Octopus AIM ITS

Important

Please note you can only apply for this offer as a new investor if you have a professional financial qualification, if you hold a role in professional financial services, or if you hold a professional financial role (e.g. finance director). If you are an existing investor, this restriction does not apply to you.

The Octopus AIM Inheritance Tax Service is available either within an ISA wrapper or without. It seeks to take advantage of Business Property Relief (BPR) whereby shares in certain AIM companies become eligible for IHT relief after two years, provided you still hold them on death. 

Highlights

  • 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

Important: The information on this website is for experienced investors. It is not advice nor a research or personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. They are high risk and illiquid and can fall as well as rise in value, so you could get back less than you invest.


The manager

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 (August 2019). Overall, the Octopus Group businesses manage over £8.6 billion on behalf of more than 150,000 people (June 2019). 

Watch a video interview with Dominic Weller of the UK Smaller Companies team:

Recorded 20 September 2017

Strategy

There are around 900 companies on AIM – but only 20-30 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 £700 million (August 2019). 

The median performance of the portfolio from launch in June 2005 to 31 August 2019 is 230.85%, compared with -1.93% for the AIM All-Share. Please note past performance is not a guide to the future.

Performance

Source: Octopus Investments, data to 31 August 2019. Past performance is not a guide to the future.

Annual performance to 31 August 2019 (%)

Year to 31 December 2015 2016 2017 2018 2019
Median Octopus AIM Inheritance Tax Portfolio 17.55 2.21 40.54 8.10 7.65
FTSE AIM All-Share (Total Return) -2.46 -4.98 38.55 13.53 -13.90

Source: Octopus Investments, to August 2019.

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 the three largest holdings (Jan 2019) in the Octopus IHT portfolio are:

Abcam – Octopus AIM IHT ISAAbcam plc 

Abcam is one of Britain’s biggest biotech success stories and the third largest company on AIM, with a market capitalisation of £2.4 billion (October 2019) . Abcam is a producer, distributor and seller of high-quality protein research tools. It started in Cambridge in 1998 and developed from delivering a handful antibodies in an ice-bucket to local researchers, to shipping orders to over 130 countries from a catalogue of more than 100,000 products and offering multi-lingual technical support. 

Gamma Comms – Octopus AIM IHT ISAGamma Communications plc

Gamma is a leading supplier of voice, data and mobile products and services to small, medium and large-sized business customers, the public sector and not-for-profit organisations. Its clients range from home offices to Pret a Manger, the British Heart Foundation and Open University. Started in 2011, it has a market capitalisation of £1.1 billion (October 2019). 

RWS Holdings - Unicorn AIM IHT ISARWS Holdings plc 

Started in 1958, RWS is the world leader in translation and localisation, intellectual property support solutions and life sciences language services. 

RWS is headquartered in the UK and employs over 2,000 staff in Europe, North America, South America, Asia and Oceania. RWS’s market capitalisation is £1.28 billion (Jan 19).

Failures

As is to be expected, not all investments work out. Two recent examples are Patisserie Holdings plc and Staffline Group plc. 

Patisserie Holdings plc was formally placed into administration in January 2019 following the discovery of extensive fraudulent accounting irregularities back in October 2018. The shares have been marked down to zero with no return expected for shareholders.

Outsourcing specialist Staffline Group plc saw its shares suspended following a 46.0% decline in its share price. This was due to a delay in releasing its full-year results following allegations of improper invoicing and payroll practices. Trading resumed in March 2019 following the company’s re-financing, however, it has recently announced a pre-tax loss for the first half of 2019 and has suspended dividend payments until at least 2021.

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 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.

Risks – important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.

AIM 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. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

AIM stocks can be hard to sell, particularly at the smaller end of the market, and can be illiquid. AIM shares can be very volatile especially if the market falls sharply. The difference between the buying and selling price of AIM-listed shares is often wider than the spread for shares listed on the main market.

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.

Treasury review

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.

Fees and charges

Wealth Club investors pay less than going direct. 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
Administration charge
Dealing fees 1%
Performance fee
Exit fee

See example of the total charges over 5 years

Our view

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.

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.

The details

Sector
AIM
Portfolio size
£1.7 billion
Initial charge
5.0%
Saving via Wealth Club
1.75%
Net initial charge
3.25%
AMC
2.0%
Last updated: 6 November 2019

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