Type: IHT mitigation plan
Aim: Reducing IHT liabilities and providing income by investing in unquoted companies through a discounted gift trust and the Octopus secure inheritance tax service
Minimum investment: £30,000
Charges: Initial 5.5%, dealing charge 1% on all transactions within the portfolio
Commission: Initial 2.5%, annual 0.5 %
Tel: 0800 316 2349
The Octopus enhanced discounted gift solution combines the immediate tax benefits of a discounted gift trust with 100 per cent IHT relief after two years through the existing Octopus secure inheritance tax service.
Investments into this product are split into two pots. The amount which goes into the discounted gift trust element depends on the investor’s forecast life expectancy and annual income requirements. This element is exempt from IHT immediately. The second pot comprises the Octopus secure inheritance tax service and will be exempt from IHT after two years instead of the seven years associated with traditional trusts.
Looking at the product’s suitability to the market, AWD Chase de Vere senior manager Jason Walker says: “The underlying investment has been around for a while and offers a different solution to IFAs than the traditional life company products. As a qualifying asset for Business Property Relief, it is exempt from IHT after two years. This means that it will give elderly clients a quicker solution to IHT mitigation than the usual seven-year Potentially Exempt Transfer/Chargeable Lifetime Transfer timescales that are associated with other plans.”
Walker notes that by placing the emphasis on capital preservation, the Octopus product becomes more suited to clients whose main aim is IHT mitigation. “It is not for clients looking for big returns on capital, which fits well with elderly clients who do not like the volatility associated with direct equity holdings,” he says.
Walker says that as a BPR qualifying investment, this becomes a good legislative diversifier for clients that already have existing IHT plans. “It is a sensible approach and if the Government decides to change legislation for a particular area of planning, the client will still have investments outside their estate or that are exempt from IHT,” he says.
Walker has no issue with the charges, as the product focuses on a 3 per cent return net of charges. “We do not expect returns to far exceed this, but 3 per cent compound is an acceptable return when the main driver is IHT planning, not investment returns,” he says.
Walker regards the adviser remuneration as fair and importantly, the service and support from Octopus is well above the industry average in his experience.
Walker says: “For any client wanting an income, the discount is a useful feature as you never know what may happen in the two- year window where this plan would normally be subject to IHT. There is no extra cost, so I would recommend anyone who is taking an income takes advantage of this additional and immediate benefit.”
Looking at the potential drawbacks of the product Walker says: “This is a good product but it is not suitable for clients that are likely to be invested for more than 10 years or those who want a higher return on their capital.”
Scanning the market for products that could provide competition Walker says: “There is no direct competition, but there are many other IHT plans out there. This plan tends to complement other types of planning that clients have done or are about to do. There are few other lower risk BPR plans and probably the closest is investment in forestry, although they are typically very illiquid.
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Good