Downing Estate Planning Service

Shares in unquoted trading companies typically qualify for Business Property Relief (BPR), which after two years of being held fall outside of an investor’s estate for inheritance tax purposes. Many businesses qualify, including those that lend money and those that invest in businesses with substantial assets such as property. 

Highlights

  • Choice of asset backed or renewable energy strategies
  • Mix of loan and equity investments
  • 4% annual target
  • Experienced management
  • NEW life cover option
  • Minimum investment £50,000

Video interview

The manager

Downing LLP is owned by its partners and specialises in tax-efficient investments, including VCT, EIS and IHT. Jonathan Boss who heads Downing’s asset backed team and Colin Corbally, who leads the renewable energy team, are the key individuals responsible for investments within the Downing Estate Planning Service. 

Target Return and strategy

There is an annual target return of 4%, net of fees and corporation tax, not guaranteed. 

Investors buy into one or both of Downing’s IHT trading companies within the Downing Estate Planning service: Pulford Trading Ltd is their asset-backed company and Bagnall Renewables Ltd is the renewable energy one. If an investor doesn’t choose, Downing will invest in both companies, with the split dependent on deal flow at the time. 

Preservation of capital invested and a reliable yield are two key aspects that Downing’s management looks for when considering an investment opportunity in either area. So asset-backed businesses must trade from freehold property and renewable energy projects need a known income stream from feed-in-tariffs, renewable obligation certificates, or the sale of electricity. 

In both companies there is a mix of equity investments with growth potential and straightforward loans to companies. The loans provide the on-going liquidity. 8% yield plus equity upside (in the growth deals) is the minimum Downing wants from each investment. As with the majority of Downing’s investments, the team prefers to back known management teams they have invested in before. In addition, should the companies run into financial difficulties, Downing has priority charge over the assets before the company’s own management, to give investors a better chance to get their money back. 

Asset backed – Pulford Trading Ltd

The asset-backed side is dominated by investments in care homes and pubs. Care homes are typically purpose built with 80-90 beds in decent areas. Downing likes investing in Scotland as there is an element of support from the state that isn't means tested. All Scottish care homes are run by one management team. Prior to making an investment in a new facility, Downing conducts market research to establish market demand and potential fee levels.  

The lending side of Pulford will typically provide development finance for student accommodation with a loan term of about 12-24 months. Downing is comfortable taking construction risk in a deal, however having first charge over the assets is essential. It won’t do speculative residential developments. 

Renewable Energy – Bagnall Renewables Ltd

Downing likes building projects rather than buying existing and already energy-generating projects. This is simply due to the potential for higher returns available. 

This service only invests in UK renewable energy projects. Anaerobic Digestion plants (turning waste or food stock into energy) form the bulk of the renewable projects completed thus far as they offer the potential for higher long-term returns than other forms of renewable energy according to Downing. All Downing’s AD plants use crops supplied under contract and turn it into energy, which helps achieve consistency. Other AD plants use waste, instead, which is more inconsistent. As well as AD, solar, wind and hydro electricity generation also feature. A project will only be considered once planning has been achieved and connection to the grid agreed.

Life Cover and Downside Protection Cover

There is a new option of life cover, available at extra cost to investors under the age of 85 who meet certain criteria. It is a two-year option (subject to conditions),which aims to mitigate the impact of IHT from the date shares are acquired. 

Finally, there is the added benefit of an insurance policy covering the first 20% of any losses (after charges) 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. This is an excellent added feature at no additional cost to investors and helps protect the portfolio in the event of losses in the first two years whilst investors await IHT-free status.

Risks

Liquidity is only provided on a six-monthly basis therefore there may be a delay in receiving funds if needed urgently. This ties in with Downing’s valuation process: the underlying businesses are only valued once every six months. Capital is at risk.  Tax benefits depend on circumstances and tax rules can change.  The Life Cover option is subject to conditions.

Fees

The annual fee is 2% plus VAT; the full initial charge is 4% before Wealth Club discount. There is a performance fee of 20% of returns over 4% compound per annum, charged at exit. There is an additional charge of 3.5% for the first two years for the life cover option.  

In addition, Downing may receive arrangement and monitoring fees from the underlying investments, unless they are simply lending money. Arrangement fees are capped at 2%. Monitoring fees are capped at 0.5% each year.

Summary

This is a well thought out service that has delivered consistent returns to investors to date, although past performance is not a guide to the future. Downing’s management in the areas of focus are high quality and experienced. One downside to this investment is the performance fee – somewhat unusual in inheritance tax products. That said, the overall fee structure is still competitive and we believe the Downing Estate Planning Service is worthy of consideration.  Information at at Feb 2017.

The details

Type
unquoted
Min. Investment
£50,000
ISA Available?
No

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