Octopus leads the way with innovative VCT charging solution

Advisers and investors can agree initial and ongoing charges on Octopus VCTs in line with RDR

Octopus’ unique solution does not reduce the value of the investor’s initial investment enabling them to get maximum benefit from the tax relief

Octopus today announced its new adviser charging solution for its Venture Capital Trusts (VCTs), which will enable investors to pay initial and ongoing fees to their advisers in line with the new adviser charging rules introduced by the Retail Distribution Review (RDR). Octopus has brought a unique solution to the market that gives its investors the flexibility to pay fees to their advisers without reducing the value of their initial investment qualifying for tax relief.

In a survey conducted by Martin Churchill for Tax Efficient Review in October last year, 70% of advisers said that they wanted VCT managers to facilitate ongoing adviser charges. Paul Latham, Manager Director at Octopus, commented: “We have listened to our customers and worked hard to develop an innovative solution that gives our investors the flexibility to pay both initial and ongoing fees to their adviser without losing out on the tax benefits that VCTs offer. And our approach is very flexible: advisers happy not to receive these fees have the opportunity to pass on the value to clients in the form of additional shares in the VCT. It is a win-win situation for our advisers and investors giving them as much flexibility as possible without disadvantaging direct investors in the VCT.

“VCTs are an important part of many investors’ portfolios, and are increasingly being recognised as a complementary tax planning tool to pensions and ISAs. We want to ensure they continue to be an attractive investment opportunity for our investors and their advisers in an RDR compliant world.”

The solution
Octopus’ solution enables its investors to continue to invest their total investment amount into the VCT in order to benefit from the tax reliefs associated with the product, which includes 30% income tax relief. Once invested, a set portion of the funds will be used to pay initial and ongoing adviser charges. If an investor has agreed to pay their adviser less than this set amount they will be issued additional new shares in the VCT. Full details of these charges can be found below.

The challenge
One of the challenges that RDR created for the VCT industry was finding a fair solution that would enable investors in a VCT to have the flexibility to pay ongoing fees to their advisers, without disadvantaging other investors in the VCT who might be direct investors or those not paying ongoing charges.

Previously most VCTs paid fees to the investment manager who then used part of this fee to pay advisers their commission. But RDR, which came into effect on 31 December 2012, has radically changed the way financial advisers are remunerated. Commission is now banned and in their place adviser charges – both initial and ongoing – have been introduced to give investors more flexibility in how they choose to pay their advisers.

Paul Latham added: “One option available to VCT managers is to take the adviser fees out before the VCT shares are purchased. Whilst we could have chosen this option, this was not what the majority of our customers wanted. We also wanted to find a solution that enabled investors to benefit from the full tax relief on their investment. This meant finding a way for them to pay adviser charges once their investment was made, rather than carving out some of their investment to pay adviser charges before it was invested.”

Octopus’ VCT charging solution has been accepted by the UK Listing Authority ahead of Octopus launching new fundraising for Octopus AIM VCT, Octopus Second AIM VCT and a linked offer for Octopus Titan VCTs later this month. Octopus’ Apollo VCT is already open for further investment.

ADVICE RECEIVED – WITH ONGOING CHARGES
Initial adviser charging: The VCT will facilitate a payment of up to 2.5% of the subscription amount to advisers. If investors choose to pay their adviser less than that amount, the remainder will be used to purchase additional shares for the investor.
Ongoing adviser charging: The VCT can facilitate annual payments to advisers of up to 0.5% of the net asset value of the holding for 9 years. If investors choose to pay their adviser less than 0.5%, the remaining amount will be used to purchase additional shares for the investor.

ADVICE RECEIVED – WITHOUT ONGOING CHARGES
Initial adviser charging: The VCT will facilitate a payment of up to 4.5% of the subscription amount to advisers. If investors choose to pay their adviser less than that amount, the remainder will be used to purchase additional shares for the investor.
Ongoing adviser charging: N/A

APPLICATIONS MADE THROUGH AN INTERMEDIARY BUT NO ADVICE RECEIVED
Initial adviser charging: An initial 2.5% commission will be available, to be paid by the VCT to the intermediary.
Ongoing adviser charging: An annual trail payment of 0.5% of the net asset value of the holding will be paid by the VCT to the intermediary for 9 years.

DIRECT APPLICATIONS (no intermediary)
Initial adviser charging: The VCT will pay Octopus 2.5% of the investment.
Ongoing adviser charging: The VCT will pay Octopus 0.5% per annum for 9 years.

Octopus VCT launches £70 million fundraise

Follows a successful £50 million fundraise from existing investors in Octopus’ first series of ‘enhanced buyback’ offers

2013 set to be a record-breaking year for VCTs as investors search for tax efficient capital growth and income opportunities as pension restrictions continue to tighten

Octopus today announced that it has issued new share offers for four of its existing Venture Capital Trusts (VCT) as it looks to raise £70 million of new funds.  Investors will now have the opportunity to invest in the Octopus AIM VCT, Octopus Second AIM VCT, Octopus Apollo VCT or participate in a linked offer across Octopus’ five Titan VCTs.

This latest round of fundraising provides existing and new investors with the opportunity to access mature diversified portfolios of UK smaller companies, with a choice of benefits depending on which VCT they choose to invest in. It follows swiftly on the heels of Octopus’ successful £50 million fundraise from existing VCT investors through a series of enhanced buyback facilities, which it launched towards the end of 2012 in response to investor demand.

Commenting, Paul Latham, Managing Director at Octopus, said: “Each of our families of VCTs has a different investment strategy with the intention of offering investors a choice of benefits across the range of VCTs. So, whether you’re looking for dynamic growth (Octopus Titan), capital preservation and regular dividends (Octopus Apollo) or a blend of growth and consistent dividends (Octopus AIM VCTs), our VCTs look to address the needs of our customers. Investors also benefit from an immediate up-front 30% income tax relief on their investment, in addition to tax-free growth and tax-free dividends that VCTs provide.

“These VCTs have proven and successful track records of delivering the levels of return and tax benefits we said they would. Our more mature Titan VCTs recently announced they would be paying out £16 million in special dividends following the success of a number of investments, in addition to delivering capital growth. This is exactly the performance we expect from these VCTs, which look to back exceptional management teams of early stage businesses that can disrupt or change an industry. The VCT only needs a few big winners to drive capital growth over the five year minimum holding period for investors but it takes time to realise the targeted returns.”

With a track record of delivering returns and tax benefits to investors, and with latest figures from the Association of Investment Companies showing that 59% of VCTs are yielding more than 5% tax-free income, VCTs are no longer just being viewed as a diversification tool for investors’ portfolios.  “Now more than ever before VCTs are being viewed by advisers and their clients as an effective tax planning tool and source of income that can help address clients’ investment needs,” Paul Latham added. “VCTs can support investors in their financial planning, whether they are acting as a supplement to pensions to prepare for retirement, or as a way of helping people grow their savings efficiently for future expenses, such as their children’s or grandchildren’s education.”

Since they were created in 1995 by the government with tax benefits to encourage investment into UK smaller companies, VCTs have being gaining prominence in the investment market. As well as being a highly tax efficient investment, they have become a critical source of funding for UK smaller companies providing £4.6 billion of investment since they were launched. With access to funding remaining limited for many smaller businesses in the UK since the financial crisis there is plenty of opportunity for VCTs to invest in some of the most exciting businesses in the country.

“VCTs give investors exposure to UK smaller companies and the feel good factor that comes with this,” Paul Latham said. “A recent survey of some of our VCT investors showed that many of our investors like having the opportunity to support economic recovery by investing in the next generation of UK businesses. 2013 looks set to be a record breaking year for VCTs as advisers and their clients look to access the benefits that VCTs offer.”

Octopus is the largest provider of VCTs in the UK, currently managing more than £350 million of VCT funds, and offers the broadest range of VCTs available in the market. Earlier in the month Octopus announced its unique adviser charging solution for its VCTs, enabling its investors to have the flexibility to pay ongoing fees to their advisers, in line with the new adviser charging rules introduced by the Retail Distribution Review, without reducing the value of their initial investment qualifying for tax relief.

TIME INVESTMENTS LAUNCHES NEW IHT SERVICE

Freezing of inheritance tax threshold will see thousands more people become liable to pay IHT

The tax planning investment manager, TIME Investments today launched a new service to IFAs that offers an RDR-ready inheritance tax (IHT) solution using Business Property Relief (BPR) that is targeting an uncapped annual return of 3.5%. TIME’s existing BPR service has enjoyed a successful track record of achieving BPR and an inflation-beating return over the last 16 years.

Only today, news was announced of the government’s plans to freeze the IHT threshold at £325,000, to fund long-term care costs. Despite their commitment in the last budget to raise the IHT threshold to £329,000 from 2015/16, it now seems that it will remain at £325,000 for a further 3 years to 2019. According to reports, this will bring a further 5,000 people in to paying IHT, making TIME Investments launch of a new IHT solution particularly timely.

The new service, called TIME:ADVANCE, aims to meet the growing demand among financial advisers for IHT planning, with new research* from TIME Investments revealing that over 60% of IFAs are seeing a rise in the number of clients who want help in reducing their IHT liabilities. As you might expect, the most common age for addressing IHT issues is between 65 and 70, when 29% of intermediaries interviewed said clients become highly motivated to do something about their IHT planning. It is therefore surprising that only a quarter (26%) of IFAs said that more than half of their clients aged over 70 had made plans in relation to IHT. This increases to only a third (33%), even for clients aged over 80.

Through TIME:ADVANCE, clients buy shares in UK businesses that invest in ungeared asset- backed trading businesses, such as lending secured on property. All clients participate across all of the underlying trades to improve diversification and liquidity.

Investments become fully exempt from IHT after being held for only two years, which contrasts with the seven years associated with more traditional IHT solutions. There is also the flexibility to set up quarterly distributions and access capital at any time.

The service is fully RDR-ready with ‘factory-gate pricing’, facilitating client-agreed adviser charging. It is highly transparent with detailed disclosure at whatever level is required by advisers and their clients. The 0.75% annual management fee is only taken after investors have achieved the minimum target 3.5% annual return and is deferred until investments are withdrawn.

Nigel Ashfield, TIME Investments Managing Director, commented: “The banks are still reluctant to lend so TIME:ADVANCE helps the UK economy while offering investors a simple, competitively priced inheritance tax solution with risk lowered through asset-backed BPR trades and returns potentially in excess of 3.5% per annum.”

Simon Housden, TIME Investments Sales & Marketing Director, added: “In recent years BPR has become recognised as a much more mainstream means of tackling IHT issues. We have been able to use our considerable experience in this space to create the next generation of BPR tools.”

TIME:ADVANCE is competitively priced with an initial charge of 2.5% and a deferred annual management fee of only 0.75%. The minimum investment is £25,000 with top-ups from £10,000.

IHT Planning – Who Pays?

Analysis** by TIME Investments reveals that from the latest data available, the total amount paid in IHT in 2009/10 was £2.39 billion. Despite the backdrop of low interest rates and limited growth in property values, IHT receipts increased by 7% in 2011/12 compared to the previous year and by 14% in 2010/11.  Given this, it is not surprising that TIME Investments’ research reveals IFAs are seeing an increase in clients wanting help to reduce their IHT bills.

The research also shows that nearly 9 out of 10 (86%) IFAs say less than half of their clients have IHT planning in place. This is despite the fact that nearly 4 out of 10 (38%) IFAs believe over half of their clients will have to pay IHT.

Percentage of their clients that IFAs expect will pay IHT upon death:

None    1.1%
Under 10%       14.4%
Between 10.1% and 30%   24.9%
Between 30.1% and 50%   17.0%
Between 50.1% and 60%   9.6%
Between 60.1% and 70%   9.9%
Between 70.1% and 90%   9.3%
Between 90.1% and 99.9% 6.5%
100%    2.5%
Don’t know      4.5%

TIME Investments has extensive experience of achieving BPR in the mitigation of inheritance tax, with an inflation-beating return through its existing IHT product, CTC. However, under this service, clients wholly own assets through their own bespoke unlisted companies, whereas TIME:ADVANCE pools investors’ funds, enabling more diversification and greater liquidity. CTC will continue to be available and is suitable for more sophisticated clients or businesses that wish to take a more bespoke approach to their IHT planning.

Notes :

*TIME Investments research with 371 IFAs in October 2012

**TIME Investments analysis of Office of National Statistics data

TIME Investments is the trading name of Alpha Real Property Investment Advisers LLP, a subsidiary of Alpha Real Capital LLP, which completed the acquisition of the property funds management business from the Asset Management division of Close Brothers Group plc on 25 February 2011.

Both TIME Investments and Alpha Real Capital LLP are authorised and regulated by the Financial Services Authority in the United Kingdom

FORESIGHT INHERITANCE TAX SOLUTION OFFERING INVESTORS SHELTER FROM IHT AFTER TWO YEARS

Foresight Group (Foresight) is delighted to announce the launch of Foresight ITS, a new Inheritance Tax (IHT) investment solution.

Foresight ITS will invest predominantly in infrastructure assets which qualify for Business Property Relief (BPR).  Such assets are ideally suited for capital preservation and can provide a solid and predictable return. What’s more, after two years investors will be eligible for IHT exemption on the value of their investment in Foresight ITS due to BPR.

Foresight ITS will draw upon the group’s extensive and market-leading investment experience in Photovoltaic (PV) solar assets and will exploit the expertise of its investment team who have significant secondary PFI project experience to establish an investment portfolio that will offer genuine diversification for investors.

Infrastructure assets have several attractive characteristics which can include:

ü                  Long-term contracts with Governmental or blue-chip counterparties

ü                 Protection from competition, because of natural monopolies, regulation or concessions granted by public authorities

ü                  Inflation-linked revenues over 10-50 year contract durations

Foresight ITS is a discretionary investment management product which will deploy investments swiftly to generate a steady and predictable income stream and a priority return to investors of 3% per annum.

Ben Thompson, Group Marketing Director at Foresight said: “We have worked extensively with IFAs and Wealth Managers to design an inheritance tax solution for their clients that is simple, swift to implement and which leaves investors in control of their money. Infrastructure assets can have an attractive risk/reward profile when capital preservation is key.”