Review: Octopus AIM Inheritance Tax Service
The Octopus AIM Inheritance Tax Service is available in or outside an ISA. It seeks to take advantage of Business Property Relief (BPR) whereby shares in certain AIM companies should be exempt from IHT after two years if you still hold them on death. Currently over £870 million is invested in the Octopus AIM IHT service.
Thanks to increased allowances, couples can this year start to shelter £40,000 from IHT in an AIM ISA.
- Impressive long term performance record (not a guide to the future)
- Established and profitable businesses sought
- Available in or outside an ISA
- Using ISAs, couples can start to shelter £40,000 from IHT this year between them
- Save on the initial charge via Wealth Club, compared with going direct
The Octopus AIM Inheritance Tax Service is run by the Octopus UK Smaller Companies team which has a combined experience of more than 100 years. The team, which includes Richard Power, Kate Tidbury, Andrew Buchanan, Chris McVey, Edward Griffiths, Stephen Henderson, Mark Symington and Dominic Weller, manages over £1.2 billion in AIM-quoted companies. In total Octopus manages over £6 billion and has more than 500 employees.
There are around 1,000 companies on AIM – but only 25-30 make it into the Octopus portfolio. These are not fledgling businesses:the team look for established firms with growth potential. In fact, the average market value of the portfolio companies is £509 million. The team seeks defensive companies it believes have a competitive edge, a strong balance sheet and preferably recurring revenues.
As you can see from the chart below, to date the investment process has worked. The median performance of the portfolio since launch in June 2005 is 200.71%, compared with 126.29% for the FTSE All-Share and 0.61% for the AIM All-Share. Please note past performance is not a guide to the future.
Source: Lipper, Octopus Investments; 31 January 2017
Discrete 12-month performance to 31 December (%)
|Octopus AIM Inheritance Tax Portfolio||11.16%||51.87%||13.03%||25.85%||6.48%|
|FTSE AIM All-Share (Total Return)||2.86%||21.33%||-16.53%||6.63%||16.07%|
|FTSE All-Share (Total Return)||12.30%||20.81%||1.18%||0.98%||16.75%|
Source: Octopus Investments. Total returns of the Octopus AIM Inheritance Tax Service portfolio are median returns from 30 June 2005 with an appropriate sample of investor portfolios. If cash is added or withdrawn during the relevant period, these portfolios have been revmoved from the calculation. Total returns include the impact of dividend income, interest, management fees and dealing fees. Performance is shown alongside the total returns of the FTSE AIM All-Share and FTSE All-Share (Total Return) indices. Neither index is used as a benchmark for the AIM Inheritance Tax portfolio due to the limited universe of stocks eligible and available to the fund. Past performance is not a guide to the future.
Exit strategy and 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 little while. You can arrange to take regular withdrawals from the account, which you can change or stop at any time. Any amount you withdraw will of course no longer be IHT free and will lose its ISA tax benefits.
On your death, your heirs can decide to keep the portfolio invested, liquidate it or use it to pay any IHT due. The claiming process is straightforward, via a simple form to complete and send to HMRC. Octopus prides itself both on its customer service and its experience in paying out on death.
Capital is at risk and you should not invest money you cannot afford to lose.
Eligibility for BPR is assessed at the date of death and will depend on the companies remaining qualifying. Remember, tax rules can change and the value of tax benefits depends on circumstances.
Liquidity of companies listed on AIM is a key risk. AIM can be a volatile market with little trading at certain points. Octopus is one of the largest managers in this market, which brings benefits in terms of company access but could also restrict trading ability.
The annual management fee is 2% plus VAT. In addition, there is a share dealing charge of 1% on all purchases and sales. There is no performance fee. For the AIM ISA, the initial charge is 1%, before Wealth Club saving.
This long-standing Inheritance tax service has comfortably outperformed the AIM index since inception, though there is no guarantee of future performance. The team’s size and level of funds under management ensure excellent access to underlying companies. We think the Octopus AIM IHT service is worthy of consideration.