Guinness Sustainable Inheritance Planning
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. Guinness’s service focuses on renewable energy and specifically rooftop-mounted solar projects.
- Roof-mounted solar energy projects
- 5% target return
- Minimum £25,000 investment
- Low annual fees
Guinness Asset Management (GAM) was set up by Tim Guinness in 2003. Mr Guinness was co-founder of Guinness Flight Asset Management which he sold in the late 1990s. GAM manages £600 million the bulk of which is in funds investing in quoted markets and about £60 million in EIS and IHT services. There are 27 staff in London; Shane Gallwey, Hugo Vaux, Chris Villiers, Malcolm King and Ed Guinness are the key people in unquoted investments (including this IHT service). This IHT service launched in 2015 and its first energy EIS in 2011, which invested in a similar array of projects.
Target Return and strategy
The target return is 5% per annum, net of all fees, variable and not guaranteed. The return is rolled up, but for investors who want an “income” they can take regular withdrawals from capital.
Investors buy into a trading company called Guinness Sustainable Infrastructure Limited (GSIL). GSIL will invest in sustainable infrastructure projects. Although the remit is wide, in reality Shane Gallwey, lead manager of this service, suggests that rooftop-mounted solar projects will form the bulk of investments.
Guinness plans to install solar panels on factory roofs with the aim to subsequently sell the electricity generated to that factory at a higher price than the grid would pay. The factory also gets a better price than buying from the grid.
There is no typical size of project, it could be anything from £50,000 to £4 million.
It is time consuming to negotiate deals, however, Mr Gallwey believes the returns are better than ground-mounted solar. For example, a 5 MW solar farm (ground-mounted) might need 30 acres of land and cost £5 million to install. With rooftop-mounted solar there is typically no rent to be paid or additional grid connection required. More importantly, no planning permission is required.
According to Mr Gallwey, a rooftop-mounted solar project might generate an annual return before costs and taxes of 8%, whereas ground mounted might only deliver 6%. For this reason, despite ground-mounted projects being the most common type of UK solar installations, Guinness has always preferred rooftop-mounted.
Clearly, when planning to sell energy to a factory rather than the grid, there is credit risk. This is why Guinness carries out a lot of due diligence on the underlying factory/business before investing. In addition, if that business went bust Guinness could still sell the electricity to the grid.
There is a preference for investing in solar projects that are already agreed and with the grid connection already in place with only the contractual installing and construction needed. The installation is normally covered by guarantees about overruns etc. By investing at this stage Mr Gallwey believes higher returns can be generated than buy buying already generating assets.
The cost of installing solar assets has fallen markedly over the last few years. For example, in 2011 it cost approximately £4,000 to install 1KW of solar capability but costs £800 per 1KW today. This has coincided with subsides falling, however in Mr Gallwey’s view rooftop mounted solar has now virtually reached grid parity with traditional forms of electricity generation and doesn’t need subsidies anymore.
There will be quarterly valuations and dealing points.
This service only launched in 2015, therefore there is no meaningful performance data thus far.
Although the service intends investing in sustainable energy infrastructure, the plan for the foreseeable future is to invest only in rooftop-mounted solar projects. Therefore, this is quite a specific service. Additional risks include the fact that Guinness prefers to invest in pre-construction projects; for example, there may be delays in construction that could impact electricity generating capability and thus returns.
Guinness levies no initial charges. The annual management fee is 1%, paid for by the underlying investee company. In addition, there is a 0.275% dealing fee and annual custodian fee of £37.50 per client – both paid by the underlying company. There is a performance fee of 20% of any profits payable on redemption assuming a simple hurdle of 3.5% per annum has been achieved. The total charges are annual capped at 1.5%, excluding performance fees.
The biggest concern for this service is its current size of under £1 million. However, Guinness Asset Management has over £20 million invested in rooftop-mounted solar projects through its existing EIS and has shown its expertise at delivering excellent returns. The team is well resourced and experienced and returns, although not guaranteed, should be fairly predictable over the long term. Information as at May 2016.
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