Downing Estate Planning Service

The Downing Estate Planning Service helps experienced investors protect their assets from inheritance tax. After two years, the investment should benefit from IHT relief, provided it is still held on death. 

The service aims to deliver a consistent, but modest, level of return – not guaranteed. To do this, it focuses on businesses in two distinct areas: asset-backed sectors and energy projects. Investors can choose to have exposure to just one or both.

The service includes a choice of two insurance options. The first, which is at no extra cost, protects the portfolio from losses of up to 20% for at least the first two years (conditions apply). Investors may also choose additional life cover that could effectively make the investment IHT free from day one.

Downing is one of the UK’s larger providers of tax-efficient investments, managing more than £1.9 billion (June 2023). 

• Free downside protection which protects initial net investment against falls in value of up to 20% and optional life cover (conditions apply)
  
• Choice of focus on asset-backed or renewable energy businesses, or both
• Option to have returns invested or paid out as regular distributions
• Target return of between 3% and 4.5% p.a. of net assets - not guaranteed 
• Minimum investment £25,000, you can apply online

The manager

Downing LLP was founded in 1986 and is a specialist investment management business with a focus on tax-efficient investments. Today, the business has over £1.9 billion under management. 

The estate planning service is managed by an investment committee chaired by Chris Allner, a partner in Downing LLP with 35 years of industry experience including as Head of Private Equity at Octopus Investments and various senior positions at highly regarded City institutions. Supporting Chris are seven experienced partners and heads of departments.

The Estate Planning Service has net assets of £807 million (June 2023).

Investment strategy

The Downing Estate Planning Service seeks to provide investors with a return of between 3% and 4.5% of net assets after charges (not guaranteed). 

To help achieve this, it invests in two trading companies, each with a distinctive focus: Pulford Trading Limited (“Pulford”) focuses on asset-backed sectors, whilst Bagnall Energy Limited (“Bagnall”) focuses on energy projects. Both companies have, in Downing’s view, the potential to offer predictable returns and suitable asset backing while qualifying for BPR (Business Property Relief). 

Investors can choose to invest in one or split their investment across both.

Downing invests in and lends to the businesses. The equity provides potential upside, whilst the loans give Downing some extra security. Downing looks to take a priority charge over the assets, to give investors a better chance of getting their money back if things don’t go to plan. Downing prefers to back proven management teams it has backed before, often following a management team from one project to the next.

Both companies may take interests in listed funds or companies during periods when they are retaining cash that is needed for future investments. Note that this may include Downing-managed entities. 

1. Asset-backed focus: Pulford 

Pulford’s subsidiary businesses operate from freehold premises, such as care homes, property development, and data centres. These have relatively stable revenues and an asset that underpins the investment value, so if things don’t go according to plan there will usually still be value in the freehold property, although this is not guaranteed.

Care homes are typically purpose-built with 60-90 beds in areas Downing considers to be attractive. Pulford’s portfolio currently includes 10 elderly care homes, nine specialist care homes for residents with disabilities or mental health issues, and a further eight special educational needs school sites (September 2023). Prior to making an investment in a new facility, Downing conducts market research to establish demand and potential fee levels. 

Pulford also has an interest in a lending business, Downing Development Finance Limited. The business makes secured loans to fund residential property developments, typically lending £1–£10 million per project. Downing is willing to take construction risk in a deal if it has first charge over the assets. Loans are often sustainability linked, with financial incentives for borrowers to be more sustainable, such as through maximising energy efficiencies.  

2. Renewable energy and energy infrastructure focus: Bagnall 

Bagnall Energy Limited, previously known as Bagnall Renewables, operates through a variety of subsidiaries in sectors with exposure to renewable energy and energy infrastructure, such as:

• Wind, solar, hydroelectric, and battery storage 
• Sectors that enable the widespread rollout of renewable energy, such as reserve power, and energy storage
• Combined heat and power engines which process fuel to generate electricity and heat with lower wastage, thus enhancing energy efficiency

These businesses usually have predictable revenue streams, often with access to government-approved subsidies - although these could be withdrawn in future. Bagnall may also invest in companies developing new energy projects with proven technologies. 

Downing estimates that Bagnall’s portfolio generates over 230,000 MWh of electricity each year, enough to power approximately 79,000 UK homes (September 2023). 

Target return

The service targets a return of between 3% and 4.5% per annum, after fees (excluding initial fees and ongoing commission payments), over the medium term – not guaranteed. The target return will be reviewed every 12 months.

The annual management charge is only payable if investors have received returns of at least 3% from the trading company in the preceding year. Note that the annual fee is charged on an individual trading company basis, so it's possible for the charges to be payable on one company and not another. 

Where returns are between 3% p.a. and 4% p.a., the charge is pro-rated between the investor and Downing, to a maximum of 0.5% p.a., which is levied in full when gross returns are 4.5% p.a. or more. See example charges below.

If the service does not return 3% in any one year, then investors will not be charged an annual management fee for that year. The charge is not deferred. 

There is an additional charge of 0.5% + VAT per annum, payable to Wealth Club, which is paid by selling shares in the underlying trading businesses. 

Impact of IHT on investment returns

Please contact us for illustrative returns for a £100,000 investment over 5, 10 and 15 years, with and without IHT relief.

Current assets overview 

Investors can choose a specific trading company or opt to split their investment between the two, for diversification.

Pulford Trading - sector breakdown (%)

Bagnall Energy - sector breakdown (%)

Examples of assets by sector

Specialist Education (Pulford) – Bridges Care and Education Group

Bridges Care and Education (trading as Spaghetti Bridge) manages a portfolio of day schools for pupils with special educational needs and disabilities. 

Downing has partnered with Bridges since 2020, and used its network of contacts to identify an experienced management team to launch the specialist education platform. In Q3 2023, Pulford invested £7.2 million to support the acquisition of the eighth site in Gloucestershire. The school is currently being refurbished with plans to offer 120-places from 2024. This will increase the group’s total capacity to 635 pupils.

Solar (Bagnall) – Northumbrian Water Limited

To date, Bagnall has secured partnerships with three water utility companies in the UK (South Water, Yorkshire Water, and Northumbrian Water) to design and construct solar farms.

The solar farms supply renewable energy directly to the companies using power purchase agreements (PPA). Bagnall intends to build 46 solar sites across the three partnerships. Once operational, the portfolio should be capable of generating 44.1 GWh of energy (enough to power 15,800 UK homes annually). 

In Q2 2023, Bagnall provided £1 million in follow-on funding to the Northumbrian Water Limited project. 

Maplebrook Care Home – recent investment and exit 

In June 2022, Downing acquired Maplebrook, a care home based in Wolverhampton. The site had fallen into disrepair following a period of underinvestment and required significant refurbishment.

The property was renovated with state-of-the-art facilities and now offers specialist care for individuals with acute mental health and dementia conditions. The site currently has over 81 beds and a growing occupancy. 

Downing sold the business in June 2023 to an institutional investor, realising a substantial return for Pulford. Past performance is not a guide to the future. 

St Chad's (Birmingham) Holdings Ltd – example of a failure

Of course, things do not always work out. Downing has shared details of an investment which did not go to plan.

St Chad’s (a holding within the Pulford Trading portfolio) was a redevelopment of a former hotel in Birmingham. The project required substantial refurbishment and, following a competitive tender process, Downing selected a national contractor. 

However, the contractor ran into issues with several other projects, resulting in losses and a lack of liquidity. Despite Downing receiving assurances directly from the senior management team, the firm went into administration in July 2019. While Downing considered progressing with a new project manager, the revised costs made the project uneconomical. 

The site was sold in a half-finished state for £1.5 million in July 2020, casuing a £17.2 million impairment in Pulford’s accounts.

Performance

Pulford launched in February 2013 and Bagnall in March 2013. Since inception, the companies’ share price has increased by 42.8% (Pulford) and 43.0% (Bagnall), equivalent to an annualised return of 3.4% for both companies. 

In the five years to September 2023, returns have averaged between 2.1% and 3.4%, this includes a difficult trading period during the pandemic. Past performance is not a guide to the future. 

In addition, investors in the Downing Estate Planning Service should benefit from the 20% downside protection policy, subject to conditions. This means, on death, the beneficiary should be protected against a loss in value of up to 20%. 

Share price since inception

Downside protection insurance and life cover

Downing offers two forms of insurance: downside protection insurance and life cover.

Downside protection insurance – included, no extra cost

This is included at no extra cost where life cover is not chosen. It protects the initial net investment against a loss in value of up to 20% 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. 

Life cover – optional

You can opt to pay an extra 2.25% (plus VAT) in annual charges for the first two years so that 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 free from IHT.

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). Joint life second death cover is available for an additional 1.86% (plus VAT); the maximum payout for joint life cover is £200,000. Please check the terms and conditions for more details.

Access to your investment

Downing aims to provide access to funds twice a month, on 10 business days’ notice. This is subject to liquidity and is at Downing’s discretion. There are no charges or penalties for a partial or a full withdrawal. If you request a withdrawal, Downing will sell your shares at the current share price to a third party, wherever possible. 

If it’s not possible to sell your shares to a third party, they may be repurchased by the trading companies – in which case, any profit may be subject to income tax. Bear in mind that the companies’ ability to repay will depend on liquidity. 

Note that if your shares are sold to a third party (whether to provide distributions or a full withdrawal), a capital gain or loss could arise potentially creating a tax liability. 

Also, any withdrawals from your portfolio will not benefit from IHT relief, unless another IHT exemption is used.

Risks – important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice. 

The IHT service contains assets which are high risk and should only form part of a balanced portfolio, you should not invest money you cannot afford to lose. The service invests in illiquid assets which may be hard to sell or 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. 

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.  

More than 1,250 investors have died having held the investment for at least two years since the service launched. In all these cases, investments have qualified for business property relief.

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.

Our view

With over £807 million under management, the Downing Estate Planning Service is one of the largest inheritance tax investment services. Investors can choose to invest in one of two trading businesses or both. 

The service has downside protection insurance which insures investors against losses of up to 20%, capped at £100,000. The policy comes at no additional cost to investors and could be attractive for those seeking to shield their beneficiaries from the current period of economic uncertainty, as well as inheritance tax. The policy differentiates Downing from its peers. 

Investors can also opt for an additional Life Cover policy which, subject to terms, could make the investment effectively IHT free from day one.

For experienced investors concerned about the potential impact of inheritance tax on their estate and the current period of economic uncertainty, this could be a consideration. It may also be of interest to those looking for a portfolio that can potentially offer BPR replacement relief. The service is established and has a track record of delivering modest and predictable growth whilst sheltering shareholders’ assets from inheritance tax. Note past performance is not a guide to the future and tax rules can change: investors should form their own view. 

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.