Octopus AIM (outside an ISA)
The Octopus AIM Inheritance Tax Service is available in or outside an ISA. It seeks to take advantage of Business Property Relief (BPR) whereby shares in certain AIM companies should be exempt from IHT after two years if you still hold them on death.
- Largest ready-made AIM IHT portfolio
- Impressive long term performance record (not a guide to the future)
- Established and profitable businesses sought
- Available in or outside an ISA
- Using ISAs, couples can start to shelter £40,000 from IHT this year between them
- Save on the initial charge via Wealth Club, compared with going direct
The Octopus AIM Inheritance Tax Service is managed by the Octopus UK Smaller Companies team which has a combined experience of more than 100 years. The team, which includes Richard Power, Kate Tidbury and Chris McVey manages over £1.8 billion in AIM-quoted companies. Overall, the Octopus Group businesses manage over £7.8 billion on behalf of more than 150,000 people (Mar 2018).
There are around 900 companies on AIM – but only 25-30 make it into the portfolio. These are not fledgling businesses. The team looks for established firms with growth potential, with one or more of the following characteristics:
- A strong market position or global leader in its field
- A scalable business model focused on growth
- A proven management team with a successful track record
- A profitable business with a strong balance sheet
- A high level of recurring revenues and earnings visibility
As a result, the companies in the portfolio tend to be larger than one might expect. In fact, the average market value of the portfolio companies is £720 million (June 2018).
As you can see from the chart below, to date the investment process has worked. The median performance of the portfolio from launch in June 2005 to 30 June 2018 is 279.64%, compared with 25.51% for the AIM All-Share. Please note past performance is not a guide to the future.
Octopus AIM IHT Portfolio total return – annual performance
Source: Octopus Investments; 30 June 2018
Annual performance to 30 June (%)
|Octopus AIM Inheritance Tax Portfolio||40.95%||16.12%||2.46%||40.52%||8.09%|
|FTSE AIM All-Share (Total Return)||14.58%||-2.46%||-4.98%||38.55%||13.53%|
Source: Octopus Investments, to 30 June 2018.
Total returns of the Octopus AIM Inheritance Tax Service portfolio are median returns from 30 June 2005 with an appropriate sample of investor portfolios. If cash is added or withdrawn during the relevant period, these portfolios have been removed from the calculation. Total returns include the impact of dividend income, interest, management fees and dealing fees. Performance is shown alongside the total returns of the FTSE AIM All-Share and FTSE All-Share (Total Return) indices. Neither index is used as a benchmark for the AIM Inheritance Tax portfolio due to the limited universe of stocks eligible and available to the fund. Past performance is not a guide to the future.
What kind of companies are in the portfolio?
AIM is home to a wide range of companies – young and old, profitable and unprofitable, well run and not. The skill of an AIM fund manager is in sorting the wheat from the chaff. Examples of AIM stocks in the Octopus IHT portfolio include:
Young & Co's Brewery – one of the oldest established businesses in the portfolio. It has 181 managed pubs and 74 tenanted pubs throughout London and the South East of England. Market capitalisation £753.5 million (Jun 18).
RWS plc – leading provider of intellectual property support services and technical translation services. The group translates over 90,000 patents and intellectual property documents a year for clients in legal, financial, medical, pharmaceutical, chemical, engineering and telecom sectors. Market capitalisation £1.17 billion (Jun 18).
Abcam plc – one of Britain’s biggest biotech success stories and the fifth largest company on AIM, with a market capitalisation of £2.7 billion (Jun 2018). Abcam is a producer, distributor and seller of high-quality protein research tools. It started in Cambridge and now has 11 additional locations across Asia, the UK, and the USA.
Exit strategy and access to your investment
Investments in this portfolio are for the long term. However, if your circumstances change, you can sell some or all of your shares, although sometimes this can take a little while. You can arrange to take regular withdrawals from the account, which you can change or stop at any time. Any amount you withdraw will of course no longer be IHT free.
On your death, your heirs can decide to keep the portfolio invested, liquidate it or use it to pay any IHT due. The claiming process is straightforward, via a simple form to complete and send to HMRC. Octopus prides itself both on its customer service and its experience in paying out on death.
Capital is at risk and you should not invest money you cannot afford to lose.
Eligibility for BPR is assessed at the date of death and will depend on the companies remaining qualifying. Remember, tax rules can change and the value of tax benefits depends on circumstances.
Liquidity of companies listed on AIM is a key risk. AIM can be a volatile market with little trading at certain points. Octopus is one of the largest managers in this market, which brings benefits in terms of company access but could also restrict trading ability.
Fees and charges
An overall summary of the charges is shown below.
|Full initial charge||5%|
|Wealth Club initial saving||1.75%|
|Net initial charge through Wealth Club||3.25%|
|Annual management charge||2% plus VAT|
See example of the total charges over 5 years
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.
This long-standing Inheritance tax service has comfortably outperformed the AIM index since inception, though there is no guarantee of future performance. The team’s size and level of funds under management ensure excellent access to underlying companies. We think the Octopus AIM IHT service is worthy of consideration.
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. August 2018
- Portfolio size
- £1.5 billion
- Initial charge
- Saving via Wealth Club
- Net initial charge