Review: ProVen Legacy Inheritance Tax Service
ProVen Legacy is a new inheritance tax portfolio run by some of the team behind the top-performing ProVen VCTs.
Investors in this service buy shares in an unquoted company, ProVen Legacy Plc, which makes secured loans to SMEs. Each loan will be backed by assets used in the borrower’s business, or the business will have predictable revenue streams. Provided the shares are held for at least two years and at the time of death, the value of the shares should benefit from 100% relief from Inheritance Tax, thanks to Business Property Relief.
- New launch from a very experienced team
- Choice of growth or income shares
- Targeted minimum total return of 3% p.a. net of fees (not guaranteed)
- Low minimum investment – just £10,000
- No fee will be paid to the Lending Adviser until the portfolio has delivered a return of at least 3% each year.
ProVen Legacy’s “lending adviser” is Beringea LLP, a US and UK venture capital and private equity manager known predominantly in the UK for two VCTs: ProVen and ProVen Growth & Income (together the “ProVen VCTs”). Beringea manages assets of approximately £600 million, with £200 million managed by the London office.
The core team at ProVen Legacy is led by Mark Taylor. Mark is a pioneer of venture and growth finance in Europe having been a founding partner of EVP (now Kreos Capital) in 1998. He went on to found and manage Noble Venture Finance and was instrumental in creating Clydesdale Growth Finance. Since joining Beringea he has been responsible for lending within the ProVen VCTs. He has 30 years’ lending experience and spent the last 17 years focusing on venture and growth finance. He has been directly responsible for providing more than £178 million in debt finance since 1998.
Mark works closely with two of Beringea’s Investment Directors: Hilary Weatherstone, who previously worked at Dresdner Kleinwort Benson, Barclays, and Ernst & Young; and Chris Bone, who co-founded Clydesdale Growth Finance.
Together they source and advise on the loans made by ProVen Legacy.
Target return and strategy
Investors have the choice of growth or income shares. The performance target for both, which Mr Taylor considers very achievable, albeit not guaranteed, is 3% per annum after all expenses and operating expenses. When investing in growth shares the return is rolled up, whereas with the income shares it is paid out as a dividend.
ProVen Legacy has to be a trading business in order to qualify for Business Property Relief and therefore deliver the IHT relief. Its trade is lending money primarily to asset-rich small and medium-sized enterprises (SMEs) and occasionally larger companies.
There are two main sources for the deals. The first is ProVen's VCT portfolio, which currently include over 40 companies, all of which Beringea knows well. Of these, they consider four or five would make ideal candidates for the ProVen Legacy portfolio. Secondly, the team relies on its extensive personal networks and Beringea’s contacts.
Two types of lending are undertaken: secured lending and leasing asset finance.
Secured lending, as the name suggests, is a loan secured against some form of asset within the business. These could be bricks and mortar assets or the loan could also take the form of a first charge over cash or stock. Typically, the term of each loan is expected to be two to five years and businesses sought will need strong asset cover or predictable cash generation characteristics. Beringea reviews the whole balance sheet to see the level of assets. The company’s assets should normally have a value not just for that individual company, but also for other companies within the marketplace. This provides a potential secondary market should the borrower have any difficulties in repaying. ProVen Legacy does not intend to lend money into the buy-to-let market.
ProVen Legacy has completed six loan facilities. The first loan is for £250,000 at a rate of 9.3% to a company backed by Goldman Sachs and whose clients include tier one global banks and trading houses. The company is part of ProVen's VCT portfolio. The new loan has a 24-month term. The borrower makes monthly payments of £10,000 pcm with a final payment of £35,000 on exit. ProVen Legacy has security over stock and cash within the business.
The second loan was initially for £500,000 to an integrated media and marketing services company. The loan was in two tranches each of £250,000 with the first tranche drawn in April 2017 and the second tranche in May 2017. The loan was at a rate to ProVen Legacy of 9.5% and both tranches are repaid monthly over 36 months at £6,250 pcm and a final payment of £68,750 on exit. The company has just completed a further tranche of £250,000 on very similar terms.
The third loan is for £500,000 to a digital transformation agency. That loan was in two tranches, each of £250,000, with the first drawn in October 2017 and the second tranche in January 2018. This loan was at a rate to ProVen Legacy of 10.6% and is repaid monthly over 24 months at £19,400pcm and a final payment of £92,500 on exit.
ProVen Legacy will also lend to leasing businesses, for instance in the technology or office equipment sectors. Those businesses will use the loan to buy the assets (e.g. computers, telecoms equipment or photocopiers) they will lease to their end customers. ProVen Legacy acts as finance provider to the leasing business and has a charge over the underlying assets but the credit risk is assessed on the end borrower. The length of term is expected to be between two and five years with monthly or quarterly repayments.
Leasing asset finance is a lower-margin business than secured lending, but it adds a more attractive credit risk.
The prime concerns with all lending are stability and security, according to Mr Taylor. Companies will normally have turnover of between £1 million and £50 million per annum, be able to provide evidence of demand for their products or services and have a strong management team with a proven track record of achievement.
The manager keeps a cash buffer and concentrates on shorter-term loans to start. This lending strategy will help mitigate the liquidity risk inherent in the portfolio as many of the loans are capital repayment loans with monthly or quarterly repayments.
Subject to the Board’s discretion and the availability of sufficient cash reserves, ProVen Legacy plc will redeem shares at a discount of 1% to the Net Asset Value per share as at 30 June or 31 December (as applicable). The Net Asset Value is calculated monthly.
As the offer only launched in 2016, the track record is limited. However, Mark Taylor and the team have extensive experience in lending to companies similar to the ones expected to be lent to by ProVen Legacy.
Mark and the team recently successfully exited three companies to which the ProVen VCTs had made loans, although past performance is not a guide to the future.
An example is Speciality European Pharma (SEP), which specialises in acquiring, licensing and distributing pharmaceutical products and medical devices within the urology and urogynaecology markets.
In December 2014 the ProVen VCTs agreed a £4.75 million four-year term loan to SEP. This loan enabled SEP to repay an earlier facility with Clydesdale Bank and fund its European growth.
In June 2016 SEP was acquired by leading life science investor Juno Pharmaceuticals Inc. thereby enabling the early repayment of the loan and generating healthy returns for the ProVen VCTs.
An additional example is Linkdex, one of the world’s leading Search Engine Optimisation (SEO) platforms. It secured a loan of £2.5 million from the ProVen VCTs in November 2015 and was acquired by content marketing company Scribblelive in August 2016.
A third exit was at the end of August 2016 from Peerius, a provider of website personalisation software, which received a £1.2 million growth finance loan in April 2014.
Note the above are examples of loans arranged by the team for the ProVen VCTs: they are not loans in the current ProVen Legacy portfolio.
This is a long-term commitment and capital is at risk: as well as all the usual risks of unquoted companies, there are specific risks of investing in a new IHT fund.
Investors should not invest money they cannot afford to lose.
The portfolio is small, meaning there is an initial risk in lack of diversification. The fees and charges are also proportionally greater for early investors in the portfolio although once the portfolio scales up the costs should be spread out, although there are no guarantees.
Another key risk is liquidity and not being able to dispose of your holding when desired. Shareholders will be able to request the redemption of all or part of their New Shares as of either 30 June or 31 December each year.
Under current rules, BPR qualifying investments held for at least two years on death are granted relief from IHT, but remember tax rules can change and tax benefits will depend on circumstances. HMRC only assess the investment for BPR qualification on death.
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||5.5%|
|Wealth Club initial saving||0%|
|Net initial charge through Wealth Club||5.5%|
|Annual lending advisory fee||1.5% plus VAT|
|Annual administration fees||1.2%|
|Exit fee||1% of NAV|
See example of the total charges over 5 years
Despite being a new entrant to the IHT market, the ProVen Legacy team and proposition are well-placed to deliver, in our view, once the portfolio gets underway. The target return is modest, yet the key individuals behind ProVen Legacy have extensive experience in managing these types of investment over many years. We think this offer could have merit as part of a wider IHT mitigation strategy.
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 highlight investments we believe have merit, but you should form your own view. You should decide based 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.