Downing Estate Planning Service
The Downing Estate Planning Service gives experienced investors an opportunity to 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 over the investment period – 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, in which case they could gain exposure to over 75 underlying businesses.
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. Alternatively, there is a choice of 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 £1.4 billion on behalf of 25,000 clients.
Read important documents and apply
- Free downside protection which protects initial net investment against falls in value of up to 20% (conditions apply)
- Optional life cover that effectively makes the portfolio IHT free from day one (conditions apply)
- Choice of focus on asset-backed or renewable energy businesses, or both
- Target return of between 3% and 4.5% p.a. of net assets (not guaranteed)
- Option to have returns invested or paid out as regular distributions
- Minimum investment £25,000, you can apply online
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 25,000 clients who collectively have over £1.4 billion invested with Downing. There are 85 investment professionals in Downing’s investment team.
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, whose previous roles include Head of Private Equity at Octopus Investments, as well as various senior positions at a number of highly regarded city institutions. Supporting Chris are six experienced partners and heads of departments within Downing.
As at June 2021, the assets managed in the Estate Planning Service have a market cap of £556 million.
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 and should qualify for BPR (Business Property Relief).
Investors can choose to invest in one, or split their investment across both. Pulford and Bagnall carry out their trade through over 75 underlying subsidiary businesses and investors will have exposure to these.
Downing invests in and lends to the businesses. The equity provides potential upside, whilst the loans give Downing some control over the business. 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 hotels, care homes 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 consider to be attractive. Downing likes investing in Scotland as there is an element of support from the state that isn’t means-tested. All Pulford Trading’s 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.
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.
2. Renewable energy and energy infrastructure focus: Bagnall
Bagnall Energy Limited, previously known as Bagnall Renewables, carries out its trade through a variety of subsidiaries in sectors with exposure to renewable energy and energy infrastructure assets, such as:
- Wind, solar, hydroelectric, and anaerobic digestion projects
- 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 provide risk-managed opportunities for investment, as they usually have predictable revenue streams, often with access to government-approved subsidies, although these could be withdrawn in future.
The service targets a return of between 3% and 4.5% per annum, after fees (excluding initial fees, discounts and ongoing commission payments), over the medium term – not guaranteed. The target return will be reviewed every 12 months.
The annual management charge will only be payable at the end of each financial period if investors have received returns of at least 3% from the trading company over that period.
Note that the annual fee is charged on an individual trading company basis, therefore it is possible for the charges to be taken on one company and not another.
Where returns are between 3% p.a. and 4% p.a., the charge is pro-rated on a 2:1 basis 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.
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.
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.
Impact of IHT on investment returns
The table below shows illustrative returns for a £100,000 investment over 5, 10 and 15 years, with and without IHT relief.
|With IHT relief||Without IHT relief (subject to 40% IHT)|
|Illustrative net return||4%||4%||5%||7%|
The illustration with IHT relief shown above also includes the impact of the initial fee, and the Wealth Club discount applied to this offer, whereas the comparisons with other returns subject to IHT assumes no initial charges. Note this is not an illustration for the Downing estate planning service: please contact us for your personal illustration.
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 (%)
Source: Downing as at 30 June 2021.
Bagnall Energy - sector breakdown (%)
Source: Downing as at 30 June 2021.
Examples of assets by sector
Care homes (Pulford) – Macc Care Group Ltd
Macc Care Group (“MCG”) is an experienced developer and operator of residential care homes for the elderly and has been supported by Downing since 2017.
In December 2019, Downing provided MCG with a loan facility to fund development of 45 senior living apartments and an 85-bed state-of-the-art care home in Sutton Coldfield. Following its opening in late 2020, the company has already made good progress, completing the sale of 12 apartments, with a further nine reserved. In addition, the care home has 20 residents and is expected to reach maturity within 18 months (March 2021).
Solar (Bagnall) – Wensum Solar LLP
Wensum Solar LLP has developed a 6.9MW solar photovoltaic (PV) portfolio with the capacity to generate enough energy to power the equivalent of 1,900 UK homes for a whole year. The portfolio is split between 32 rooftop installations and one ground-mounted installation located across Lincolnshire and Norfolk. Revenues within the business are supported by Renewable Obligation Certificates (ROCs), a government-backed scheme to incentivise large scale renewable energy generation.
Downing managed funds have invested £8.6 million into the business to date.
Magnus Care Group – recent investment and exit
Magnus Care Group owns and develops quality care homes. The business operates six care homes. Care homes include Bothwell Castle, located in an affluent area of Glasgow, and Beaumont Manor in Frinton-on-sea. Pulford Trading had security over the bricks and mortar of the care home properties, as well as other assets within the business, such as cash.
Downing invested £52.6 million into the Magnus Care Group and recently exited its position in June 2021 as a part of a wider deal of eight care homes. The exit generated returns of £80 million, remember 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 project of a former hotel in Birmingham. The project required substantial refurbishment work and, following a competitive tender process, Downing selected a national contractor it believed qualified to carry out the work.
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 subsequently went into administration in July 2019. While Downing considered progressing with a new project manager, the revised costs made the project uneconomical, and the decision was made to sell the property in a half-finished state.
The site was sold for £1.5 million in July 2020 and resulted in a £17.2 million impairment in Pulford’s accounts.
Following the failure of one of its projects, Pulford saw a drop in its share price in 2020. This was further complicated by the outbreak of Covid-19 which affected both trading businesses although both have now recovered. In addition, investors in the Downing Estate Planning Service should benefit from the 20% downside protection policy, subject to conditions. This means, in the event of death, the beneficiary should be protected against a loss in value of up to 20%.
Share prices since inception
Downing LLP, Companies House to 30 September 2021. Pulford launched in February 2013 and Bagnall 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.
Downside protection insurance and life cover
Downing offers two forms of insurance: downside protection insurance and life cover.
Downside protection insurance
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.
This is optional. You can opt to pay an extra 2.25% 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). Please check the terms and conditions for more details.
Access to your investment
Downing aims to provide access to funds twice a month, on ten 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.
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.
More than 450 investors have passed away since the service launched. In all these cases, investments have qualified for business property relief where the investor died after two years.
A previous Chancellor requested a review of IHT to simplify the tax system. A report was published in July 2019, but this has not yet led to any rule changes. Please remember, tax rules can and do change and benefits depend on circumstances.
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||2%|
|Net initial charge through Wealth Club||2%|
|Annual management charge||1%|
|Exit fee||—||Investee company charges|
|Annual charges||Up to 2%|
See example of the total charges over 5 years
With £556 million under management, the Downing Estate Planning Service is one of the largest inheritance tax investment services. Investors are given a choice of investing in one of two trading business or both.
The service has a downside protection insurance policy which insures investors against losses of up to 20%, or a maximum of £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 who 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 be of interest for 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.
Read important documents and apply
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.
- Property & renewables
- Portfolio size
- £556.0 million
- Initial charge
- Saving via Wealth Club
- Net initial charge