Seneca Inheritance Tax Service
The Seneca Inheritance Tax Service gives experienced investors an opportunity to protect their assets from inheritance tax. After two years, the investment should benefit from IHT relief, provided it is still held on death. The service aims to deliver a modest return via a choice of growth or income shares over the investment period, not guaranteed.
Investors seeking growth become shareholders of Seneca Secured Lending Limited (SSL), whilst those seeking income in Seneca Secured Finance Ltd (SSF). Both SSL and SSF are lending businesses that make secured loans to UK-based companies across a diverse range of asset classes and sectors. The service has net assets of £31.5 million (June 2021).
Seneca Partners – the Portfolio Manager – was launched in 2010 by founding partners Ian Currie, Tim Murphy and Richard Manley to provide finance to small and medium-sized enterprises (SME) and help them grow. All three founders are SME finance specialists.
Read important documents and apply
- A choice of growth or income shares
- A well resourced investment team
- Loans spread across a variety of sectors and asset classes
- Potential for investments to become immediately exempt from IHT if reinvesting the proceeds from the sale of another BR-qualifying asset
- Target return 4% p.a., not guaranteed
- Investors should be able to access their money with three months’ notice
- Minimum investment £25,000 – you can apply online
Seneca Partners – the Portfolio Manager for the service – was launched in 2010 by founding partners Ian Currie, Tim Murphy and Richard Manley to provide finance to small and medium-sized enterprises (SME) and help them grow. All three founders are SME specialists by background and believed many SMEs in the North of England, where Seneca is based, were unable to access the capital needed to grow.
Today, Seneca Partners offers equity, debt, corporate finance and debt advisory services across a range of specialist divisions within the Seneca Group. The business employs over 50 people and manages a total of £200 million (March 2021) across its services.
Seneca Partners is the Portfolio Manager. It doesn't handle or hold investors’ money or shares. Cash is held in a client account controlled by the Custodian, Woodside Corporate Services Ltd., whilst shares are held by the Fund’s Nominee, WCS Nominees Ltd.
The Seneca Inheritance Tax Service is a discretionary service managed by Seneca Partners. Seneca Partners uses investor capital to purchase shares in one or more investee companies. These shares are expected to qualify for Business Relief once you have held them for two years and still hold them on death.
The service has three objectives:
- To invest in such a way that qualifies for 100% IHT relief after two years
- To reduce the risk to investors’ capital
- To generate a target return of 4% p.a.
Investors in the service can choose to receive their returns via income or capital growth, more details below.
Currently, the Seneca Inheritance Tax Service invests solely in one of two companies: Seneca Secured Lending Limited (“SSL”) or Seneca Secured Finance Limited (“SSF”) –depending on whether investors are looking for growth or income respectively – although it has discretion to invest in other unquoted companies. Both SSL and SSF are lending businesses that make secured loans to UK-based companies across a diverse range of asset classes and sectors.
Asset classes / subsectors
1. Residential property
SSL and SSF provide residential property loans to companies engaged in the acquisition of residential portfolios leased to a large UK Plc for the provision of community-based supported living accommodation under government-manded contracts. SSL and SSF typically take first legal charge; the debt is serviced by income generated by a £200 million market cap investment trust via a contract with the government.
2. Commercial property
Seneca’s property team has extensive commercial property investment experience having previously managed and structured commercial property investments in excess of £1 billion. This allows the team to source attractive commercial property deals and lend funds raised under the IHT service into those transactions, typically acting as senior lender.
In the last three years, the Seneca property team has transacted more than £75 million of commercial property deals, including tenanted retail units, tenanted office buildings and a portfolio of 12 freehold and long leasehold serviced offices. The latter could be of particular interest in the current market environment: occupiers are reconsidering their office requirements with many expecting to see increased demand for flexible office accommodation.
3. Asset-backed lending – receivables
SSL and SSF provide loans to fund a small proportion of the underlying lending book of specialist finance companies, which then use the capital to lend to companies who wish to borrow against their receivables. Security includes fixed charges on the underlying assets. SSL can be exposed to thousands of underlying loans.
4. Asset-backed lending – stock
SSL and SSF provide loans to fund a company’s stock requirements. SSL and SSF receive security over the stock, debentures over the corporate borrower, and in many cases a personal guarantee.
5. Vehicle financing
SSL and SSF provide financing for consumer car loans secured on the cars. Seneca is attracted to the security provided by the underlying asset in addition to the essential role vehicles play in many borrowers’ lives, so a borrower is highly incentivised to repay in line with agreed terms. The underlying loans are again well diversified with typical loan values sub £10k. Affordability checks are of particular importance in this area to ensure loan book quality is maintained.
6. Corporate loans
Loans to trading companies to fund expansion plans. Loans are secured by corporate debentures and/or corporate guarantees.
The service targets a return of 4% p.a. after fees over the holding period – not guaranteed.
As the table below shows, this compares favourably to higher returns once the IHT relief is taken into account. Remember, tax rules can change and benefits depend on circumstances. Eligibility for BPR IHT relief is only assessed at the point of death.
Impact of IHT on investment returns
The table below shows illustrative returns for a £100,000 investment over 5, 10 and 15 years, with and without IHT relief.
|With IHT relief||Without IHT relief (subject to 40% IHT)|
|Illustrative net return||4%||4%||5%||7%|
The illustration with IHT relief shown above also includes the impact of the initial fee, dealing fee, and the Wealth Club discount applied to this offer, whereas the comparisons with other returns subject to IHT assume no initial charges. Note, this is not an illustration for the Seneca IHT service: please contact us for your personal illustration.
A choice of Income or Growth
The Seneca Inheritance Tax Service offers investors a choice of income or growth shares, or a combination of both. Investors opting for income will have non-cumulative preference shares bought on their behalf. These entitle the holder to a non-cumulative dividend of 4% per annum, paid quarterly – not guaranteed and subject to the financial performance of the investee company. Income investors should be aware non-cumulative preference shares do not pay any previously unpaid or omitted dividends. The maximum income one can receive is 4% per annum, whereas it is possible to exceed the 4% return with the growth shares. Although this is deemed unlikely.
Current assets overview
The service has net assets of £31.5 million (June 2021). £26.5 million is invested in growth shares (SSL), and £5 million is invested in income shares (SSF).
Both SSL and SSF are engaged in similar lending activities, although the amount of capital deployed into each activity can and will vary over time.
Both SSL and SSF currently allocate 62% of their respective total assets to the largest 10 activities, including Seneca Social Housing Angel 1 Limited (which represents 43% of SSL’s assets and 28% of SSF’s assets).
A breakdown of the lending activities for SSL and SSF, excluding cash, is shown below.
Source: Seneca as at 30 June 2021.
Source: Seneca as at 30 June 2021.
Examples of portfolio assets
SSH1 Angel Limited – residential property
SSH Angel 1 Limited specialises in acquiring and refurbishing residential properties in the UK to be used to for the provision of social housing to vulnerable adults and children, including the homeless and those with specific care needs.
Since 2019, SSH Angel 1 Limited has acquired more than 250 residential houses that have been used to provide housing to vulnerable adults in the North of England, making an important contribution towards meeting the UK’s urgent social housing needs. In addition to acquiring the properties, SSH Angel 1 Limited invested an average of £20,000 into fully refurbishing each property to a best-in-class specification. Once refurbished, the properties were leased to a large social housing provider at affordable rents on a long-term basis.
Supermarket and car park let to Tesco subsidiary – commercial property
SSL provided a loan to Seneca Property 105 Limited, to part-finance the purchase of a supermarket asset currently let to Tesco Plc and occupied by a Jack's store.
The asset is a 45,286 sq ft purpose-built modern supermarket developed in 2014 occupying approximately 4.09 acres (c25% site coverage) in Immingham (North East Lincolnshire) town centre.
The asset was purchased in April 2020 for £8.5 million and currently generates annual rental income of £771k.
Glenside Finance Limited – vehicle financing
Glenside Finance is a specialist car finance provider, a member of the Consumer Credit Trade Association and Authorised and Regulated by the Financial Conduct Authority. Glenside is focused on providing loans between £5,000 and £20,000 and currently has more than 800 customers and a loan book in excess of £4.5 million.
The company is growing and operates with high customer service levels and puts affordability at the centre of its lending decisions.
SSL provides loans to Glenside Finance to facilitate its lending activities and has a floating charge over the assets of Glenside.
Example of previous failure
Occasionally, the performance of a borrower may fall short of the standards expected by Seneca. This may result in SSL and SSF enforcing their security to recover as much as possible of the capital.
One such example is a stock loan provided to a UK-based manufacturer in the commercial vehicle market in August 2018.
The borrower was a specialist manufacturer of custom panel van bodies. Seneca provided a loan of £44,000 to enable the company to purchase additional stock of fibreglass panels. The loan was secured on the stock and supported by a Personal Guarantee from the main shareholder and director of the company and on Debenture on the business.
Business performance deteriorated due to a production issue resulting in warranty claims and non-payment from the businesses customers. This meant SSL’s loan advance did not revolve as expected. By enforcing its security SSL and SSF were able to realise £30,000 of capital.
The performance track record of SSL dates back to March 2014. Since then, the business has grown its net asset value from £1 to £1.1996 per share in March 2021, equivalent to an annualised return of 2.63% after fees.
Source: Seneca Partners. The performance data shows Seneca Secured Lending’s net asset value per share only. It does not take account of initial fees or dealing fees associated with the service. Performance is calculated based on the net asset value per share on a bi-annual basis between March 2014 – March 2021. Past performance is not a guide to the future.
Seneca launched its income shares service in October 2017. It seeks to pay a 4% dividend yield to investors, not guaranteed.
Seneca has stated 100% of the target dividend has been paid on time every quarter since launch (dividends paid in mid-January, April, July and October). The capital value has also been maintained throughout the period – note past performance is not a guide to the future.
Access to your investment
Investors hold shares in an unlisted company for which there is no market, so the shares may be difficult to sell.
Once you have invested in the Service for at least 12 months, you should be able to give three months’ notice to withdraw some or all of your money.
Seneca facilitates the withdrawal, provided someone else is willing to buy the shares or cash is available in the relevant investee companies to redeem them.
Seneca states it will make every effort to fulfil withdrawal requests once the three-month notice period has elapsed. There may be delays if Seneca is unable to dispose of your shares (for example, where a number of investors request withdrawals at the same time).
Risks – important
This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.
The IHT service contains assets that are high risk and should only form part of a balanced portfolio, you should not invest money you cannot afford to lose. The service invests in illiquid assets which may be hard to sell or value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks.
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.
15 investors have passed away since the service launched, in every one of these cases, their investments have qualified for business property relief where the investor died after two years.
A previous Chancellor requested a review of IHT to simplify the tax system. A report was published in July 2019, but this has not yet led to any rule changes. Please remember, tax rules can and do change and benefits depend on circumstances.
A summary of the main charges and savings is shown below. The investment may have additional charges and expenses: please see the provider documents for more details. If you would like a full breakdown or a personal illustration, please let us know.
|Full initial charge||3%|
|Wealth Club initial saving||1%|
|Net initial charge through Wealth Club||2%|
|Annual management charge||—|
|Administration charge||£35 (first time investor)|
|Exit fee||1%*||Investee company charges|
* The exit fee is waived if following the death of the investor
See example of the total charges over 5 years
Seneca Partners is an established specialist asset manager.
The Seneca IHT service provides investors with the opportunity to shield assets from inheritance tax whilst investing in an unlisted company engaged in a diversified range of lending and leasing activities. The service has provided investors with modest growth since its inception, and income investors have received the stated dividend target of 4% per annum whilst maintaining the capital value, although this is not guaranteed. Past performance is not a guide to the future.
For experienced investors concerned about the potential impact of inheritance tax on their estate, this could be an attractive consideration. The option of choosing income shares may also appeal to investors who wish to generate an income from their business relief investments, although this is not guaranteed. Investors should form their own view.
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.
- Portfolio size
- £31.5 million
- Initial charge
- Saving via Wealth Club
- Net initial charge