Octopus Inheritance Tax Service

aroominyork

Does anyone have experience or knowledge of Octopus Inheritance Tax Service? They have been recommended (by a relative's IFA) as a relatively low risk investment for an elderly person as a vehicle to avoid inheritance tax assuming the holder survives two years. 

The website says they target 3% pa growth after fees (and Octopus does not apply management fees if this is not met - they call this a Growth Shield) and invest in renewable energy, smaller companies, healthcare and property. I asked the IFA what the investment risk would be compared to a 40%-50% fall in equities should the markets crash; he said 5%-10%. That is what I am most interested in people's insights about.

csgohan4

they clearly state on their website:

'Be aware that some of our products are high risk and you should read the risks associated with each product before deciding whether to invest.'
You’ll find these on the relevant product webpages and on our guide to risks page. We always recommend you talk to a financial adviser before deciding whether to invest. We’re an investment company and we don’t offer investment, tax or legal advice. Please confirm you have read the information above.

For a company to be able to give you a crystal ball investment risk is giving you their sales talk and possibly not trustworthy. 

There's no reason if you have done your own research to find fund and forget funds.

However as they are elderly, care must be taken in allocating how much equities/ Glits and ergo risk to their investments as the former is higher risk for those who invest for a shorter period

If this was clearly the best IHT trick, wouldn't you think the MSE and indeed the FT would cover this too?

aroominyork

I have found summarised performance tables but would still welcome views from people who have experience of this product https://octopusinvestments.com/coronavirus-updates/octopus-inheritance-tax-service-the-latest-from-fern-trading-july/

csgohan4

a Cheap index tracker beats that return easily. Why do you need to pay expensive management fees?

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hsbc-ftse-all-world-index-class-c-accumulation

People may not have experience of your fund, because they have found better ones elsewhere, like the one above

aroominyork

This product has, according the the IFA, much lower downside risk than an equity tracker which is why the upside target of 3% is well below equities. What I am looking for is more detail on the downside and liquidity risks of the assets held.

AnotherJoe

maybe i'm missing soemthing, what has this got to do with inheritance tax?

Albermarle

AnotherJoe said:

maybe i'm missing soemthing, what has this got to do with inheritance tax?

I was going to ask exactly the same question !
As an energy customer of Octopus I am impressed by their customer service and much clearer billing info and website .
When I noticed they also offered wealth management/financial advice , I made some enquiries thinking they may have a competitive model but in fact looked quite expensive.

whitesmith

They say they invest in "companies that we expect to qualify for Business Property Relief (BPR), a government-approved relief from inheritance tax. Provided the investment has been held for at least two years at the time of death, it can be left to their beneficiaries free of inheritance tax."

Personally I think you should just pay the inheritance tax you owe - anything else often leads to tears...

AnotherJoe

I guess it depends on the age of these people. And I admit I know nothing about Business Property Relief but it doesnt from the sound of it seem to apply to investments in healthcare alternative energy  and smaller companies?
also if they can afford to lock the money away for at least two years can they just give it or some of it, to their relatives now? If there's enough money that IHT would be payable and they can lock it away for that long then deprivation of assets wouldn't seem to apply either .
My IHT tactic is giving the money now to my kids. I get to see them enjoy it now and they get it for that much longer. Also gives me an incentive to live for the next 7 years.  

macman

aroominyork said:

Does anyone have experience or knowledge of Octopus Inheritance Tax Service? They have been recommended (by a relative's IFA) as a relatively low risk investment for an elderly person as a vehicle to avoid inheritance tax assuming the holder survives two years. 

The website says they target 3% pa growth after fees (and Octopus does not apply management fees if this is not met - they call this a Growth Shield) and invest in renewable energy, smaller companies, healthcare and property. I asked the IFA what the investment risk would be compared to a 40%-50% fall in equities should the markets crash; he said 5%-10%. That is what I am most interested in people's insights about.

Everything is 'relative', but it is certainly not a 'low risk' investment. There is the possibility of loss of the entire capital invested.
To be blunt, is the elderly relative likely to survive for the two qualifying years? Have all other methods of efficient estate planning already been applied?

HappyHarry

None of the below is any kind of recommendation.

The Octopus Inheritance Tax Scheme (ITS) has been around for many years. It invests in investments that qualify from Business Property Relief (BPR). This means that once the assets are owned for two years, they receive 100% relief from inheritance tax. The key advantages of this over other IHT plans are that;
1. The assets are IHT free after two years, rather than the seven year timeframe for gifting assets
2. The owner still retains access to the assets if needed for their own use.

Octopus are probably the leaders in the field in this kind of alternative investment. They specialise in VCTs and have, I believe, around 75% of the VCT market. They used to run EISs before the rules changed a few years ago. Many of their products have been targeted towards capital preservation rather than growth, and using the tax breaks offered by the VCT/EIS/BPR regimes. Octopus also run IHT schemes using AIM shares that benefit from BPR relief after two years, but these schemes are far higher risk.

Key disadvantages of the scheme are;
1. Though the ITS is described as low risk, when compared to equity funds or AIM IHT solutions, there is still some risk to capital. A lot of the BPR qualifying investments are invested in asset backed lending rather than company equity, and the equity side tends to contain renewable energy projects that Octopus own and run themselves.
2. Liquidity. This is a key risk, especially given the fact that asset backed lending is a key component of the scheme.  As with P2P, if loans are not being repaid in a timely fashion, there could be a liquidity issue resulting in withdrawals being placed on hold. It could take more than a year for a withdrawal to complete under these conditions.
3. Estate ownership. Although the assets receive 100% relief from IHT after two years, they still form part of the estate as far as the £2m threshold for the RNRB is concerned. Deathbed gifting could avoid this situation, but it is worth bearing in mind.

The scheme could probably be best considered for those in ill health, or those who have a good reason to want to retain ownership of their assets in their lifetime.  It is not a cheap scheme, indeed, the underlying costs are opaque.

 Ultimately the scheme is aimed at those trying to avoid a 40% IHT loss over a relatively short space of time, whilst taking a lower risk investment approach than provided by alternative AIM based investments. 

IFAs that do a lot of IHT work will most likely be familiar with the scheme. Personally I have found Octopus to be a (genuinely) good company, and have no concerns in using their products, with the proviso that client understand the risks and the benefits of doing so.