Octopus AIM IHT ISA

The Octopus AIM Inheritance Tax Service has been managed by the Octopus UK Smaller Companies investment team since 2005. Octopus Investments as a whole manages £13.4 billion on behalf of its clients (December 2023) and the 11-strong Smaller Companies team manages £1.9 billion in UK quoted companies across the Service, Octopus AIM VCTs, and three quoted funds. 

The Octopus AIM Inheritance Tax Service alone manages £1.5 billion. The team targets more established AIM-quoted companies with strong market positions and growth potential.

• Portfolio of 20-30 stocks
• Bias towards large and well-established growth focussed companies
• Minimum investment £20,000 (£25,000 outside an ISA) – you can apply online (ISA only)
• Apply in an ISA: top up or make a new subscription online using the link below. To transfer existing ISAs, please download, print and complete the ISA Transfer Form and post it to us.
• Apply outside an ISA: please download, print and complete the application form and post it to us

The manager

The AIM IHT Service is managed by an 11-strong investment team which has more than 150 years of industry experience and oversees £1.9 billion in quoted investments across all Octopus products (December 2023). 

The team is headed up by Richard Power and Kate Tidbury. Kate first joined Octopus as a fund manager of smaller companies in 2008, while Richard joined Octopus in 2004 and has worked in smaller company investing for over 25 years. 

The team conducts more than 850 meetings a year to help identify what they believe are the best investment opportunities. This level of activity may be hard to replicate by smaller AIM IHT providers. The dedicated investment resource is a key differentiator for the Octopus AIM IHT service, in our view. 

Overall, Octopus Group manages £13.4 billion on behalf of over 63,000 clients (December 2023). 

Octopus will hold your shares on your behalf using its own nominee company.

Investment strategy

The Service's buy list typically includes 20-30 stocks at any one time.

Octopus looks for established firms with growth potential and one or more of the following characteristics:

• Strong market position or global leader in its field 
• Scalable growth-focused business model 
• Proven management team with a successful track record 
• Strong balance sheet, preferably showing profitability 
• High level of recurring revenues and earnings visibility 

New investors will receive shares in the companies on Octopus’ buy list at the time of their investment.

Companies are sometimes moved from the buy to the hold list for a variety of reasons. This means they will not be included in newer portfolios but will be retained in existing portfolios. Companies will only be removed from investors’ portfolios if the managers feel the outlook for the company has significantly deteriorated.

Current portfolio overview

One of the key tenets of the Octopus AIM IHT Service’s investment strategy is to back businesses with strong market positions. Therefore, companies in the portfolio tend to be larger than one might expect, with average market value of £613.9 million (December 2023).

Currently, the buy list comprises of 28 companies the team deems suitable for investment. Whether these stocks are included within a specific client’s portfolio – and in what size – will be determined at the discretion of the investment team based on liquidity and market conditions. As this is a discretionary service, each client portfolio is slightly different. 

The buy list currently has a bias towards industrial support services and software & computer services.

Currently 14.3% of the buy list has a market cap greater than £1 billion, while only c.4% is valued at less than £250 million and none less than £100 million.

The charts below show the sector and market capitalisation breakdown for the current buy list.

Sector breakdown (%)

Market capitalisation breakdown (%)

Examples of portfolio companies

CVS Group

CVS Group (“CVS”) is one of the UK’s largest veterinary service providers, with a portfolio that spans veterinary practices, diagnostic labs, pet crematoria, and an online retail business. 

The AIM IHT service originally invested in 2009, when CVS operated around 160 practices across the UK. The business was selected for its relatively predictable nature, the growth opportunity, and its acquisition strategy. Today, CVS operates across the UK and internationally, has around 500 practices, including nine specialist referral hospitals, and employs over 8,500 staff. 

In the six months to December 2023, the Group announced revenues of £329.9 million, up 11.4% compared to H1 2023. During the period, CVS began its expansion to Australia and has subsequently acquired 15 practice sites and identified a strong pipeline of opportunities. 

The Group’s share price suffered in late 2023 following the announcement of a review into the vet sector by the Competition and Markets Authority (CMA) in September 2023. The review is ongoing, with an update expected in early 2024. Past performance is not a guide to the future.

Octopus Investments is the group’s fourth largest shareholder (November 2023). The market capitalisation of CVS is £1.2 billion (December 2023). 

Boku

Boku is a billing platform which connects merchants to mobile network operators using direct carrier billing (DCB) to provide mobile phone users with an alternative payment method. The Group’s technology turns a consumer’s phone number into a convenient and secure payment method, with purchases added to their phone bill or a pre-paid balance. 

Boku is currently live in over 60 countries and processes more than $9 billion in payments annually. It counts some of the world’s largest entertainment and e-commerce brands as clients, including Google, Amazon, Microsoft, and Spotify. 

In the six months to June 2023, the Group recorded revenues of $38.2 million, up 25.8% compared to the year prior. Operating profit dipped to $2.1 million, compared to $4.1 in June 2022, primarily due to increased staff headcount and currency losses.

Octopus Investments is the company’s largest investor (January 2024). The market capitalisation of the company is £396.6 million (December 2023). 

Staffline Group

As is to be expected, not all investments work out. One example is Staffline Group. 

Outsourcing specialist Staffline Group saw its shares suspended in 2019 following a 46.0% decline in its share price. This was due to a delay in releasing its full-year results following allegations of improper invoicing and payroll practices. Trading resumed in March 2019 following the company's refinancing, and while the company returned to profitability in FY 2021 the shares continue to trade at a fraction of what they were worth in early 2019.

Performance

The Octopus AIM Inheritance Tax Service was launched in June 2005. The chart below shows performance over five years compared against a peer group of other AIM ISA portfolios available via Wealth Club. Like other IHT portfolios, this is a discretionary managed service so each portfolio is likely to be different. 

Five-year cumulative performance to 31 December 2023

Access to your investment

Investments in this portfolio are for the long term. However, if your circumstances change, you can sell some or all of your shares, although sometimes this can take a while depending on market conditions and liquidity. You can arrange to take regular withdrawals from the account, which you can change or stop at any time. Any amount you withdraw will no longer be IHT free. Withdrawals may result in a Capital Gains Tax liability unless held in an ISA.

Risks – important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice. Those considering AIM Inheritance Tax Portfolios should be comfortable with the significant risks of investing on AIM.

AIM IHT portfolios should only form part of a balanced portfolio. Your capital is at risk and you should not invest money you cannot afford to lose. If a service is managed by a small investment team, it could create key person risk. The fewer the companies included in the portfolio, the higher the risk of loss if things don’t go to plan. 

AIM stocks can be hard to sell, particularly at the smaller end of the market, and can be illiquid. AIM shares can be very volatile especially if the market falls sharply. The difference between the buying and selling price (spread) of AIM shares is often wider than the spread for shares listed on the main market. 

Eligibility for BPR, based on current rules, is assessed at the date of death and will depend on the companies in the portfolio remaining qualifying. Broadly speaking, you will need to have held a BPR qualifying stock for at least two years and still hold it on death to qualify. Tax rules can change and benefits depend on circumstances.

Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

This is the largest AIM IHT portfolio. The manager may find itself less able to act as quickly as smaller AIM ISA providers, which could impact the fund if market sentiment changes or if AIM rules change. 

In recent months, there have been widely reported rumours that the government might change or abolish IHT. It is currently unknown if and when any decision might be announced.

Charges (ISA)

A summary of the main charges and savings for an investment within an ISA is shown below. If you wish to invest outside an ISA, please see the provider's documents. The investment may have additional charges and expenses: please see the provider documents for more details. If you would like a full breakdown or a personal illustration, please let us know.

Our view

This is a longstanding portfolio managed by a large, well resourced and experienced team. At £1.5 billion assets under management, it is the largest AIM IHT offering by some distance.

In our view, this scale has several advantages. Firstly, the level of funds under management should ensure the team has excellent access to AIM company management teams. Secondly, it should support a well resourced investment team capable of producing the breadth of high-quality research needed to build an AIM portfolio. However, scale also has disadvantages: the portfolio may be less nimble than its smaller peers, and some smaller company opportunities may be out of reach of the service.

The portfolio’s fees are higher than some of its peers. The minimum of £20,000 could make it a contender for this year’s ISA subscription.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.