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. Currently over £1.3 billion is invested in the Octopus AIM IHT service.
- 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 run 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, Andrew Buchanan, Chris McVey, Edward Griffiths, Stephen Henderson, Mark Symington and Dominic Weller, manages over £1.2 billion in AIM-quoted companies. In total Octopus manages over £6 billion and has more than 500 employees.
There are around 900 companies on AIM – but only 20-30 make it into the Octopus portfolio. These are not fledgling businesses:the team look for established firms with growth potential. In fact, the average market value of the portfolio companies is £673 million (as at 31 December 2017). The team seeks defensive companies it believes have a competitive edge, a strong balance sheet and preferably recurring revenues.
As you can see from the chart below, to date the investment process has worked. The median performance of the portfolio since launch in June 2005 to 31 December 2017 is 281.76%, compared with 20.05% for the AIM All-Share. Please note past performance is not a guide to the future.
Octopus AIM IHT ISA total return – annual performance
Source: Octopus Investments; 31 December 2017
Annual performance to 31 December (%)
|Octopus AIM Inheritance Tax Portfolio||51.87%||13.03%||25.85%||6.48%||27.79%|
|FTSE AIM All-Share (Total Return)||21.33%||-16.53%||6.63%||16.07%||25.93%|
Source: Octopus Investments, to 31 December 2017.
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 If cash is added or withdrawn during the relevant period, these portfolios have been removed from the calculation.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 169 managed pubs and 79 tenanted pubs throughout London and the South East of England. Market capitalisation £421 million (Feb 18)
RWS plc – leading provider of intellectual property support services and technical translation services. The group translates over 50,000 patents a year for clients in legal, financial, medical, pharmaceutical, chemical, engineering and telecom sectors. Market capitalisation £1.2 billion (Jan 18).
Restore plc – specialist in document management and office relocation. It has grown significantly recently and benefits from high levels of recurring revenues from clients in the public and private sectors. Market capitalisation £586 million (Jan 2018)
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 and will lose its ISA tax benefits.
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. Feb2018
- Portfolio size
- £1.2 billion
- Initial charge
- Saving via Wealth Club
- Net initial charge