Review – Oxford Capital 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.
Shares in unquoted trading companies typically qualify for Business Property Relief (BPR), which after two years of being held can be passed on free of inheritance tax. Many businesses qualify. Oxford Capital offers a mix of potentially qualifying lending businesses and direct investment into renewable energy projects.
- Choice of three strategies
- Mix of loan and direct equity investments
- 3%-5% annual targets
- Experienced management
- Minimum investment £50,000
- Flexible access to capital
Oxford Capital has two sides to the business. Early-stage growth investing, often with a technology bias and renewable energy and infrastructure investing. This estate planning service is run by the 14- strong infrastructure team, headed by Oliver Hughes. Mr Hughes is a partner at Oxford Capital and has a background in banking and fixed income. He has been at Oxford Capital for just over four years. In total, Oxford has £250 million of operating assets in renewable energy across its EIS and IHT services.
Target return and strategy
Investors have three unquoted holding companies from which to choose, each with different strategies and return targets. A mix of some or all can be chosen.
- Brimstone Life Holdings Ltd targets 3% capital growth per annum and aims to offer 30-day access to capital invested.
- Chalkhill Life Holdings Ltd has a 5% annual capital growth target but with access to capital only every six months.
- Skipper Life Holdings Ltd targets a 4% return, but paid as a dividend twice yearly. It also has six-month liquidity.
Brimstone specialises in asset-backed lending, primarily to energy and infrastructure projects. There is a mix of short and long-term lending, between one month and five years with a typical loan to value ratio between 50% and 60%. Because this strategy offers 30-day access to capital, approximately 30% of the entire portfolio will be in short-term loans at all times. The typical loan is for one year with a 7.5% interest rate. All the loans are currently to companies already invested in by Oxford Capital, however that may change in the future. According to Oxford, all deals will be infrastructure based, but not necessarily energy generation. For example, it could lend to a company offering large-scale battery systems for storage. Loans will be used for a mix of purposes including working capital and some construction finance. A first charge over the underlying assets is typically taken. There is approximately £3 million invested in Brimstone today.
Chalkhill invests in the same type of deals as Brimstone, but as a direct equity investor rather than a lender. Its current flagship deal, Deeside Solar Farm Ltd, is a 3.85 MW ground-mounted solar plant at Toyota’s Cheshire facility. There is a 20 year purchasing power agreement with Toyota who take all the energy produced – this is inflation proofed. Chalkhill owns this project outright. British Gas Solar manages Deeside Solar. As well as solar there are other infrastructure and energy businesses, for example, an agricultural feedstock trading business that supplies feedstock to some of Oxford’s Anaerobic Digestion plants. Oxford also targets engines that are used for reserve power. Mr Hughes targets a return of 8%-9% per annum (this is before the running costs of the service and taxes) from each individual investment. Chalkhill has approximately £11 million of investments today.
Skipper is a combination of Chalkhill and Brimstone with a planned mix of lending to companies and direct equity investing, i.e. ownership. This is the newest of Oxford’s IHT companies and hasn’t much invested in so far. There is only lending in Skipper at the moment due to its size, but this will broaden out. Mr Hughes anticipates over the long term about 40% of the assets will be lent and 60% invested in direct equity ownership. In a perfect world it would be 60% ownership and 40% lending.
As this service is fairly newly launched there is no significant track record thus far.
Liquidity is a key risk for Skipper and Chalkhill as it is only provided on a six-monthly basis, therefore there may be a delay in receiving funds if needed urgently. As this service is still small, currently there is a lack of diversity, however as Oxford raises more funds this should broaden out. Arguably as this is almost purely energy-related investments, risk is concentrated on just one sector and investors may want to consider another non energy-related IHT service to sit alongside.
Oxford’s initial fee is 2.5% and its management fee 1.5% per annum. In addition, there is a 0.5% per annum fee to cover administration. The administrators, Share Centre, also charge an explicit £50 + VAT per annum and a dealing fee of 0.35%. There is a performance fee of 20% of the excess of the targets on each underlying strategy. However, the performance fee is capped so that excessive risk isn’t taken. Oxford only earns performance fees up to a maximum of 1.5 times the target annual return.
Oxford Capital’s expertise in renewable energy is undoubted. It was one of the first to launch into the EIS space and has transferred this expertise to the estate planning service now. Its track record in EIS is excellent, and whilst this service is relatively new, there is nothing to suggest it has lost its edge.