggests.
Clearly, IHT planning is the main
Since not all clients will be eligible for
purpose of BPR so it is not at all
the RNRB, it may give BPR a greater
surprising that it was selected as the
role to play in estate planning in the
top reason. But advisers also use BPR
future. Overall, advisers have had a
investments in their clients portfolios
very positive experience with using
to provide additional diversification
BPR qualifying investments. So far,
and growth. In the previous section
only a small number of successful
we noted how growth opportunities
deaths have been registered, but
are dominating the market, so we
advisers tell us investors generally like
can again conclude that the market
the simplicity, flexibility and liquidity
offers what advisers need. In addition,
offered by BPR qualifying investments.
we observed a greater interest
in AIM-based BPR investments
which coincides with many new
launches in this space this year.

Advisers have shown an increasing

interest in the quality of underlying
investments and give less emphasis
to previous experience with the
provider. We believe this is due
to the increasing number of new
entrants who are not able to
demonstrate sufficient performance
history and track record. This
makes due diligence on underlying
investments more relevant. As a
result, advisers have indicated their
concern over lacking track records.

51
 INDUSTRY ANALYSIS

52
TERMINOLOGY
DEFINITION OF KEY TERMS

This section takes a look at the current market of Business Property Relief offerings. The analysis is based on data obtained
from the MICAP platform and is correct as of April 2017.

Our intention here is to give advisers data on key investment metrics such as costs, minimum subscriptions and target
returns so that they have a reference point when reviewing the market for BPR investments and can understand the levels
of returns to expect and at what prices. We start by giving some clarification on the terminology we will use:

OFFER STATUS

OPEN OFFERS BPR offers that are raising money at the time of writing (April 2017)

2016/17 OFFERS BPR offers that launched after the publication of our previous BPR Industry Report (June 2016)

HISTORICAL OFFERS BPR offers that launched before June 2016

INVESTMENT STRATEGY

Investments into asset-backed trading companies or investments that are exploiting an asset,
CAPITAL PRESERVATION & GROWTH
either a physical asset or the rights to an intangible asset

Investments that are exploiting an asset typically with contractual income streams that will
CAPITAL PRESERVATION & INCOME
allow it to pay an income to investors

GROWTH Investment into trading companies for long term capital growth

GROWTH & INCOME Investment into trading companies for long term capital growth and income

INCOME Investments that only produce an income and are not expected to experience capital growth

INVESTMENT SECTOR

Generating energy, typically from renewable sources (including wind, solar & hydro), clean
ENERGY GENERATION
sources (including anaerobic digestion) or other sources (including diesel powered generators)

FINANCIAL SERVICES Lending to creditworthy, usually asset-backed, borrowers

GENERAL ENTERPRISE Providing general products and services, or an investment with no sector bias

Operating in the diversified manufacturing, cars, heavy equipment, aerospace, roads and
INDUSTRY & INFRASTRUCTURE
business services areas

MEDIA & ENTERTAINMENT Making films, producing theatre productions, printers and disseminators of news etc.

INVESTMENT TYPE

ALTERNATIVE INVESTMENT FUND
A collective investment undertaking which raises capital from a number of investors with a
view to investing it in accordance with a defined investment policy for the benefit of those
investors, but does not require authorisation pursuant to the UCITS directive. Whoever is
responsible for arranging the investment must complete an appropriateness test on the
investor

Investors contract with an investment manager who will invest their funds on their behalf.
DISCRETIONARY PORTFOLIO
The FCA Authorised Manager must complete a suitability test on each holding and have
SERVICE
permission to manage investments

SINGLE COMPANY An individual trading company seeking investment through the issue of shares

53
OVERALL MARKET
CHANGES AND DEVELOPMENTS

The analysis begins with looking at NUMBER OF OFFERS: HISTORICAL VS. 2016/17
the composition of the market for
BPR products. We will review the NUMBER OF CLOSED OFFERS NUMBER OF OPEN OFFERS
market composition by grouping the
BPR offers in our register by their
HISTORICAL 3 48
investment strategy, investment
sector and investment type.
2016/17 0 4
There are 51 offers launched before
June 2016 and 4 after that date. Since
most BPR products have an evergreen
fundraising structure, which are open
all year round for new investment, MARKET COMPOSITION BY INVESTMENT SECTOR
most historical BPR offers remain open
while only 3 have closed. Two of them
HIS T ORICAL
are single company investments and
we found all single company BPRs have
GENERAL ENTERPRISE
a close date, which makes sense as a
single company cant raise an infinite
FINANCIAL SERVICES
amount of money!

ENERGY GENERATION
MARKET COMPOSITION BY 2016/17 OFFERS
INVESTMENT SECTOR INDUSTRY & INFRASTRUCTURE
Similar to the historical picture, offers
that invest in the General Enterprise MEDIA & ENTERTAINMENT
sector dominate the 2016/17 market,
contributing to three-quarters of all
new offers. Financial Services is the
second most preferred sector by BPR
managers, 25% and 15% of 2016/17 MARKET COMPOSITION BY INVESTMENT STRATEGY
offers and historical offers invest in
the sector, respectively.
HISTORICAL 2016/17 OFFERS
Last year we observed an increased
100% 100%
proportion of energy generation
offers which we speculated might have
been a result of managers moving 80% 80%
their renewable energy investments
from EIS and VCT to BPR. However,
the trend didnt continue this year 60% 60%
and there is no energy generation
BPR investment that has opened in
40% 40%
2016/17.

The Industry & Infrastructure sector,

20% 20%
historically the second largest
specialist sector following Financial
Services, also disappeared from the 0% 0%
market this year.

We believe the market composition

by sector reflects the investment CAPITAL PRESERVATION & INCOME GROWTH INCOME
strategies in the market. In the past, a
majority of Industry & Infrastructure CAPITAL PRESERVATION & GROWTH GROWTH & INCOME

54
Most of the vocal IFAs have been forthright in that they do not just want to source a savings on IHT
for their clients; they actually want an opportunity to actually generate returns. - Kieran OGorman,
Technical Partner, Deepbridge

and Energy Generation investments MARKET COMPOSITION BY INVESTEE COMPANY TYPE

have been designed to protect capital
as the tangible assets they possess
HISTORICAL OFFERS 2016/17 OFFERS
can often be sold at a high value even
100% 100%
if the underlying business fail.

MARKET COMPOSITION BY 80% 80%

INVESTMENT STRATEGY
This years market composition changed 60% 60%
significantly. Over 50% of all historical
BPRs had Capital Preservation as one 40% 40%
of their investment objectives, while no
capital preservation investments have 20% 20%
been introduced to the market so far
this year. 0% 0%
All the new offers launched this year
target either pure growth or growth AIM LISTED EARLY STAGE EARLY/LATER STAGE
& Income. This finding surprises us
as the market is often dominated ASSET-BACKED LATER STAGE
by offers with a capital preservation
mandate.

Income offers represented a very MARKET COMPOSITION BY INVESTMENT TYPE

small portion of the market before
June 2016 (2%).
MARKET COMPOSITION BY
INVESTEE COMPANY TYPE
Clearly, the proportion of AIM Listed
offers has increased significantly
in recent years. We speculate this
is mainly led by the Governments
decision to make AIM shares eligible
to hold in ISAs. Readers are reminded
that BPR qualifying AIM shares have
been eligible to be held in an ISA since
2013, so that any income and gains on
AIM shares held within an ISA will be
tax-free.
Almost half of the historical BPR offers
are AIM Listed, followed by Later Stage
investee company type and Asset-
backed type, with each contributing 24%.
Early Stage and Early/Later Stage
company investments are the smallest
sectors, representing 2 and 4 percent
of the market respectively.
AIM-based BPR dominates this years
market with 75% of the market share,
up from 46%.
4%
16%
HISTORICAL
OFFERS
80%
ALT. INVESTMENT FUND
MARKET COMPOSITION BY
INVESTMENT TYPE
Discretionary Portfolio Service is
the most common investment type
for both historical and new offers,
although its proportion reduced by 5%
this year to 75%. However, this is mainly
due to this years smaller sample size.
Historically, Single Company only
represented 4% of the BPR market.
In fact, just two single company BPR
offers have ever been launched prior
to June 2016, while 1 of the 4 BPR
25%
2016/17
OFFERS 75%
DISCRETIONARY PORTFOLIO SERVICE SINGLE COMPANY
offers launched after June 2016 is a
single company. However, this could
be a coincidence or due to the small
number of BPR offers launched in
2016/17.
There are no BPR investments with an
Alternative Investment Fund structure
this year. They accounted for 16% of
the market in the past. Because of the
limited number of offers launched
we cannot draw the conclusion that
Alternative Investment Funds are
vanishing from the market.

55
At Downing, we are very keen to demonstrate the under the bonnet investments of our Business
Relief services and indeed are one of the few that actually allow clients to select between asset-
backed and renewable strategies. - Laurence Callcut, Partner and Head of Sales, Downing

CHARGES AND FEES

Here we take a detailed look at the fees and charges of BPR products. Some of the fees are applied to either investors or
investee companies. Our analysis focuses on the total and we specify when we refer to an investor or investee company fee.

HISTORICAL OFFERS 2016/17 OFFERS

CHARGED BY PERCENTAGE CHARGED BY PERCENTAGE

TOTAL INITIAL CHARGE 36 71% 2 50%

TOTAL INITIAL DEAL FEE 19 37% 3 75%
AMC 49 96% 4 100%
ANNUAL PERF FEE 5 10% 1 25%
EXIT PERF FEE 1 2% 0 0%
ANNUAL PERF HURDLE 8 16% 1 25%
EXIT PERF HURDLE 2 4% 0 0%
EXIT DEAL FEE 28 55% 2 50%
TOTAL ANNUAL ADMIN FEE 18 35% 1 25%

CHARGES AND FEES SUMMARY

AVG MODE MIN MEDIAN MAX
2016/17 HIST 2016/17 HIST 2016/17 HIST 2016/17 HIST 2016/17 HIST

INITIAL CHARGE TO INVESTOR 0.25% 1.36% 0.00% 2.00% 0.00% 0.00% 0.00% 2.00% 1.00% 3.50%

INITIAL CHARGE TO INVESTEE 0.75% 0.23% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 3.00% 7.00%

TOTAL INITIAL CHARGE 1.00% 1.56% 0.00% 2.00% 0.00% 0.00% 0.50% 2.00% 3.00% 7.50%

INITIAL DEAL FEE TO INVESTOR 0.58% 0.39% 1.00% 0.00% 0.00% 0.00% 0.65% 0.00% 1.00% 2.00%

INITIAL DEAL FEE TO INVESTEE 0.00% 0.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.35%

TOTAL INITIAL DEAL FEE 0.58% 0.38% 1.00% 0.00% 0.00% 0.00% 0.65% 0.00% 1.00% 2.00%

AMC CHARGED TO INVESTOR 0.83% 1.05% #N/A 1.00% 0.00% 0.00% 0.90% 1.00% 1.50% 2.00%

AMC CHARGED TO INVESTEE 0.18% 0.42% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.70% 2.00%

TOTAL AMC 1.00% 1.43% #N/A 1.50% 0.70% 0.00% 0.90% 1.50% 1.50% 3.50%

ANNUAL PERF FEE 3.75% 2.09% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 15.00% 30.00%

EXIT PERF FEE 0.00% 0.39% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 20.00%

ANNUAL PERF HURDLE 26.25% 0.75% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 105.00% 10.00%

EXIT PERF HURDLE 0.00% 0.15% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 4.50%

EXIT DEAL FEE 0.50% 0.59% 0.00% 1.00% 0.00% 0.00% 0.50% 1.00% 1.00% 2.00%

ANNUAL ADMIN FEE TO INVESTOR 0.00% 0.07% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1.00%

ANNUAL ADMIN FEE TO INVESTEE 0.18% 0.22% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.70% 2.50%

TOTAL ANNUAL ADMIN FEE 0.18% 0.28% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.70% 2.50%

56
Advisers should be applying the same scrutiny to a BPR manager and to the portfolio as they would
to any other fund manager and investment. - Jessica Franks, Business Line Manager, IHT Business Line, Octopus
Investments
ANNUAL MANAGEMENT CHARGE
The most common type of fee is the
AMC. Other main types of fees include
the Initial Charge, Initial Deal Fee,
Exit Deal Fee and Annual Admin Fee.
A very small number of providers
also charge performance fees, on an
annual basis or upon exit.
From the tables we can see that an
AMC is quoted by 96% of the historical
BPR offers in our register and ranges
from 0.7% to 3.5% with an average of
1.43%. The AMC is often calculated
on an investments NAV, and for
such offers the AMC would increase
with the value of the underlying
investments, provided that a positive
return is produced. However, two
offers in our register use the initial
subscription amount to compute the
AMC payable which means the AMC
would stay constant throughout the
investment horizon.
The AMC remains the most popular
fee charged by managers in 2016/17.
All four new BPR services quoted an
AMC, though the range is narrower
(from 0.7% to 1.5%) and the average
has decreased to 1%.
Advisers should pay attention to how
an AMC is specified when assessing
fees as an offer may have two levels
of AMC depending on the amount
invested - generally, the higher the
investment the lower the AMC.
INITIAL CHARGE
The second most common fee is the
Initial Charge. 71% of historical offers
stated an Initial Charge and a large
range has been charged in the past;
some managers do not charge the fee at
all while the maximum quoted is 7.5%.
The average Initial Charge is 1% for new
offers, decreasing from 1.56% last year.
The proportion of managers who
charge an Initial Charge has reduced
to 50% (2 out of 4) since last year and
the total initial charges quoted by
them are 1% and 3%. Interestingly,
this years average Initial Charge
to Investee Companies accounts
for three-quarter of the total Initial
Charge, while only about 15% of
the total Initial Charge is charged to
investees amid historical offers.
It is important for advisers to review
the level of Initial Charge applied to
investee companies in relation to that
applied to investors. We noticed that
there are several managers applying the
Initial Charge on investee companies
rather than investor. By doing so,
their products may seem cheaper to
investors but in reality, the potential
amount of tax relief that can be
claimed would still be lower.
PERFORMANCE FEES
There is a clear contrast between BPR
and EIS investments when it comes to
performance fees. A performance fee
is almost a default charge in the EIS
industry, while only a small number of
BPR managers charge a performance
fee.
There are two forms of performance
fee: the Annual Performance Fee and
the Exit Performance Fee. The Annual
Performance Fee is taken from an
investments NAV on an annual basis
depending on the performance of
the investment over the preceding
year. Managers usually specify an
Annual Performance Hurdle so that
the Annual Performance Fee only
becomes payable when the NAV
increases above the hurdle.
Although a performance fee can be
high, those about 20%, they effectively
align investors interests with that
of managers, provided the manager
specifies a reasonable hurdle rate.
In addition, as with any other tax-
efficient investments we cover, BPR
is a long-term investment, so the
performance fees cannot be viewed in
isolation of other fees. Our research
shows the average AMC is one third
higher for investments that do not
charge a performance fee.
Historical Annual Performance
Fees range from 0% to 30%, with an
average of 2.09% reflecting the fact
that most managers dont charge this
fee. The average increased this year
to 3.75%, but the maximum is down to
15% which means the higher average
is a result of a smaller number of zeros
in our sample (only four new BPR
investments since June 2016).
The Exit Performance Fee is charged
when an investment is liquidated.
Again, it will depend on how much
return the investment has delivered
over the lifetime of the investment.
In our register, there is only one BPR
investment that has ever stated a
20% Exit Performance Fee and a
4.5% Exit Performance Hurdle, which
is compounded annually to derive
the final hurdle on exit. In addition,
none of the new offers stated an Exit
Performance Fee.
PERFORMANCE HURDLES
A performance hurdle is the minimum
level of return an investment must
deliver before the manager can charge
a performance fee. However, not all
performance hurdles are associated
with an Annual Performance Fee: as
there are eight historical offers that
have quoted a hurdle but only five of
them have an Annual Performance
Fee. This is because some managers
try to further align interests by
applying the hurdle rate to AMC,
so the AMC is payable only if the
investment return meets the hurdle.
The Annual Performance Hurdles
range from 0% to 10% for historical
offers and 0% to 5% for new offers.
Advisers should pay attention to offers
with low performance hurdles to
avoid paying too much performance
fee, unless the level of performance
fee charged and the underlying
investments can justify the hurdle.
57
At Stellar, we invest in a very broad range of sectors that have one thing in common, they are
tangible and are all underpinned with significant amounts of asset security. - Jonathan Gain, CEO, Stellar
Asset Management

OTHER FEES ANNUAL TARGET RETURN

In addition to the types of fees
mentioned above, other fees charged HISTORICAL OFFERS 2016/17 OPEN OFFERS
by BPR mangers include the Initial and
12%
Exit Deal Fees and the Annual Admin
Fee.
10%
DEALING FEES
8%
Initial Dealing Charge is applied to
the purchase of shares in a portfolio 6%
and they are most commonly found
among AIM-based BPR investments. 4%
According to our data, AIM-based
investments account for half of the 2%
offers that charge an Initial Deal Fee.
0%
Similarly, an exit dealing charge is
often applied when selling shares in AVG MODE MIN MEDIAN
a portfolio. However, our data shows
that a higher proportion of managers
quoted the Exit Deal Fee than the
Initial Deal Fee (55% vs. 37%)
MINIMUM SUBSCRIPTION
perhaps this is to discourage investors
HISTORICAL OFFERS 2016/17 OPEN OFFERS
from liquidating their holdings.

Dealing charges are typically lower than 60,000

the Initial Charge and the AMC and they
range from 0.35% to 2% for historical
offers with an average and a mode of
1% (of those that apply the charge). For
new offers the range is from 0.3% to
1%, averaging 0.77%. The mode is also
1% for the Exit Deal Fee and managers
have a tendency to quote the same level
of Initial and Exit Deal Fees.
It is worth noting that unlike the Initial
Charge and the AMC, BPR managers
generally do not apply their dealing
charges on investee companies.
ANNUAL ADMIN FEE
Around a third of the BPR products
in our register also charge an Annual
Admin Fee. In contrast to dealing
charges, the admin fee is only charged
by private company type products,
which is logical considering the costs
associated with monitoring and support
given by the fund managers to the
underlying companies.
The Annual Admin Fee is usually
below 1% but there is one historical
50,000
40,000
30,000
20,000
10,000
0
AVG MODE
offer that charges 2.5%, which has
magnified the average value of
historical offers. Only one 2016/17
offer stated an Annual Admin Fee and
the level stated is 0.7%.
TARGET RETURNS
The average target return of 2016/17
offers is 6.5%, 2.44% higher than
the historical figure. The increased
target return is consistent with other
statistics: the min, the median and the
max are all few percent higher. This
MIN MEDIAN
mirrors what we found in the market
composition section that the Growth
strategy is the main theme in this
years BPR market. While the new BPR
offers are targeting higher returns, the
annual performance fees have fallen
which plays in investors favour.
MINIMUM SUBSCRIPTION
The average minimum subscription
of new offers is 13,810, which is less
than one-third of the historical figure
of 47,830. In general, the minimum

58
Weve always sought to deliver an obvious and upfront fee structure so that IFAs can understand
what their clients are paying for and also how clients can see how their IFAs are being remunerated
in accordance with the Retail Distribution Review. - Kieran OGorman, Deepbridge
subscription levels quoted by the
new offers reflect how the new offers
are designed for investors to hold
in their ISA. Three out of four new
offers are AIM-listed and the two
minimum investment thresholds are
15,000 and 15,240. (The 2016/17 ISA
allowance is 15,240).
In addition, thanks to rises in
property values, more people than
ever are subject to inheritance tax
when passing on their assets, so the
lower minimum subscription also
shows providers effort to make BPR a
more accessible investment vehicle to
retail clients.
Therefore, we can conclude that the
minimum subscription of BPR products
has fallen. With more products
with a low minimum subscription
requirement in the market, the tax
wrapper can now be considered by
investors who only want to protect
their wealth against a relatively small
amount of IHT. We believe this change
is particularly relevant to people who
are subject to a potential IHT bill
in the range of 15,000 to 40,000.
Clients in this group may previously
have found BPR solutions unfeasible
due to their minimum subscriptions,
AVERAGE
HISTORICAL 111,713,333
2016/17 1,816,667
AVERAGE
HISTORICAL 12
2016/17 25
usually 50,000 or more, but now they
are able to meet the lower limits and
invest an amount which just offsets
their potential IHT liability.
CURRENT FUNDRAISE
Statistics on current fundraise
demonstrate the size of a BPR
investment. As most BPR products
are evergreen, meaning they are open
to new investment all year round,
historical BPR offers are much larger
in size than newly launched ones.
At the time of writing the amount of
fundraise ranges from 1.2 million to
just over 2 billion among historical
offers. As we expected, younger
funds tend to have a lower amount
of fundraise, while the largest fund in
our register was launched almost ten
years ago!
There are, however, several funds which
have been open for five years or longer
but are still under the average size.
DIVERSIFICATION
In this section we will take a look
at the level of diversification in the
BPR market measured by the target
number of investee companies.
The average number of investee
CURRENT FUNDRAISE
MODE MIN
25,600,000 1,200,000
N/A 550,000
TARGET NUMBER OF INVESTEE COMPANIES
MODE MIN
1 1
N/A 20
companies held by 2016/17 BPR
investments is 25, which is more than
double that of the historical offers
(12). This is mainly because three of
the four new offers are AIM-listed
and AIM-listed BPR products are
generally more diversified than trading
company-based products. (Our last
years report found that AIM-based
products are on average eight times
more diversified than trading company
investment opportunities).
Because of their distinct
characteristics, we cannot compare
AIM BPR to trading company BPR
directly and conclude a higher level
of diversification is found within new
offers. So, to make a more meaningful
comparison, we separated the two
groups and calculated two sets of
statistics. As there has only been one
trading company BPR launched since
June 2016 which didnt specify its
target number of investee companies,
some figures are missing in the below
table. Comparing to historical AIM
offers, this years AIM investments
have a higher average and minimum
but a lower maximum. However, these
differences are not evident enough
for us to conclude any changes in
diversification in the BPR market.
MEDIAN MAX
31,340,000 2,054,000,000
1,500,000 3,400,000
MEDIAN MAX
4 35
23 33
59
CONCLUSIONS
INDUSTRY ANALYSIS CONCLUSIONS

MARKET COMPOSITION both lower compared to last years

figures. Performance fees are still not
First, the market has shifted away
commonly found in the BPR market
from pure capital preservation to a
and we think the trend will continue
blended approach with an emphasis
with more and more AIM-based
on growth. All new launches this
products coming into the market.
year have a growth element in
their investment strategies. In the OTHER KEY INVESTMENT METRICS
preceding section we noted that
growth is one of the most cited This years average target return
reasons for recommending BPR is a lot higher than last year which
investment, and the analysis suggests shows that providers are aware of
that the current market offerings are advisers need for growth through BPR
capable of meeting this need. investments. The average minimum
subscription is also significantly lower
However, in terms of investment as most newly-launched offers are
sectors, there is a shortage of AIM-based and they tend to set their
investment opportunities in certain minimum subscription equivalent to
popular specialised sectors. For the full ISA allowance (15,240 in the
example, the Media & Entertainment 2016/17 tax year). However, we expect
sector is preferred by many advisers this figure to increase this year as the
but the sector only comprises a tiny new ISA allowance for the 2017/18 tax
percentage of the market. And this year increased to 20,000. Finally, the
years new launches dont show much average target number of investee
variety in underlying trade, with only companies is higher as AIM BPR
two different sectors covered. portfolios typically hold 20 or more
Our research shows a majority of investee companies in their portfolios.
new launches have been AIM-based
which matches advisers increasing
preference in this area. We think
the rising popularity of AIM shares
in both demand and supply is
largely attributed to the inclusion
of AIM shares in ISAs. Investors can
now transfer their existing ISAs to
BPR qualifying ISAs to retain their
accumulated tax benefits and IHT
mitigation after a two-year holding
period.

CHARGES AND FEES

Overall, charges and fees among new
launches are lower in comparison to
historical offers. To a certain extent,
this reveals that the increasing level of
competition in the market has already
put downward pressure on fees.

The AMC and Initial Charge are the

most common types of fee in the
BPR market and on average they are

60
 MANAGERS IN FOCUS

DISCLAIMER
Some of the managers have included limited performance information in the following pages. As always, past performance is not a
reliable indicator of future performance.

This document is for professional advisers only, and it is not to be relied upon by retail investors. The value of an investment, and
any income from it, can fall as well as rise, so investors may not get back the full amount they invest. Tax treatment depends on
individual circumstances and may change in the future. Tax reliefs depend on the portfolio companies maintaining their qualifying
status. The shares of the smaller companies could fall or rise in value more than shares listed on the main market of the London
Stock Exchange. They may also be harder to sell. These products are not suitable for everyone. Any recommendation should
be based on a holistic review of your clients financial situation, objectives and needs. Neither Intelligent Partnership nor the
managers offer investment or tax advice. We recommend investors seek professional advice before deciding to invest.

61
DEEPBRIDGE
DEEPBRIDGE IHT SERVICE

ABOUT DEEPBRIDGE OUR BPR OFFER

CASE STUDY
Deepbridge is a different kind of The Deepbridge IHT Services primary
investment manager, growing an focus is capital preservation. Risk to The Deepbridge IHT Service invests
enviable reputation for providing capital is carefully managed, with the across a portfolio of renewable
tax-efficient investment opportunities proposition focussing on asset-backed energy assets, including wind
based on sector experience of actively renewable energy projects, including and hydropower projects in the
managing and growing businesses. wind and hydropower generation UK. Projects are selected based
We work closely with financial advisers (using some of the most proven on considerable due diligence
and investors to design innovative renewable energy technologies, with and modelling with all projects
products, ranging from investment millions of hours of operational data). requiring a modelled return
in technology growth companies in excess of 8% per annum,
The Service seeks to avoid unnecessary
to asset-backed renewable energy thereby allowing for fluctuations
risk and projects are accepted only when
projects. Deepbridge operates across comfortably producing the
required planning and environmental
four principle divisions: disruptive targeted 6% yield to investors, with
permissions etc. have been obtained or
technology, sustainable technologies, over-performance returned to the
the project is already operating within a
life sciences and renewable energy. investor by way of capital growth.
contracted environment.
Deepbridge was founded with Via the Deepbridge Hydro EIS,
Wind and hydropower projects in
the principles of applying robust Deepbridge invested in the
the UK benefit from various forms
governance and stringent selection hydropower project called
of Government subsidy which assist
criteria to investment, with the Drimlee in 2015. Drimlee was
with the predictability of the income.
security of the investor at the developed over a period of
Understanding the subsidies, their
forefront. Deepbridge encourages six months and completed in
drivers and the mechanics thereof
investors to understand the December 2015. Drimlee is a high
helps ensure that projects are
underlying investee companies within head hydropower scheme (with
delivered in a manner which ensures
any portfolio and the Deepbridge IHT water dropping around 288m) with
long-term income, growth and capital
Service allows subscribers to invest a total installed capacity of 309kW,
preservation is largely predictable.
in physical renewable energy assets with all generated electricity
which qualify for Business Relief. The principal selection criteria for exported to the National Grid and
development projects include: being eligible for Government
Having considerable experience in the
Appropriate accreditation for subsides via Feed-in-Tariffs.
renewable energy sector, Deepbridge
Government subsidies in place During its first twelve months of
has previously successfully raised
energy production, Drimlee was
and deployed funds into UK based
Full planning permission in place targeted to produce 944,000 kWhs
wind and hydropower projects via the
All environmental licensing secured and achieved 1,071,150 kWhs,
Deepbridge Renewable Energy EIS and
representing performance of 113%
Deepbridge Hydro EIS. An offer for Grid Connection received
of target during what was generally
Can achieve minimum targeted regarded as a dry year.
returns

UK RENEWABLE ENERGY ELECTRICITY CAPACITY (AS AT END OF QUARTER)

40
35
INSTALLED CAPACITY (GW)

30
25
20
15
10
5
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2013 2014 2015 2016

BIOENERGY HYDRO ONSHORE WIND OFFSHORE WIND SOLAR PV

62
DOWNING
DOWNING ESTATE PLANNING SOLUTIONS

ABOUT DOWNING OUR BPR OFFERS

Downing is a leading investment management firm
established in 1986. Since then we have raised some 1.7
billion from more than 35,000 investors to support smaller
UK businesses that may struggle to find traditional finance.
Our investment team comprises more than 35 executives
who have extensive expertise and a network of connections
in a variety of sectors, including asset-backed, renewables,
property finance and quoted investments. We believe this
gives us a competitive advantage in terms of deal flow
and allows us to build lasting partnerships with excellent
management teams.
We put our investors financial wellbeing first; we seek
to manage risks and to provide some diversification in
our products and services by investing in a variety of
opportunities. We also carry out in-depth due diligence to
ensure we understand the companies were investing in and
that the management teams interests are aligned with our
investors. We believe these core values set us apart from
our peers in the alternative investment market.
Our estate planning solutions enable investors to obtain
full IHT relief on their subscriptions after only two years
(provided the shares are held at death). We also provide
Downside Protection Cover on death under the age of
90, covering a loss in value of up to 20% on the net initial
investment no medical questionnaires or exclusions for
pre-existing conditions, and no extra cost.
We offer three BPR services:
Downing Estate Planning Service (DEPS): DEPS offers
an additional Life Cover option (subject to higher fees)
designed to mitigate the effect of IHT for those under the
age of 85 from the date the shares are acquired, for the first
two years before IHT relief begins. The policy covers 40% of
the gross initial investment upon death within two years.
Subject to terms and conditions.
Downing AIM Estate Planning Service: Obtain IHT relief
after only two years by owning a portfolio of AIM-quoted
companies.
Downing AIM ISA: Combine IHT relief after two years
with ISA tax benefits through a portfolio of AIM-quoted
companies. Investors can transfer part or all their existing
ISAs to Downing.

PERFORMANCE SUMMARY OF DEPS TO 31 DEC 2016

ASSET-BACKED RENEWABLE ENERGY

Established in February 2013, the company invests in asset-backed Established in March 2013, the company invests in renewable energy
businesses and a loan-making business. It currently has c.127 businesses and a loan-making business. It currently has c.100
million of net assets as at 31 December 2016. million of net assets as at 31 December 2016.

121.37p 116.81p
122p 118p
120p 116p
118p
114p
116p
112p
114p
112p 110p
110p 108p
108p
106p
106p
104p
104p
102p 102p

100p 100p

MAR 13 SEP 13 MAR 14 SEP 14 MAR 15 SEP 15 MAR 16 SEP 16 MAR 13 SEP 13 MAR 14 SEP 14 MAR 15 SEP 15 MAR 16 SEP 16

Risk warning: your capital is at risk, and you may not get back the full amount invested. Tax treatment depends on the individual
circumstances of each investor and may be subject to change. The availability of tax reliefs depends on investee companies
maintaining their qualifying status. Investments in smaller companies will normally involve greater risk or volatility than
investments in larger, more established companies. Please note that past performance is not a guide to future performance.

63
OCTOPUS
OCTOPUS INHERITANCE TAX SERVICE AND AIM INHERITANCE TAX SERVICE
ABOUT OCTOPUS INVESTMENTS
The best companies and products
make your life simpler, not harder.
Why should financial services be
any different? When Octopus was
founded in 2000, we wanted to build
an investment company that put its
customers first, by solving real life
issues. We also wanted to be fully
accountable, honest and upfront about
how we manage investors money.
Today we manage more than 6.4
billion on behalf of tens of thousands
of retail investors, institutions and
charitie1. And weve built market-
leading positions in tax-efficient
investments, renewable energy and
smaller company financing.
Having launched our first BPR-
qualifying portfolio in 2005, today
we are the UKs largest manager of
investments that qualify for BPR,
as well as VCTs. We offer three BPR
products to suit different objectives:
the Octopus Inheritance Tax Service,
focused on capital preservation, and
the Octopus AIM Inheritance Tax
Service and AIM Inheritance Tax ISA,
which target capital growth.
OUR BPR OFFER
Since 2007, our flagship estate
planning service (the Octopus
Inheritance Tax Service) has helped
thousands of people to plan for the
future while investing more than 1.7
billion in sustainable and worthwhile
sectors across the UK. It has delivered
on its target return of at least 3% per
annum to every exiting investor. While
liquidity cannot be guaranteed, it has
typically provided liquidity within ten
working days and has never taken
more than three weeks.
Advisers recommending the Octopus
Inheritance Tax Service have the
assurance of a professionally
managed service with size, scale
and diversification, combined with a
1
Source: Octopus Investments, March 2017
64 2
Please remember: past performance is not a reliable indicator of future performance
proven track record, external auditors
and an independent board to oversee CASE STUDY
each portfolio company.
FERN TRADING LIMITED (OCTOPUS
Our expert Quoted Smaller INHERITANCE TAX SERVICE)
Companies Team has a combined
Fern began trading in 2010 and
experience of more than 130 years.
has grown to become the parent
The team focuses purely on managing
company of a large trading group.
AIM-listed investments, with more
This group now comprises more
than 1.2 billion under management.
than 200 companies, with business
For the Octopus AIM Inheritance
interests spread across the UK and
Tax Service and ISA the team look
France. It directly employs more
for companies with a strong market
than 400 people, and provides
position and a scalable business
employment for many more
model focused on growth, which are
through the contracts it places.
profitable and pay dividends.
Fern has a diverse trading strategy
Were proud of the track record of our
but focuses its business activities in
BPR products and are delighted to have
areas where Octopus has extensive
won Best BPR Manager at the Growth
experience, such as renewable
Investor Awards 2016, along with Best
energy, healthcare and property.
Tax & Estate Planning Solutions Provider
These areas are expected to
at the Moneyfacts Awards 2016.
generate predictable returns over
the longer term and be consistent
with the capital preservation target
of the Octopus Inheritance Tax
FERNS BUSINESS LINES Service. In addition, these sectors
Shown in management accounts for the make a valuable contribution by:
period ending 31 December 2016
Helping the UK to meet its
targets for renewable energy
18% production.
Helping the UK economy to grow
by releasing housing stock for
59%
23% redevelopment.
Helping address the housing and
care needs of an ageing population.
RENEWABLE ENERGY ANNUAL DISCRETE PERFORMANCE2
Fern owns and operates 179 solar energy
FINANCIAL YEAR
DISCRETE SHARE PRICE
sites, 25 landfill gas sites, 5 biomass plants, 5 PERFORMANCE
windfarms, 3 reserve power plants.
JAN 2016 - JAN 2017 4.12%
SHORT-TERM PROPERTY FINANCE
JAN 2015 - JAN 2016 3.10%
Fern has sent more than 1 billion across
more than 1,100 short-term loans. Fern JAN 2014 - JAN 2015 4.45%
currently has over 230 live property loans.
JAN 2013 - JAN 2014 4.10%
CONSTRUCTION FINANCE
JAN 2012 - JAN 2013 4.09%
Fern has provided more than 1 billion of
construction finance to build healthcare
JAN 2011 - JAN 2012 4.17%
properties and renewable energy sites.
STELLAR
STELLAR ESTATE PLANNING SERVICES
ABOUT STELLAR ASSET
MANAGEMENT
Stellar is an estate & succession
planning specialist with over three
decades of financial services
experience. Our estate planning
services are designed to help financial
advisers create a secure and growing
financial legacy for their clients.
Our estate planning services all utilise
Business Relief (BR) which offer 100%
relief from Inheritance Tax after two
years and are all fully insurable against
loss of value.
Our experience enables us to identify
suitable opportunities, complete
rigorous due diligence and create
services using a tax efficient structure.
Clients can choose from four carefully
designed estate & succession planning
services which provide full relief from
IHT after two years, as follows:
OUR BPR OFFERS
Succession
For clients seeking IHT relief and
capital preservation.
Our flagship service offers clients a
choice of discretionary or bespoke
planning for inheritance tax
mitigation. Clients can choose from a
wide range of investments in physical
assets such as commercial forestry,
farming, hotels and renewable energy.
With a focus on capital preservation
and structured so that investors have
full control, Succession is ideal for
clients and their families seeking to
shelter their capital, or for business
owners seeking greater tax efficiency.
Succession targets a return of 5% p.a.
net of all fees.
Estate Planning Service
For clients seeking IHT relief and a
regular income.
The Estate Planning Service is a
discretionary portfolio that produces a
regular income of 4.5% p.a. in addition
to providing IHT relief after two years.
It invests solely in physical assets
CASE STUDY
that produce a natural yield which is
Stellar typically acquires UK
distributed to investors twice a year.
woodlands which, on average,
The Estate Planning Service will be approximately half way
is diversified across the hotel, through their 35-40 year life cycle.
renewables and financing sectors, The predominant crop species
which have been carefully chosen is likely to be sitka spruce; this
for their ability to produce a regular is the most commonly planted
distribution and to protect clients conifer in the UK. The popularity of
capital. sitka spruce arises because it can
yield high volumes of timber in a
This portfolio offers an alternative
comparatively short time and the
to annuities or to those seeking to
timber has a wide diversity of end
supplement pension income.
uses.
AIM IHT Portfolios
Stellar will target woodlands which
For clients looking for IHT relief are capable of outperforming the
combined with capital growth. IPD UK Forestry Index (the Index)
over a period of around ten years.
A simple estate planning solution
The latest Index to 31 December
investing in a diverse portfolio of AiM
2015 showed an annualised return
shares; our service provides full IHT
from forestry of 9% over the past
relief after just two years.
23 years.
We operate a low risk mandate and
invest in a portfolio of 40 companies
Typically the return from physical
tree growth for an upland conifer
quoted on AiM, with an average
site is around 3% per annum. This
market cap in excess of 450m.
return is comparable to the income
This service is ideal for clients seeking yield from an index linked gilt. With
an estate planning service with greater index linked gilts the other half of
liquidity and those looking to transfer the return is capital appreciation
existing equity portfolios to obtain in line with inflation. With forestry,
relief from IHT. the other return comes from
changes in timber prices and
AIM IHT ISA
property values.
For clients with high value ISAs seeking
IHT relief.
Our AiM IHT ISA offers clients the
opportunity to keep their existing ISA
benefits while protecting their capital
from IHT.
Like our Portfolio service, our ISA
invests in a diverse selection of AiM
shares that provide full IHT relief after
just two years.
Our ISA helps your clients create a tax-
efficient portfolio free from income,
capital gains and inheritance tax.
Our AiM portfolio services are
available on some of the leading UK
Wrap Platforms.
65
STRATA
STRATA RESIDENTIAL FINANCE PLC
ABOUT STRATA RESIDENTIAL
Strata is an unlisted PLC run by its
four Directors (Hugh Colville, Simon
Hawley, David Norman and Chris
Hector). All of the Directors have been
involved with the company since it was
formed 10 years ago. Together they
have over 110 years experience in the
UK real estate markets.
The monthly share price and other information
is shown at www.strataplc.co.uk
The Directors come from evolve Fund
Services Ltd (evolve) and Davon Ltd
(Davon). evolve was established by
Hugh (ex Savills) and Simon (ex Abbey
Life) in 2002 (www.evolvefs.co.uk).
It was established to give private
investors access to the types of real
estate and real estate asset-backed
businesses they stock selected. In its
15 years, evolve has been involved
with over 500m worth of property
transactions and/or developments.
Davon Ltd is a company established by
David Norman in 1996 (www.davonltd.
com). Chris joined in 1997. Together they
have specialised in the structuring of
finance for real estate projects.
Strata was born out of evolves and
Davons backgrounds, though it is now
a totally stand-alone trading business.
OUR BPR OFFER
Strata lends mezzanine finance to small
to medium sized housebuilders in the
66
South of England. With a 10 year track
record, the company has completed
71 loans on c328m worth of new
developments (as at end of April 2017).
The average loan has been c543,000.
The average end house/flat value of
the current loan book is c440,000.
The total value of developments in the
current loan book is c96m.
Strata has rejected over 3bn worth of
proposed new developments.
The business aims to pay a 7% annual
dividend (based on 1 share). Profits
exceeding 7% roll into the share price.
The NAV is currently c13.5m. The
Board intends to increase this to 25m
over 2-3 years.
Strata only lends when a long list
of pre-requirements have been
satisfied. These include developer
track record, existing planning
consent, all appropriate valuation and
legal requirements, borrowers hurt
money, a deed of priority, fixed and
warranted build costs etc.
Strata has developed an enviable
position and reputation in the
residential funding market and as a
consequence often benefits from repeat
borrowers and recommendations from
senior debt lenders.
The portfolio benefits from an
attractive spread of risk in terms of the
number of developments, number of
developers, locations and end values.
TOTAL PAST PERFORMANCE (POST TAX)
10 YEARS
LAST 5 YEARS
LAST 3 YEARS
LAST 1 YEAR
TARGET DIVIDEND: 7% PER ANNUM
CASE STUDY
Stratas 850,000 loan to the
developer of a multi-unit scheme
in Putney was redeemed in early
March 2017.
It was the third development
that Strata has funded with the
borrower. The previous, successful
developments with the borrower
were in Fulham (c1m loan on
c7m scheme redeemed in
September 2011) and Wandsworth
(c850,000 loan on c6.7m scheme
redeemed in May 2016).
The Putney site is in an established
residential location within a 5
minute walk of Putney mainline
station. The development
comprised a new build block
of 8 flats and 1 house. Stratas
loan of 850,000 (plus interest
of c500,000) was repaid from
proceeds of the sales of just 3 of
the flats at practical completion of
the block of flats. The end values
of the flats ranged from c550,000
to 1,350,000. Whilst the house
formed part of Stratas security,
it is not due to be completed until
later in 2017.
The senior debt lender was
prepared for the borrower to
redeem the Strata loan before its
own loan in this instance.
TOTAL PA
70.1% 7.0%
34.7% 6.9%
31.5% 10.5%
10.1% 10.1%
TIME INVESTMENTS
TIME IHT SOLUTIONS
ABOUT TIME INVESTMENTS
TIME is an award winning investment
manager specialising in tax-efficient
investment solutions. Our original IHT
service holds a 21-year track record
and was one of the first to utilise
Business Property Relief to offer
IHT mitigation for investors. Of the
3,000 investors that have invested in
our IHT services to date, over 1,000
investors have successfully achieved
BPR and exited a 100% track record.
We have over 600m in assets under
management and, with a nationwide
team of 23 planning experts, we are
dedicated to supporting the adviser
community.
Our mission is to create transparent
investment opportunities that
bring long lasting peace of mind to
investors and their financial advisers
by seeking stable performance and
consistent liquidity. To do this we have
established a culture that revolves
around our clients, with our teams
regularly going above and beyond
to create an experience that we are
proud of.
SUMMARY OF LOAN TERMS FOR CASE STUDY
FORECAST SALES VALUE
AGREED LOAN FACILITY
LOAN TO VALUE
LOAN TERM
ANNUAL INTEREST RATE ON DRAWN LOAN
ARRANGEMENT FEE
EXIT FEE
OUR BPR OFFERS
TIMEs BPR services cater for both
individual and corporate investors
with our TIME:Advance and
TIME:CTC services focused on capital
preservation and our TIME:AIM service
offering access to the AIM market
through our innovative smart passive
approach.
TIME:Advance is our flagship IHT service
for individuals, whilst its sister service
TIME:CTC is a corporate service that
provides IHT mitigation to business
owners, potentially immediately. Both
services target at least 3.5% per annum
by investing in asset-backed businesses
with a lower risk profile including
secured property lending, renewable
energy, forestry and self storage.
TIMEs AMC is deferred, meaning it is
only taken on death, from the excess
performance over the target of 3.5%.
TIME:AIM uses our innovative smart
passive approach, designed to reduce
the volatility of returns and remove
stock picker bias. TIME:AIM only targets
AIM listed qualifying offers for BPR,
allowing the potential for growth and
IHT mitigation. A welcome secondary
benefit of this approach is that we are
able to offer this service at around half
the annual management fee of many of
the traditional AIM BPR fund managers.
3,078,300 3,000+
BPR INVESTORS
1,954,000
63.48%
18 MONTHS
7%
1.5%
2.5%
CASE STUDY
SECURED PROPERTY LENDING:
HORSHAM, SUSSEX
Property Lending, in which
TIME:Advance and TIME:CTC
participate, capitalises on the
attractive, predictable returns which
can be derived from providing debt
finance to the property sector. A
good example of the quality of these
loans is the 1.9 million, 18 month
loan facility to finance the purchase
and redevelopment of a site in
Horsham for eleven apartments.
The completed properties each
had capital values of between
205,000 and 295,000, with
most of the units priced around
250,000. Additional value was
provided in the way of a ground
rent sale and car parking spaces.
The developer is a house builder
with a strong track record of
developing properties in the Home
Counties. The loan facility provided
by the Partnership was secured
against the development site,
guaranteed by the principals behind
the borrower and was agreed at
approximately 63% of the expected
values of the finished properties.
21 YEAR
BPR TRACK
RECORD
250m
BPR AUM
67
 TRIPLE POINT
TRIPLE POINT ESTATE PLANNING SERVICE

ABOUT TRIPLE POINT OUR BPR OFFER

CASE STUDY
Triple Point is a successful, private The Triple Point Estate Planning
partnership founded in 2004. As a Service is a clear and straightforward Through its investment in an
specialist investment firm we make investment solution that aims to SME leasing business, the Triple
more than just money for our clients, provide investors with 100% relief from Point Estate Planning Service
we create value. Triple Point aims to inheritance tax after two years, without provides funding for credit card
deliver well researched and managed surrendering control or access to their terminals to thousands of UK high
investments to individuals who are capital. street businesses. The support
seeking capital security, liquidity and provided by investors since
The Estate Planning Service is open
predictable returns within the VCT, 2014 has helped this business
all year round, giving investors access
EIS and Estate Planning sectors. We build strong partnerships with
to two strategies Navigator and
have over 400m under management terminal and service providers
Generations which are designed
in those sectors and in Innovative in an area which was previously
to provide returns in the range of
Finance ISAs. dominated by high street banks.
1.5% - 6% pa with a focus on capital
Triple Point is proud to have been one preservation and liquidity. Both The business now has over 45,000
of the first investment managers to strategies have proven track records SME customers, diversified across
introduce leasing as an asset class to and offer choices to suit investors a very wide range of UK small
private investors. Businesses funded requirements. businesses. As well as accessing
by our investors continue to be some funding for growth, it has benefited
The Generations Strategy provides
of the largest participants in the public from working with Triple Point to
leasing, lending and infrastructure
sector leasing market, funding a wide enhance its reporting systems
finance to public sector organisations,
range of assets in daily use in our and collections performance
such as the NHS and Local Authorities,
communities. Our philosophy of funding and strengthen its relationships
and corporates, targeting average
businesses which are generating with key service providers.
returns of 1.5% - 2.5% per annum (net
steady cash flows from physical assets
of annual fees). Since inception the
and deep knowledge of their market
average annual return has been 1.9%.
also underpins our investments in
infrastructure and in SME funding. The Navigator Strategy provides funding
to SME businesses in the UK, targeting
We work closely with advisers to ensure
average returns of 4% - 6% per annum
that we can respond to investors needs
(net of annual fees). Since inception the
and deliver on expectations.
average annual return has been 5.8%.

PAST PERFORMANCE
TARGET RANGE: 4-6% P.A. TARGET RANGE: 1.5-2.5% P.A.
25% 8%
7%
20%
6%

15% 5%
4%
10% 3%
2%
5%
1%
0% 0%
AUG 2013
OCT 2013
DEC 2013
FEB 2014
APR 2014

OCT 2015
DEC 2015
FEB 2016
APR 2016
JUN 2013

JUN 2014
AUG 2014
OCT 2014
DEC 2014
FEB 2015
APR 2015
JUN 2015
AUG 2015

JUN 2016
OCT 2016
DEC 2016

FEB 2014
APR 2014
JUN 2014
AUG 2014
OCT 2014
DEC 2014
FEB 2015
APR 2015
JUN 2015
AUG 2015
OCT 2015
DEC 2015
FEB 2016
APR 2016
JUN 2016
OCT 2016
DEC 2016

AVERAGE ANNUAL RETURN SINCE INCEPTION (NET OF ANNUAL FEES) AVERAGE ANNUAL RETURN SINCE INCEPTION (NET OF ANNUAL FEES)
NAVIGATOR 5.8% GENERATIONS 2.0%

68
BPR COMPARISON
BPR INVESTMENT OPPORTUNITIES

DEEPBRIDGE IHT SERVICE DOWNING AIM ESTATE PLANNING SERVICE

MANAGER / PROVIDER Deepbridge Downing LLP

DESCRIPTION OF OFFER
The Deepbridge IHT Service is designed to deliver
a degree of wealth preservation from a portfolio
of Business Relief qualifying renewable energy
companies that look to have a high degree of
asset-backing, and a business model based
on predictable revenues and government
subsidies. With capital preservation as a priority
the Deepbridge IHT Service has a target priority
return of 6% per annum.
Our strategy should enable investors to obtain
IHT relief after only two years (provided the
shares are held at death), while maintaining
control of their assets. Investors can access
funds from their portfolio at any time, subject to
liquidity and 10 days notice. Each portfolio will
typically be invested in AIM-quoted companies
that qualify under BPR legislation, within one
month of receipt of a completed and accepted
application form (subject to appropriate
opportunities arising).

YEAR FOUNDED (MANAGER) 2010 1986

AUM (TOTAL/BPR) 69m total / 7m in BPR 804m total / 275.7m in BPR

LAUNCH DATE July 2015 March 2012

OBJECTIVE Capital Preservation & Income Growth

SECTOR Renewable energy General Enterprise

NO. OF INVESTEE COMPANIES 1 33

ANNUAL RETURN Target of 6% after second year, not

14.4%
SINCE INCEPTION yet reached 2 year anniversary

TARGET ANNUAL RETURN 6% after second year N/A

MIN. INVESTMENT 50,000 50,000

INCOME AVAILABLE? Yes No

NO. OF DIRECTORS 3 0*

LEGAL STRUCTURE Discretionary Portfolio Service Discretionary Portfolio Service

INITIAL FEE 2.5% on Investee Companies 2%

AMC 2% on Investee Companies 2%

PERFORMANCE FEE N/A N/A

PERFORMANCE HURDLE N/A N/A

We aim for less than 10 days,

TARGET LIQUIDITY 28 days, after the second year but for withdrawals greater than
30,000 it may take longer

Probate valuations: for valuations of up

to six listed securities the fee is 250
0.5% annual admin charge; 0.65%
OTHER FEES plus VAT, for valuations of seven or more
initial and exit deal fees
listed securities the fee is 200 plus VAT
and 10 plus VCT per security held

*Invested in a portfolio of AIM quoted companies - so no directors. Investment decisions are made at the discretion of the fund
manager, with advisory oversight coming from Downing's internal Investment Committee.
69
BPR COMPARISON
BPR INVESTMENT OPPORTUNITIES

DOWNING AIM ISA DOWNING ESTATE PLANNING SERVICE

MANAGER / PROVIDER Downing LLP Downing LLP

Our experienced investment team will invest
clients funds in a portfolio of BPR-qualifying
companies quoted on AIM. These investments will
be contained within the ISA wrapper and become
exempt from IHT once they have been held for
DESCRIPTION two years (provided the shares are held at death).
OF OFFER Risk will be managed by spreading funds across at
least 20 companies from several different sectors.
Start-up and loss-making companies will generally
be avoided.
Downing Estate Planning Service (DEPS) focuses
on renewable energy and businesses trading
from freehold premises. We provide monthly
opportunities to exit (subject to liquidity and 10
days notice), with no exit penalties or charges,
and investors can opt to receive six-monthly
distributions. Were pleased to confirm that last
year DEPS was shortlisted as a finalist in the Growth
Investment Awards 2016 and was awarded the
highly commended Best IHT Portfolio Service in
the Investment Week Tax Efficiency Awards 2016/17.

YEAR FOUNDED
1986 1986
(MANAGER)

AUM (TOTAL/BPR) 804m total / 275.7m in BPR 804m total / 275.7m in BPR

LAUNCH DATE March 2014 February 2013

OBJECTIVE Growth Capital Preservation and Growth

SECTOR General Enterprise General Enterprise

NO. OF INVESTEE COMPANIES 33 25 investee companies and 39 loans

ANNUAL RETURN
7.9% 4.7%
SINCE INCEPTION

TARGET ANNUAL RETURN N/A 4%

MIN. INVESTMENT 50,000 50,000

INCOME AVAILABLE? No Yes, from sale of shares

NO. OF DIRECTORS 0* 4 (including two non-execs)

LEGAL STRUCTURE Discretionary Portfolio Service Discretionary Portfolio Service

2% on Investment, 1-2% arrangement

INITIAL FEE 2%
fee from Investee Company

AMC 2% 2% on Investment, 0.5% on Investee Company

20% on cash proceeds over target compound

PERFORMANCE FEE N/A
return of 4% per annum, payable on exit

PERFORMANCE HURDLE N/A 4% p.a. compound return

We aim for less than 10 days, but for withdrawals

TARGET LIQUIDITY Monthly (subject to liquidity and 10 days notice)
greater than 30,000 it may take longer

Probate valuations: for valuations of up to six listed

securities the fee is 250 plus VAT, for valuations Life cover option = additional 1.5%
OTHER FEES
of seven or more listed securities the fee is 200 p.a. (for the first two years)
plus VAT and 10 plus VCT per security held

*Invested in a portfolio of AIM-quoted companies - therefore no directors. Investment decisions are made at the discretion of the

70 fund manager, with advisory oversight coming from Downing's internal Investment Committee.
 OCTOPUS AIM INHERITANCE TAX ISA OCTOPUS AIM INHERITANCE TAX SERVICE

Octopus Investments Octopus Investments

The Octopus AIM Inheritance Tax ISA is a discretionary
managed service that aims to invest in a diversified portfolio
of smaller companies listed on the Alternative Investment
Market (AIM). Investors in the service gain access to a portfolio
of 20-30 AIM-listed growth companies that are typically
established, profitable and paying dividends. The Smaller
Companies team at Octopus manages more than 1.2 billion
on behalf of more than 9,400 investors across a range of AIM-
listed products.
The Octopus AIM Inheritance Tax Service is a discretionary
managed service that aims to invest in a diversified portfolio
of smaller companies listed on the Alternative Investment
Market (AIM). Investors in the service gain access to a portfolio
of 20-30 AIM-listed growth companies that are typically
established, profitable and paying dividends. The Smaller
Companies team at Octopus manages more than 1.2 billion
on behalf of more than 9,400 investors across a range of AIM-
listed products.

2000 2000

6,400m total / 2,790m in BPR 6,400m total / 2,790m in BPR

September 2013 June 2005

Growth Growth

General Enterprise General Enterprise

25 25

Refer to factsheet for annual performance Refer to factsheet for annual performance
and performance since inception and performance since inception

Capital Growth Capital Growth

20,000 25,000

No No

N/A N/A

Discretionary Portfolio Service Discretionary Portfolio Service

N/A 2.5%

1.5% 1.5%

N/A N/A

N/A N/A

Shares are traded on AIM Shares are traded on AIM

1% dealing fee on purchase and sale 1% dealing fee on purchase and sale

71
BPR INVESTMENT OPPORTUNITIES

OCTOPUS INHERITANCE TAX SERVICE STELLAR AIM IHT ISA

MANAGER / PROVIDER Octopus Investments Stellar Asset Management Ltd

The Octopus Inheritance Tax Service (OITS) is a
discretionary managed service, where Octopus
invests clients money in one or more unquoted
companies that qualify for Business Property Relief.
The trading strategies employed by the companies
Octopus invest in are carefully selected with the
DESCRIPTION
aim of achieving capital preservation and the
OF OFFER
potential to deliver a modest but predictable
level of growth. The range of trading strategies
will change over time but will always focus on
meeting the four investment cornerstones: capital
preservation, liquidity, BPR qualification and 3%
annual target return.
Our specialist discretionary manager helps clients
enhance their ISA benefits by investing in a
selection of the larger and more established AiM
listed companies that qualify for full inheritance
tax relief after two years. If clients have existing
ISAs that have been built up during their lifetime,
they can easily transfer to our AiM IHT ISA for
full inheritance tax relief after two years whilst
retaining the existing ISA tax reliefs.

YEAR FOUNDED
2000 2007
(MANAGER)

AUM (TOTAL/BPR) 6,400m total / 2,790m in BPR 185m total / 146m in BPR

LAUNCH DATE May 2007 December 2013

OBJECTIVE Capital Preservation Growth

SECTOR General Enterprise General Enterprise / AiM Listed Companies

NO. OF INVESTEE COMPANIES 1 Parent company with 200+ trading subsidiaries 40

ANNUAL RETURN
Refer to brochure 9.8%
SINCE INCEPTION

3% after AMC (deferred until exit, and contingent

TARGET ANNUAL RETURN N/A
on delivering the 3% annual target return)

MIN. INVESTMENT 25,000 20,000

INCOME AVAILABLE? Regular withdrawal No

NO. OF DIRECTORS Total 3 (2 independent) 2

LEGAL STRUCTURE Discretionary Portfolio Service Discretionary Portfolio Service

INITIAL FEE 2% 1%

AMC 1% (deferred and contingent) 1.25%

PERFORMANCE FEE N/A N/A

PERFORMANCE HURDLE N/A N/A

Target 10 working days. Cannot be

TARGET LIQUIDITY guaranteed but to date never taken N/A
more than 3 weeks in last 10 years

1% dealing fee on purchase and sale, 2.5% 1% Initial Deal Fee, 1% Exit Deal Fee, 0.5% ISA
OTHER FEES
service fee charged to portfolio company Admin Charge (Capped at 140 per annum)

72
 BPR INVESTMENT OPPORTUNITIES

STELLAR AIM IHT PORTFOLIO STELLAR ESTATE PLANNING SERVICE

Stellar Asset Management Ltd Stellar Asset Management Ltd

A simple estate planning solution that holds a diverse
selection of AiM quoted companies held in a portfolio. Our
service provides full IHT relief after just two years. Our
portfolio contains 40 AiM stocks, with an average market
cap in excess of 400m. This portfolio is ideal for those who
want to consolidate existing investments, shelter them from
inheritance tax and continue to benefit from capital growth.
The Estate Planning Service offers a solution if the client is
seeking an alternative to annuities or a supplement to your
pension. Investing solely in income-producing physical assets,
a dividend is distributed to investors twice a year. Assets
include hotel investments, renewables and bridging and
construction financing. These low risk assets are carefully
chosen to protect clients capital while generating a natural
yield.

2007 2007

185m total / 146m in BPR 185m total / 146m in BPR

June 2010 July 2015

Growth Capital Preservation & Income

General Enterprise/Hotels, Renewable Energy

General Enterprise / AiM Listed Companies
nd Construction Finance

40 3

9.8% 4.50%

N/A 4.50%

20,000 25,000

No Yes

2 2

Discretionary Portfolio Service Discretionary Portfolio Service

1% 2%

1.50% 1%

N/A 20% Exit Performance Fee

N/A 4.50%

N/A Quarterly

1% Initial Deal Fee, 1% Exit Deal Fee 1% Initial Deal Fee

73
BPR INVESTMENT OPPORTUNITIES

STELLAR SUCCESSION STRATA RESIDENTIAL FINANCE PLC

MANAGER / PROVIDER Stellar Asset Management Ltd Strata Residential Finance Plc

Succession is our flagship service which offers
clients lots of choice in their estate planning
strategy. Clients can choose from a discretionary
service where their money is allocated across
DESCRIPTION a diverse range of assets or a bespoke service
OF OFFER where clients can choose where their money is
invested. This service is ideal for families looking
to pass wealth to successive generations and for
business owners looking for greater tax-efficiency
within their business.
Strata is a single company (a PLC) not an IHT
service. It has been trading for over 10 years,
providing short to medium term finance to
residential developers in the South of England.
As at April 2017, it has concluded 71 loans on
c328m of developments, and has rejected over
3bn worth of schemes. It has established an
enviable position in the development finance
market. Its average net total return over the last 3
years has been c11% p.a.

YEAR FOUNDED
2007 2007
(MANAGER)

AUM (TOTAL/BPR) 185m total / 146m in BPR c100m

LAUNCH DATE December 2011 April 2007

OBJECTIVE Capital Preservation & Growth Capital Preservation, Growth & Income

SECTOR General Enterprise/Blend Financial Services

NO. OF INVESTEE COMPANIES 6 1*

ANNUAL RETURN
5% 7%
SINCE INCEPTION

TARGET ANNUAL RETURN 5% 7% Dividend

MIN. INVESTMENT 40,000 25,000

INCOME AVAILABLE? No Yes

NO. OF DIRECTORS 2 4*

LEGAL STRUCTURE Discretionary Portfolio Service Unlisted PLC

INITIAL FEE 2% N/A

AMC 1.5% on Investee Company N/A

PERFORMANCE FEE Up to 50% 30% Performance Fee (upon share sale)

PERFORMANCE HURDLE 7% 10% p.a. IRR (50% above 15% p.a. IRR)

TARGET LIQUIDITY N/A Quarterly

350 plus VAT to sell shares. 0.005

OTHER FEES N/A
premium to share price upon purchase.

* Strata does not have investee companies. It is managed by its 4 Directors.

74
 BPR INVESTMENT OPPORTUNITIES

TIME:AIM ISA/BPR SERVICE TIME:ADVANCE PRIVATE CLIENT BPR SERVICE

TIME Investments TIME Investments

TIME:AIM uses our innovative smart passive approach,
designed to reduce the volatility of returns and remove stock
picker bias. TIME:AIM only targets AIM listed companies that
qualify for BPR, offering the potential for growth and IHT
mitigation. Our unique approach allows us to offer this service
at around half the annual management fee of many traditional
AIM BPR fund managers. TIME:AIM can be held within an ISA
or non-ISA wrapper.
TIME:Advance is a discretionary management service that
allows investors to access BPR to mitigate their IHT liabilities.
The service targets a net return of 3.5% p.a. with a capital
preservation focus achieved through investing in asset-backed
businesses.

2011 2011

603m total / 250m in BPR 603m total / 250m in BPR

September 2016 February 2013

Growth Capital Preservation & Income

Asset backed lending, trading businesses

General Enterprise/AIM Listed Companies
and renewable energy

25 6

13.65% (21/11/16 to 05/04/17) 3.89% (to 28/02/17)

N/A 3.5% which the service has already exceeded

V 15,000 25,000

Yes Yes

0 4 directors & independent advisory panel of 6

Discretionary Portfolio Service Discretionary Portfolio Service

1% 2.50%

0.80% 0.75%

N/A N/A

N/A N/A

Monthly Fortnightly

1.5% services fee paid to TIME by the

1% dealing fee
Investee Company. 1% dealing fee

75
BPR INVESTMENT OPPORTUNITIES

TIME:CTC CORPORATE BPR SERVICE TRIPLE POINT ESTATE PLANNING SERVICE (NAVIGATOR)

MANAGER / PROVIDER TIME Investments Triple Point Investment Management LLP

TIME:CTC (Corporate Trading Companies)
is a bespoke IHT solution designed to help
businesses utilise or reinstate existing BPR,
allowing them to mitigate their IHT liabilities,
potentially immediately. TIME:CTC allows
DESCRIPTION business owners to maintain control of their
OF OFFER assets, avoiding the need for trusts or to gift
assets to obtain relief. The service targets a
net return of 3.5% p.a., investing into the same
trades as TIME:Advance, i.e. asset backed
businesses with a focus on capital preservation.
Triple Points Estate Planning Service offers
investors access to two established BR strategies,
Generations and Navigator, through one simple
application. The strategies can be blended together
to target an annual return of betwen 1.5-6% net
of annual charges. Generations provides leases,
loans and infrastructure funding to a broad spread
of public sector bodies (local authority and NHS)
and corporates. Navigator provides leases, short-
term working capital, corporate trade finance and
secured funding to SMEs.

YEAR FOUNDED
2011 2004
(MANAGER)

AUM (TOTAL/BPR) 603m total / 250m in BPR 405m total / 222m in BPR

LAUNCH DATE October 1995 June 2013

OBJECTIVE Capital Preservation & Income Capital Preservation & Growth

Asset backed lending, trading

SECTOR Leasing, secured lending and funding to SMEs
businesses and renewable energy

NO. OF INVESTEE COMPANIES 6 1 (Navigator Trading Ltd)

ANNUAL RETURN
4.04% (to 28/02/17) 5.8%
SINCE INCEPTION

TARGET ANNUAL RETURN 3.50% 4-6%

MIN. INVESTMENT 100,000 50,000

INCOME AVAILABLE? Yes Yes

4 executive & 8 non-executive

NO. OF DIRECTORS 4 (1 independent)
(independent) directors

LEGAL STRUCTURE Bespoke IHT Service Managed Service

INITIAL FEE 3.50% 2.50%

1% deferred until exit and only payable from 1.5% p.a. - only taken if base target
AMC
the excess over the 3.5% target annual return return (4%) has been achieved

20% on a compound return of 5% pa,

PERFORMANCE FEE N/A
limited to returns between 5%-7.5%

PERFORMANCE HURDLE N/A Compound return of 5% pa

Within 3 months. Regular withdrawals can

TARGET LIQUIDITY Target 4-6 weeks
be set up on annual/semi annual basis.

1.5% services fee paid to TIME by the 1% dealing out charge. Annual running costs
OTHER FEES
Investee Company. 1% exit fee of investee companies are capped at 1%

76
 BPR INVESTMENT OPPORTUNITIES

TRIPLE POINT ESTATE PLANNING SERVICE (GENERATIONS) NOTES FOR USE

Triple Point Investment Management LLP
Triple Points Estate Planning Service offers investors
access to two established BR strategies, Generations and
Navigator, through one simple application. The strategies
can be blended together to target an annual return
of betwen 1.5-6% net of annual charges. Generations
provides leases, loans and infrastructure funding to a
broad spread of public sector bodies (local authority and
NHS) and corporates. Navigator provides leases, short-
term working capital, corporate trade finance and secured
funding to SMEs.
2004
405m total / 222m in BPR
December 2013
Capital Preservation
Number of Investee Companies:
The numer of bodies corporate that
investors will be directly invested
into. These entities may invest into
other companies, directly hold assets,
engage in secured lending or another
trade.
Target Annual Return: Net of any fees,
taxes and charges.
Annual Return Since Inception: Net
of any fees, taxes and charges. A simple
average of annual returns
Number of Directors: The number
of directors appointed to govern
each investee company invested
in, and whether these directors are
independent to the fund manager.

Legal Structure: Whether the

Public and private sector leasing, infrastructure
finance and secured lending
1 (TP Leasing Ltd)
structure is a Discretionary Portfolio
Service, Alternative Investment Fund
or a Single Company as defined by the
fund manager.

1.9%

1.5-2.5%

50,000

Yes

4 (1 independent)

Managed Service

2.5%

1.5% p.a. - only taken if base target

return (1.5%) has been achieved

N/A

N/A

Within 3 months. Regular withdrawals can

be set up on annual/semi annual basis.

1% dealing out charge. Annual running costs

of investee companies are capped at 1%

77
PROVIDER DIRECTORY
BPR INVESTMENT OPPORTUNITIES

DEEPBRIDGE CAPITAL

www.deepbridgecapital.com
01244 746000

DOWNING LLP

www.downing.co.uk
020 7416 7780

OCTOPUS INVESTMENTS

www.octopusinvestments.com
0800 316 2067

STELLAR ASSET MANAGEMENT

www.stellar-am.com
020 3326 0684

STRATA RESIDENTIAL FINANCE PLC

www.strataplc.co.uk
020 7824 8924

TIME INVESTMENTS

www.time-investments.com
020 7391 4747

TRIPLE POINT

www.triplepoint.co.uk
020 7201 8990

78
FINAL CONCLUSIONS

79
REPORT CONCLUSIONS
KEY TAKEAWAYS
IHT RECEIPTS WILL CONTINUE TO
RISE
The amount collected by HMRC
through Inheritance Tax receipts has
reached another record high of 4.7
billion. It has been estimated that an
extra 2 billion will be paid in IHT in
the next five years due to rising house
prices and buoyant stock markets.
RESIDENCE NIL RATE BAND ISNT
A PERFECT SOLUTION
Because of the restrictions and rules,
the new Residence Nil Rate Band will
not benefit everyone. For example,
people with no lineal descendents and
estates well above 2 million will not
qualify for it. And advisers tell us the
complexity of the allowance makes it
difficult for clients to understand and
to make full use of it.
IHT PLANNING WILL REMAIN
IMPORTANT
Both advisers and providers tell
us that they dont expect to see
any significant impact on their
BPR business because of the new
family home allowance. Although
IHT may no longer be a problem for
those whose estates are just over
the current threshold, it will remain
a major concern for people with a
sizeable estate even when the full
RNRB is applied in four years time.
Our adviser survey shows even more
advisers than last year expect to
increase their use of BPR with their
clients.
COMPETITION IS INCREASING
As the popularity of BPR increases
among the adviser community,
it seems that supply has been
catching up to meet this demand
with more new entrants and offers
coming into the market in recent
years. Newly launched offers tend
to charge lower fees and target
higher returns - perhaps to increase
80
their competitiveness. More With more and more new providers
competition should ultimately benefit entering the market, the level of
end investors, however its always competition will inevitably rise at the
recommended to look beyond the same time. Basic economics tells us
stated fees and target returns and competition is always good for the end
perform thorough due diligence and consumer in a free market, so more
research on underlying investments to competition in the BPR industry could
determine what a manager can deliver. lower fees and minimum subscription
levels and encourage providers to
LOOKING AHEAD hunt for higher returns. In fact, we
have already seen that happening in
Although the new family home
our Industry Analysis.
allowance will offset some of the
IHT burden faced by UK families and Moreover, we believe the higher level
households in the next few years, of competition in the marketplace
research suggests the aggregate will also encourage improvements in
benefit will not be as good as the some qualitative characteristics of
headline sounds. the providers. For instance, we might
see providers in the future making
However, its important to note that all
information on their underlying
the figures and statements we have
investments and performance history
mentioned about the new allowance
more transparent and accessible.
are estimates and expectations, so it
would be interesting to see its actual Finally, we would like to hear more
impact on IHT receipts and advisers supportive comments from the
estate planning business when new government regarding the relief.
statistics become available in the Although we dont see any reason
future. Well keep an eye on this space why the relief wouldnt continue in
and update our audience through our the foreseeable future, more verbal
blog and weekly newsletter. support from politicians would
definitely give both providers and
We have been seeing a surge in the
advisers greater confidence in working
number of new offers in the BPR
in this space.
industry over the last few years, and
we expect the trend to continue as
our market research shows no sign
of demand cooling down. As both
demand and supply are growing,
another area that we will keep a close
watch on is how the market evolves
in the next twelve months in terms
of investment strategy and other key
investment metrics.
While the number of BPR offers
has been growing, the variety of
underlying investments has not
been keeping up at the same pace.
Our market research tells us there
are advisers who prefer investing
in specialised sectors, so it would
be great to see a wider range of
underlying investments made
available to investors in the future.
APPENDIX
USEFUL MEMBERSHIP ORGANISATIONS

THE INSTITUTE OF CHARTERED ACCOUNTANTS IN ENGLAND AND WALES (ICAEW)

ICAEW is a world leading professional membership organisation that promotes, develops
and supports more than 147,000 members worldwide. They provide their members advice
on best practice when working with advisers. The key piece that accountants should have
in place is the Designated Professional Body licence, issued by the ICAEW and the other
accountancy membership organisations. This licence means that in addition to making
generic comments, when working with a financial adviser they can: explain and evaluate the
advice, identify unsuitable advice and endorse the advice the client receives.
www.icaew.com

SOLICITORS FOR THE ELDERLY (SFE)

SFE is an independent, national organisation of lawyers, such as solicitors, barristers, and
chartered legal executives who provide specialist legal advice for older and vulnerable
people, their families and carers.SFE members have experience and specialise in a wide
range of legal issues affecting older and vulnerable people.

The main areas of law members cover are: making a will, Powers of Attorney, living wills, tax
planning, asset preservation, trusts, probate, paying for care, NHS continuing care funding,
www.sfe.legal Court of Protection and elder abuse.

SOLICITORS FOR INDEPENDENT FINANCIAL ADVICE (SIFA)

The core function of SIFA is to provide compliance and business support to financial
advisers; from satisfying regulatory obligations and keeping process compliant to
providing pre-approved marketing support and adviser tools. The other main service
involves the facilitation of building professional connections between financial advisers
and solicitors. SIFA operates on a membership basis. Advisers can pay a monthly fee to
become a member of either SIFA Support Services or SIFA Professional. The Combined
www.sifa.co.uk membership allows members to benefit from both services at a discounted price.

THE SOCIETY OF LATER LIFE ADVISERS (SOLLA)

SOLLA was founded in 2008 as a not for profit organisation. It links people and families
seeking later life advice to accredited later life advisers with an aim of making them
better informed about financial issues. The society focuses advice on equity release,
long-term care funding, pensions and annuities, investments and savings and IHT
planning. To become a full member of the society one must be fully accredited.
www.societyoflaterlifeadvisers.co.uk

THE SOCIETY OF TRUST AND ESTATE PRACTITIONERS (STEP)

STEP was founded in 1991 and currently has 20,000 members across 95 countries. STEP
is a worldwide professional association for people advising families across generations.
The society offers a wide range of certificates and professional qualifications from
entry-level to diploma. Members also have the opportunity to connect with other
advisers and families globally through the societys large network. Advisers need to
pay an annual membership fee to join; the fee varies depending on the country.
www.step.org

81
CPD AND FEEDBACK
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participation, transparency and
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participants should help foster best
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82
DISCLAIMER
This report is provided for general
information purposes and for use
only by investment professionals
and not by retail investors.
Reliance should not be placed on the
information, forecasts and opinions set
out herein for any investment purposes
and Intelligent Partnership will not accept
any liability arising from such use.
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With 3.2 trillion of wealth poised to pass to the next generation
over the coming decades, the demand for estate planning services
looks set to grow further. BPR qualifying investments - with
their focus on speed, flexibility and capital preservation - should
continue to feature in every advisers investment proposition.
- Guy Tolhurst, Managing Director, Intelligent Partnership

Intelligent Partnership
Halford Chambers
1-3 Halford Road
Richmond
TW10 6AW
Company Registration No. 06442114
Company Registered in England & Wales