Octopus AIM Inheritance Tax Service

Archived article

Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.

The Octopus AIM Inheritance Tax Service is available within or outside the ISA wrapper. It is managed by a very experienced team, and aims to take advantage of the Business Property Relief (BPR) rules whereby shares in certain companies fall outside of an investor’s estate for IHT purposes after two years of being held. Currently over £550 million is invested in this service.

  • Established and profitable businesses sought
  • Dividend paying companies preferred
  • Experienced fund managers
  • Long term performance record

The Manager

The Octopus UK Smaller Companies team manages both the AIM IHT services. It is an experienced team of eight including Richard Power, Andrew Buchanan and Kate Tidbury. They manage £850 million across VCTs, funds, EIS and AIM IHT portfolios. In total Octopus manages over £5 billion of assets across a range of VCT, EIS, funds and IHT products.

Target return and strategy

The Octopus AIM service aims to grow your wealth by investing in established and profitable companies. To be considered for inclusion, companies must have strong balance sheets and management teams with a track record of delivering shareholder value.

The team like companies with niche or proprietary products or services in growth markets. High levels of earnings visibility and dividends are also important.

IHT investments tend to focus on larger AIM companies. All companies have to have a market capitalisation of over £100 million at the time of investment, and the average market cap of companies in the portfolio today is over £400 million. 

The team compile a list of about 70 stocks that meet their criteria, and then create a “buy list” of 20-30. Currently this includes 25 dividend-paying stocks in sectors ranging from support services to software and computer services and healthcare. They will be typically held within the portfolio for three to five years.

The team has weekly investment meetings in which they discuss all companies they have met as well as the entire IHT buy list. The IHT portfolio often buys holdings previously held in the Octopus AIM VCTs once they mature, for example Advanced Computer Software.

The team concede IHT-friendly stocks aren’t necessarily cheap, with the average holding trading at a price/earnings multiple of over 20 today, but growth in earnings is currently expected to be 11% per annum. The average profit of companies in the portfolio in 2015 was £23.4 million.

Performance

Octopus AIM IHT PerformanceRisks

Liquidity of companies listed on AIM is the key risk in this service. 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.

Fees

There is a 5% initial charge to enter the service outside of the ISA wrapper. In addition, there is a share dealing charge of 1% on all purchases and sales. The annual management fee is 2% plus VAT. There is no performance fee. On the AIM ISA, the initial charge is 1%.

Summary

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. Octopus’s focus on profitable, growing and dividend-paying companies is a sensible approach to a higher risk market.

Read more about Octopus AIM IHT Service (ISA)
Read more about Octopus AIM IHT Service (non-ISA)