Foresight Accelerated Inheritance Tax Solution
Foresight is one of the most popular choices for investors wishing to protect their wealth from IHT. The Foresight Accelerated Inheritance Tax Solution (Foresight Accelerated ITS) offers life insurance options designed to mitigate the impact of IHT before the two year BPR clock has passed.
- Capital preservation focus
- “IHT free” from day one – no medical underwriting required
- One of the more diversified IHT portfolios, investing across various infrastructure areas uncorrelated to stock markets
- Highly experienced manager
- Target return of 3.5% p.a. (not guaranteed) with a history of delivering this over the past three years (note past performance is not a guide to the future)
- Three different insurance options
- Annual management charge only applied after a return of 3.5% has been met
- Minimum investment £25,000
Foresight Group started as a technology specialist in 1984 and launched one of the first VCTs in the 1990s. It then diversified and became one of the leading renewable energy, infrastructure and PFI investors.
Today Foresight manages c.£4 billion across a range of VCT, EIS, IHT and institutional products. Its clients include some of the world’s leading financial institutions (Blackrock, Schroders and Baillie Gifford to name but a few), public sector organisations, pension funds and insurance companies.
The Foresight ITS is a managed service investing in unquoted companies which should qualify for BPR and therefore benefit from IHT relief after two years. The Foresight Accelerated ITS also includes integrated life insurance which effectively makes the investment IHT free from day one.
When you invest you acquire shares in a trading company operating in a way that is focused on capital preservation and designed to qualify for BPR.
Each investor is exposed to a range of infrastructure projects: solar infrastructure, energy efficiency, smart metering and Private Finance Initiative (‘PFI’), making this one of the most diversified services in the market.
Irrespective of the sector, all projects share two characteristics which should be very valuable to investors seeking IHT protection:
- They are secured either against long-term contracts with the government and blue-chip companies or against assets or loans – tying in with the capital preservation objective
- They produce contractual revenue streams – so your investment should not suffer from high volatility and returns should not be affected by stock market movements
A closer look at some of the sectors will clarify how this works in practice.
Solar power has long been a staple of tax-efficient investing, largely because it produces relatively stable and predictable risk-adjusted returns.
Foresight ITS owns over 20 solar trading plants. Each plant benefits from the income produced by selling the electricity generated. In addition, solar power plants accredited under the government’s RO or FIT schemes receive 20 years of index-linked income from the subsidies, which substantially increases their returns and provides some inflation proofing.
The UK government in conjunction with Ofgem, the energy market regulator, has mandated that by 2020 all properties (residential and commercial) should have a smart/advanced meter.
Energy suppliers are responsible for the roll-out the installations, but they’re reluctant to own smart meters – partly because customers are now encouraged to switch supply with ease. Instead, they lease the meters from specialist companies (known as Meter Asset Providers) for a set period, with the cost passed on to consumers. So, once installed, smart meters are a source of contractually secured income.
Foresight works in partnership with an established Meter Asset Provider. It acquires fully installed and tested smart meters that are under long-term contracts with energy suppliers and receives the rental yield for the duration of the contract, typically up to 10 years. This yield is sufficient to repay the capital used to acquire the meters and to cover interest payments, thereby mitigating the investment risk.
At the end of the contract, the Meter Asset Provider can continue to rent the meters or buy them for a nominal sum. There is also a growing secondary market, which could provide the opportunity for an exit before the end of the lease.
Foresight has installed approximately 350,000 smart meters with over 90 energy suppliers in the UK as at 30 June 2019.
Private Finance Initiative ('PFI')
PFI is an established scheme introduced by the government 25 years ago to enable private funding of public sector infrastructure projects. Currently, there are around 700 active projects that have ben procured through PFI with capital value of over £55 billion.
Typically a local authority (e.g. a council) enters into contract with a consortium of private investors to build and maintain an infrastructure project (e.g. a school or a hospital). Projects have a high-risk construction phase, followed by a lower-risk operational phase. It is common that as the project enters the lower-risk phase, the original investors are keen to sell their holdings, thereby creating a secondary market.
It is the secondary PFI market that interests Foresight. An investment in secondary PFI offers long-term inflation-linked revenues, predictable cash flows (the interest rate is typically fixed for the duration of the investment) and low correlation to equity markets. Moreover, the debt is underwritten by the UK government.
Secondary PFI is popular amongst pension funds and other institutional investors.
Foresight ITS invests in three educational projects (comprising seven schools) and four healthcare projects.
Energy efficiency projects typically involve helping corporations and public sector bodies lower their energy usage and costs.
Investment returns come from the financial value of the energy savings which are apportioned between the customer and the company established by Foresight. The cash flow returns to investors are amortising with no exit required at the end of the investment. Moreover, the investment is underpinned by the physical ownership of the energy saving or energy generation equipment.
Source: Foresight, as at 30 June 2019.
Foresight aims to deliver a minimum return of 3.5% each year to investors, once management fees, administration fees and corporation tax are considered, although this is not guaranteed. The return is uncapped, and any out-performance accrues to investors. The annual management charge is refunded to investors if they have not received a cumulative priority return of 3.5% in each year after the second year.
The portfolio currently invests in trading company Averon Park Ltd. The graph below shows performance data based on most recently available figures and the minimum cumulative return for all investors in the portfolio, assuming they invested across the entire period.
Source: Foresight, to 30 December 2018. Averon Park was set up in 2013 so full year data is not available before 2014. This is an unquoted company so returns and share price are based on internal valuations. Please note, past performance is not a guide to the future.
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.
The Chancellor has asked the Office for Tax Simplification to review a range of aspects of IHT, including BPR. A report has been published in July 2019. It is as yet unknown when and if any of the recommendations will lead to a change in rules. Currently, investments qualifying for Business Property Relief should be free from IHT after two years. Please remember, tax rules can and do change and benefits depend on circumstances.
Insurance delivering IHT protection from day one
Normally when you invest in an unquoted company that qualifies for BPR, your investment becomes IHT free after two years. So for the first two years there is still a liability.
To bridge this gap, Foresight Accelerated ITS automatically includes an insurance policy to provide a payment of 40% of the net Investment Amount (which is equal to the rate at which inheritance tax could be charged) if you die within the first two years. So whilst your portfolio would still be liable for IHT, the pay-out from the insurance should cover this.
There is the choice of three insurance options which offer varying degrees of cover, ranging from death by any cause to covering accidental death only.
Investors over 40 must have no knowledge they’re suffering from a terminal illness, but no medical examinations or questionnaires are required. Other eligibility criteria and some exclusions apply. More information can be found in the provider’s documents.
|Insurance cover options||AMC Charges (% of Net Investment Amount)|
|A (immediate death by any cause)||4.30%|
|B (accidental death only within the first 100 days)||6.36%|
|C (immediate accidental death cover)||1.80%|
Source: Foresight - please note, the charges above are inclusive of the standard 1% annual management charge. The additional insurance fees apply for the first two years, after this the charge is reduced to 1% for all cover options.
Charges and savings
A summary of the main charges and savings is shown below. Some of these will be payable by the investor, whilst others by the IHT companies and/or the underlying businesses. The investment may have additional charges and expenses: please see the provider documents for more details.
|Full initial charge||4%|
|Wealth Club initial saving||—|
|Net initial charge through Wealth Club||4%||Annual management charge||1%|
|Performance fee||—||Investee company charges|
|Initial charge||—||Annual charges||1.65%|
More detail on the charges
In our view the Foresight Accelerated ITS is well thought through. The life insurance option adds an extra element that many investors may find of interest.
Foresight has a capable and very credible management team and the product has sufficient scale to give a wide range of underlying investments. The nature of these investments should mean that long-term returns are consistent, though of course there are no guarantees.
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.
- Infrastructure & renewables
- Portfolio size
- £574.6 million
- Initial charge
- Saving via Wealth Club
- Net initial charge