Review: Downing Estate Planning Service
Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.
Downing’s Estate Planning Service is well established. It comes with an insurance option which could effectively make the portfolio IHT free from day one. It offers a choice of asset-backed and renewable energy investments which typically qualify for Business Property Relief (BPR). This means after two years they should be exempt from IHT.
- Insurance option effectively makes the portfolio IHT free from day one (conditions apply)
- Alternatively investors have free downside protection which protects against falls in value of up to 20%
- Choice of asset backed or renewable energy investments
- 4% p.a target return (not guaranteed)
- Minimum investment £25,000
The Downing Estate Planning Service seeks to provide a return after charges of 4% (not guaranteed). Its aim is to invest in unexciting companies which have the potential to offer predictable returns.
To achieve this, Downing offers a choice of investment in two trading companies – one asset-backed and one renewable energy – which in turn invest in a portfolio of 50+ companies. Downing invests and lends to the portfolio businesses which in their view provides additional protection. The equity provides potential upside and the loans give Downing control over the business, help create ongoing liquidity and help prevent external gearing.
The Downing team prefers to back known management teams it has invested with before. Downing takes a priority charge over the assets before the company’s own management, to give investors a better chance of getting their money back if things don’t go to plan.
Downing manages over £225 million in asset-backed businesses and has raised over £1.7 billion in investment overall.
Asset backed – Pulford Trading Ltd
Pulford Trading Ltd is the asset-backed company. It invests in businesses operating from freehold premises, such as hotels, care homes and data centres. These firms are chosen because they have relatively stable revenues and an asset that underpins the investment value, so in case things don’t go according to plan there will usually still be value in the freehold property.
Care homes are typically purpose built with 60-90 beds in what Downing consider to be decent areas. Downing likes investing in Scotland as there is an element of support from the state that isn't means tested. All their Scottish care homes are run by one management team. Prior to making an investment in a new facility, Downing conducts market research to establish demand and potential fee levels.
The lending side of Pulford Trading Ltd will typically provide development finance for student accommodation with a loan term of about 12-24 months. Downing is happy to take construction risk in a deal, however having first charge over the assets is essential.
Renewable Energy – Bagnall Renewables Ltd
Bagnall Renewables Ltd invests in renewable energy businesses, such as solar, wind, anaerobic digestion. These businesses provide risk-managed opportunities for investment, as they usually have predictable revenue streams and access to government-approved subsidies, although these could be withdrawn in future.
Downing prefers new building projects to existing ones that are already generating energy. This is due to the potential for higher returns. There has been a reduction in subsidies for new builds, however, which means existing projects are also considered. This service has to date only invested in UK renewable energy projects, however this is now being broadened to include reserve power projects.
Anaerobic Digestion plants (AD), which turn waste or food stock into energy, form the bulk of the renewable projects completed thus far as they offer the potential for higher long-term returns than other forms of renewable energy, according to Downing. All Downing’s AD plants use crops supplied under contract and turn it into energy, which helps achieve consistency. Other AD plants use waste food matter instead, which is more inconsistent. There are no new AD plants currently under consideration. As well as AD, solar, wind and hydro electricity generation also feature. A project will only be considered once planning has been achieved and connection to the grid agreed.
The share prices of the two companies are shown below: please note these are unlisted companies and have been valued by Downing.
Source: Downing LLP to March 2018. The asset-backed portfolio (Pulford Trading) launched in February 2013 and the renewable energy portfolio (Bagnall Renewables) launched in March 2013. Performance data shown is net of all ongoing charges. Please note these are unquoted companies and the share price is based on Downing’s own valuation. Remember, these investments are illiquid and can be difficult to sell and value. Past performance is not a guide to the future.
Life Cover and Downside Protection Cover
Downing offers two forms of insurance.
The first is life cover, which is optional. You can opt to pay an extra 1.5% in annual charges for the first two years and 40% of your original investment (i.e. the amount that could be subject to IHT) is insured if you die within that period. The policy is in trust so any payout should be made outside your estate.
There are a few conditions – you need to be under 85 years when you invest and you need to confirm a few health details. The maximum insurance per individual is £100,000 (equivalent to a £250,000 investment).
The second is downside protection insurance. This is included at no extra cost where life cover is not chosen. It covers the first 20% of any losses (after charges) for those under age 90 at the time of death. The maximum claim is £100,000 per investor. The insurance policy is included (and paid for) by Downing for a minimum of two years. Other conditions apply.
Risks – important
This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.
IHT portfolios are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks.
Tax rules can change and benefits depend on circumstances. Eligibility for BPR 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.
Fees and charges
A summary of the charges is shown below. Please see the provider's documents for more details on the total fees and charges. If you would like a full breakdown of charges, or a personal illustration, please let us know.
|Full initial charge||4%|
|Wealth Club initial saving||0%|
|Net initial charge through Wealth Club||4%|
|Annual management charge||0.5% plus VAT|
|Annual service charge||1.5% plus VAT|
|Extra charge for life cover (first two years)||1.5% plus VAT|
See example of the total charges over 5 years
This is a well-established service which has delivered consistent returns to investors to date, although past performance is not a guide to the future. One downside to this investment is the performance fee – somewhat unusual in inheritance tax products. That said, the overall fee structure is competitive and the insurance cover makes this an interesting offer.
The Chancellor has requested a review of a range of aspects of IHT to simplify the tax system. The review timescales, its scope and impact are unknown. Currently, investments qualifying for Business Property Relief should be free from IHT after two years. Tax rules can and do change and benefits depend on circumstances.
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.
Downing Estate Planning Service
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