OCTOPUS - Seymour Sinclair

OCTO PU S
I N H E R ITA N C E TA X S E RV I C E
PRODUCT BROCHURE
JULY 2013
Octopus ITS | Brochure | July 2013
The Octopus Inheritance
Tax Service offers a fast and
flexible solution to inheritance
tax planning that allows you to
retain control of and access to
your money.
Contents
It is very important that you read and fully
understand the risks involved with this investment
so that you can decide whether it is right for you.
The key risks associated with this product are
explained on pages 10 and 11 of this brochure.
Please note that all the figures and information
provided within this document are correct as at
July 2013.
2
Welcome to Octopus
3
A taxing issue
4
Our solution
5
How Octopus ITS can reduce your IHT liability
6
Targeted investment returns
7
Underlying investments
8
Managing the risks
9
Understanding the risks
10
The charges
12
The investment process
13
You’re in control
14
About Octopus
15
Octopus ITS | Brochure | July 2013
WELCOME TO OC TOPUS
As an investor with us, you’re our priority; part of a growing community
of people who have trusted us to manage their money.
At Octopus, the needs of our customers are
central to what we do. From product design to
investment management to customer service,
we always have you in mind. We work differently
from other investment companies, and it’s a
welcome change for many. In the twelve years
since we launched, we’ve seen the number of
people choosing to invest with Octopus grow to
over 50,000, resulting in over £3.0 billion in funds
under management.
One of the areas where we’ve been able
to help investors is inheritance tax (IHT)
mitigation. We’ve developed a range of IHT
solutions in response to customers’ needs, and
established ourselves as the largest provider of
IHT solutions based around Business Proper ty
Relief (BPR) in the UK.
Within this range, it’s our Octopus Inheritance
Tax Service (Octopus ITS) that has proved most
popular with customers. We designed it after
discussion with investors and advisers about what
they wanted but weren’t getting from traditional
IHT products; namely speed, simplicity and control.
I hope you find this brochure clear and easy to
understand. We always recommend that you
speak to your financial adviser before investing, but
if you have any questions – or if it would help to
speak to one of our fund managers – please call us
on 0800 316 2298.
WHAT IS BUSINESS PROPERTY RELIEF?
Introduced in 1976, Business Property Relief (BPR)
is a tax relief provided by the UK government as
an incentive for investing in a trading business.
Investors in unquoted shares of trading companies
benefit from 100% relief from inheritance tax
provided the shares are held for two years and at
the time of death.
Simon Rogerson
Chief Executive
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Octopus ITS | Brochure | July 2013
A ta xing issue
Millions of people needlessly pay inheritance tax. Octopus can help to
ensure you’re not one of them.
Investors want to protect their hard-earned
assets and pass them on to ensure security for
their families. Nobody likes the idea of their
family losing up to 40% of their money to taxes,
but that’s what can happen. When you die, Her
Majesty’s Revenue & Customs (HMRC) can claim
up to 40% of your estate above a threshold of
£325,000 (this tax free allowance, frozen until
2018 at the earliest, is known as the ‘Nil
Rate Band’).
There are a number of ways to limit your
exposure to inheritance tax, such as the use of
trusts. However, these structures typically take
several years to be fully effective and can cause
you to permanently lose control of and access to
your money.
That’s why we launched Octopus ITS. It’s a simpler
solution to the problem and has already helped
more than 2,000 investors to shelter a significant
amount of their assets from inheritance tax.
Dominique
Octopus
Inheritance tax is
understandably not popular,
but it’s becoming a lot
more common. At present,
more than four million
people in Britain are liable
for inheritance tax.
(Source: The Telegraph, June 2010)
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Octopus ITS | Brochure | July 2013
OUR SOLUTION
Our investors told us they wanted speed, simplicity and control from their
IHT planning. Octopus ITS offers exactly that.
All of us want to feel comfortable about our
investments and this is reflected in the features of
Octopus ITS. We’ve set a targeted return of 3% per
annum which you can choose to receive as growth
or income. We’ve designed Octopus ITS so that our
interests are well-aligned with yours. We defer
the payment of our annual management charges
and we only take them when you withdraw from
the product, and only if it has generated the
target return.
To access the benefits of Octopus ITS your capital is
at risk. This means that the value of your investment
may go down as well as up and you may not get
back the full amount invested. It’s also important
to remember that there is no guarantee that the
targeted return per annum will be achieved.
It’s not about false
promises or higher
risks, but a modest,
straightforward,
predictable return.
KEY BENEFITS
1. SPEED
Unlike gifts and simple transfers into trust, which
generally take seven years before they’re fully
exempt from inheritance tax, investments into
Octopus ITS are exempt after just two years
(provided the investments are still held at the time
of death).
2. SIMPLICITY
An investment in Octopus ITS does not involve
complex legal structures, client underwriting or
medical reports.
3. CONTROL AND ACCESS
Unlike some other inheritance tax solutions, you
retain access to your investment. If your circumstances
change and you want to access your holding, you can
– although money withdrawn will not be shielded
from inheritance tax. What’s more, you have the
option to take a regular withdrawal from the product
or leave any returns within the investment.
4. FOCUS ON CAPITAL PRESERVATION
Octopus ITS is a discretionary investment
management service. Investors appoint Octopus to
invest on their behalf in one or more unquoted
companies that qualify under the rules relating to
BPR. BPR is a tax relief provided by the UK
government as an incentive for investing in specific
types of trading companies. In order to manage the
risks associated with investing in such companies,
Octopus only selects those whose business activities
are focused on capital preservation, and we look for
companies which provide asset backing or have
contractual revenues with reliable customers. More
information on this is provided on page 8.
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Octopus ITS | Brochure | July 2013
HOW OCTOPUS ITS CAN
REDUCE YOUR IHT LIABILITY
The best way to understand how Octopus ITS works is to look
at an example.
Mr Jones has an estate (including house, investments
and savings) of £825,000. He is 75 years old and
is thinking of ways in which he can minimise his
inheritance tax bill. If Mr Jones does nothing, his
inheritance tax bill will be £200,000, equivalent to
almost a quarter of his assets.
Faced with this situation, Mr Jones decides to invest
£200,000 into Octopus ITS. After holding the
investment for two years, Mr Jones’ investment
is removed from his taxable estate, reducing the
inheritance tax bill by £80,000.
Investing in Octopus ITS means greater flexibility. Mr
Jones can withdraw money before he dies without
affecting the inheritance tax relief he will receive on
his remaining Octopus ITS investment.
An investment of £200,000 in Octopus ITS would
result in Mr Jones’ estate saving £80,000 in taxes
after just two years.
Without investing in
Octopus ITS
With Octopus ITS after
two years
Total assets
£825,000
£825,000
Less tax free
allowance of
£325,000
£500,000
£500,000
Amount
invested into
Octopus ITs
£0
£200,000
Amount liable
to IHT
£500,000
£300,000
Amount due
in IHT
£200,000
£120,000
Possible IHT
saving
£0
£80,000
By investing £200,000 in Octopus ITS, Mr Jones’ estate can save £80,000 in
inheritance tax after two years.
This example is for illustrative purposes only and is based on current legislation and the current tax free allowance of £325,000
which is frozen until 2018 at the earliest. Tax rules and regulations are subject to change and depend on personal circumstances.
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Octopus ITS | Brochure | July 2013
TARGE TED INVESTMENT
RE TURNS
Octopus ITS has been designed not just to qualify for BPR, but to
meet your wider investment needs.
Focus on capital preservation
The target return for Octopus ITS is 3% per annum
on the amount invested, less the initial charge and
the dealing fee. The investment strategy aims to
deliver a modest annual return, compensating for
inflation so that capital value isn’t eroded over time.
ALIGNMENT OF INTERESTS
We’ve also chosen to align our interests with
investors by deferring the payment of our 1% annual
management charge. We’ll only collect it at the time
that you withdraw from the product. What’s more,
we’ll only take the charge from any excess returns
generated above the targeted return of 3% per
annum on the amount that we invest on your behalf
(after deducting the initial charges shown on page 12).
THE ‘NOT SO SMALL’ PRINT
Octopus ITS is designed to target capital
preservation and returns in excess of 3% after fees
are unlikely. Please note that there is no guarantee
that the targeted return of 3% per annum will be
achieved, or that you will get back the full amount
invested. This depends on the value of the assets in
the company or companies into which Octopus ITS
invests your money, and on any income they earn.
Your returns will also be reduced if you have chosen
to pay your adviser through selling down part of the
portfolio. See page 12 for details.
GROWTH OR INCOME?
Whether you’re looking for growth or income from
your investment, Octopus ITS can work for you. If
you have sufficient income from other sources, you
can maximise your protection against inheritance tax
by choosing the growth option. Alternatively, if you
have sufficient funds to invest, but you still need an
income from the investment, then you can opt to
receive a regular income by drawing down on your
investment. However, please remember that this will
reduce the amount that you have remaining in the
investment, as income is generated by selling your
shares in the underlying company or companies.
You can request income withdrawals of any amount.
For ad-hoc withdrawals the minimum permitted is
£5,000 and the remaining balance after a withdrawal
must be £5,000.
TAX ON YOUR WITHDRAWALS
Growth on your investment will only be taxed when
you withdraw money from the product by selling
shares. This will normally be taxed as a capital gain,
but it may be subject to income tax (like a dividend)
if, in order to achieve that withdrawal, we have
arranged for the company itself to purchase your
shares from you. It is only the growth that is taxed in
either circumstance, not the full amount withdrawn.
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Octopus ITS | Brochure | July 2013
UNDERLYING INVESTMENTs
We understand how hard you’ve worked to build up your assets – that’s
why we invest in companies that focus on preserving capital.
HOW WILL MY MONEY BE INVESTED?
Octopus ITS invests your money into one or more
unquoted limited companies, which are managed by
Octopus. Each of these companies has a board of
directors, the majority of whom are independent of
Octopus, to look after investor interests. The board
of directors meet quarterly to discuss the running of
the companies, examine new deals and work through
the latest financial reports.
Only investors in Octopus products can invest in
these limited companies, directly or indirectly, and
their shareholdings are the only source of capital.
Octopus is therefore able to run these companies
in a way that is aligned with the interests of our
investors. In particular, we can ensure that the
companies only enter into transactions where they
are able to take appropriate steps to reduce risk.
Recently, most investments from Octopus ITS
have been made into Fern Trading Limited, which
undertakes the types of trades described below.
Individual investors invest in the discretionary investment service
Initial fees are deducted
Annual fee to
Octopus (deferred)
Portfolio
Octopus as discretionary manager invests funds in qualifying company shares
1% dealing fees are deducted
Qualifying Company
Funds deployed in various trades
Lending
Asset backed funding
to businesses in
established sectors
8
MEDIA
Lower risk film and
TV funding, such as
tax credits and
pre-sold rights
SOLAR
Funding commercial
solar energy
installations backed
by government
tariffs
PROPERTY
Short-term lending
up to maximum of
70% loan-to-value
MEZZANINE
Lending to
established smaller
companies with
strong management
teams and
predictable revenue
Octopus ITS | Brochure | July 2013
Managing the Risks
We never forget it’s your money that we’re looking after. That’s why we
undertake a stringent due diligence process before deploying funds.
HOW DO YOU PRESERVE CAPITAL?
The investee companies within Octopus ITS
undertake a number of different trades where the
main purpose is to make a modest return. The target
returns are modest because we believe that capital
preservation is more important than taking excessive
risks with your money. The capital preservation
undertaken by these companies varies from trade
to trade, but typically includes security over assets
where the valuation of the assets exceeds the capital
employed by a prudent margin.
HOW ARE INVESTMENTS SELECTED?
New investment opportunities are put forward by
the Octopus investment manager and analysed by
an investment committee. The committee comprises
senior personnel at Octopus, and is supported by
representatives from across the business. In order
for a deal to be considered by the committee, the
investment manager must provide a comprehensive
report outlining the nature of the deal, the potential
return for shareholders, the risks, and the
timeframes involved.
Alternatively, investee companies may earn
contracted revenues from secure counterparties
which are, in our opinion, adequately capitalised so
that revenues should not be at risk.
TYPICAL OCTOPUS ITS DiversificatioN
Other 8%
Property finance 35%
Financing solar energy
installations 35%
Asset-backed
finance 22%
Please note these figures are correct as at 31 May 2013; the companies in which Octopus ITS invests, and the proportions
invested into each company will change over time.
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Octopus ITS | Brochure | July 2013
UNDERSTANDING THE RISKS
Investing always involves some element of risk. We’re here to help you
understand what that means for your money.
This investment product may not be suitable for all
investors. We recommend that potential investors
seek independent tax and financial advice before
making a decision. Please note that Octopus is not
able to provide you with advice about whether
you should invest in this product.
Mark
Octopus
Investment risk
Octopus ITS invests into small unquoted
companies. Your capital is at risk and the
investment return is not guaranteed. The value of
your investment and the returns you get depend
on the value of the assets in the company or
companies that Octopus ITS invests your money
into, and any income they earn.
INVESTMENT PERFORMANCE
There is no guarantee that Octopus ITS will achieve
its objectives. We can make no guarantee of
investment performance or the level of growth that
will be generated. The amount of charges payable to
Octopus by the investee company or companies will
also affect your returns.
CURRENT LEGISLATION
Rates of tax, tax benefits and allowances are based
on current legislation and HMRC practice and
depend on personal circumstances. These may
change and are not guaranteed.
10
LIQUIDITY
Investments made by Octopus ITS, because they are
in unquoted companies, are not readily realisable,
unlike companies on the London Stock Exchange. In
the normal course of events Octopus will be able to
redeem your investment within one month – this has
been achieved in every instance to date but this may
not always be the case. If it is necessary to institute a
share buy back because of unusually large withdrawals
then the process could take approximately three
months. In exceptional circumstances (such as a
change in legislative framework) where the liquidity
within the company is insufficient to facilitate a
share buy back, the process could be much longer
and Octopus may pay redemption proceeds
by instalments.
Octopus ITS | Brochure | July 2013
BUSINESS PROPERTY RELIEF
We will invest in companies which we reasonably
believe qualify for BPR, but we can give no
commitment that any such investment will remain
a qualifying investment at all times thereafter. The
relief is assessed by HMRC on a case-by-case basis
at the time of death of the investor, as part of the
probate process, and cannot be guaranteed. The
proportion of the investment that is deemed to
qualify at that time, assuming it has been held for
at least two years and is still held at time of death,
can be passed to beneficiaries free of IHT. The
two-year timeframe commences when HMRC
deem the investment has become BPR qualifying,
which may be later than the investment date.
To obtain BPR the executors of your estate will
need to complete a copy of the probate return form
IHT 412 and return this to HMRC.
INVESTMENT HORIZON
Octopus ITS is not designed to be held for the short
term. Investments in qualifying companies have to be
held for at least two years and at the date of death in
order to benefit from the IHT relief.
Henny
Octopus
CONFLICTS OF INTEREST
Octopus ITS investee companies may acquire shares
in, or assets from, other companies managed by
Octopus. They may also make loans to other entities
which are managed by Octopus or in which Octopus
has a financial interest. All loans and transactions will
be on an arm’s length basis and will be ratified by
the non executive directors of the Octopus ITS
investee companies.
DIVERSIFICATION
Octopus ITS will invest in only a small number of
companies (in some cases one single company) and
all investments may be in one sector. Therefore,
there may be limited diversification which could
increase the risk for investors.
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Octopus ITS | Brochure | July 2013
THE charges
We try to make our products and charges crystal clear, but if you have any
questions please speak to your financial adviser or call us on 0800 316 2298.
INITIAL CHARGES
ONGOING CHARGES
OCTOPUS INITIAL CHARGE
The Octopus initial charge of 2% will be deducted
from the amount invested. For direct applications
and non-advised (execution only) applications
where intermediary commission is requested, the
charge is 5.5%.
OCTOPUS ANNUAL MANAGEMENT CHARGE
There is an Octopus annual management charge
of 1% +VAT per annum. To better align our
interests with investors, we will defer the payment
of our annual management charge and will only
collect it at the time that you make a withdrawal
from the product. What’s more, we’ll only take
the charge from any excess returns generated
above the targeted return of 3% per annum on
the amount that we invest on your behalf. The 3%
targeted return is after deduction of our annual
management charge. Please note, if you decide to
transfer your investment into a trust we will collect
our annual management charge on an annual basis
(ie it will not be deferred).
ADVISER CHARGES
Adviser charges are costs that you have agreed
with your adviser, in payment for the advice they
have provided to you. If agreed between you and
your adviser, Octopus can facilitate adviser charges
from your investment. We will deduct these
charges from the amount on your application form
and pay them to your adviser.
Please note that these initial charges will reduce
the amount invested.
OTHER CHARGES
Octopus will be paid administration, service,
arrangement and monitoring fees as determined
by the independent directors of the unquoted
companies in which it invests, which will affect
the value of your investment. Further information
on these charges is available on request. The 3%
annual return objective is targeted after these
other charges have been taken into account.
ADVISER CHARGES
You may instruct Octopus to facilitate an ongoing
adviser charge from your investment, which will be
deducted from your portfolio on a monthly basis
and paid to your adviser. This will reduce the net
return to you.
DEALING FEE
Octopus will apply a 1% dealing fee on all
investments and withdrawals made by you.
Withdrawals will be valued by reference to the
latest valuations of the investee companies.
COMMISSION APPLICATIONS
For non-advised (execution only) applications up to 2.5% of the Octopus initial charge may be payable to an
introducing agent, if you have one.
Your introducing agent will receive an annual trail commission of 0.5% each year, which is paid by Octopus.
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Octopus ITS | Brochure | July 2013
THE INVESTMENT PROCESS
We’ve put together a diagram to help explain how the investment
process works. If you have any questions or would like further information
on any stage of the process, please speak to your financial adviser or call
us on 0800 316 2298.
Mrs Darcy completes the Octopus ITS application form and sends it to Octopus with a £100,000 cheque.
Octopus processes the application form and places the £100,000† into a client bank account, please note
interest is not paid on this account.
When the money has cleared, Octopus will invest Mrs Darcy’s £100,000 into one or more Business
Property Relief (BPR) qualifying companies.
After the two year minimum holding period, which starts from the date of investment into the underlying
companies, Mrs Darcy’s investment becomes an exempt asset for inheritance tax purposes.
Four years later, Mrs Darcy sadly passes away. Her financial adviser, Mr Potts, sends a notification of death
to Octopus and requests a valuation as at the date of Mrs Darcy’s death.
The executors of Mrs Darcy’s estate complete form IHT 412 which includes details of her OITS policy,
and send this to HMRC as part of the probate process. HMRC review the information and assess whether
Mrs Darcy’s OITS investment qualifies for BPR. Once this is confirmed, the value‡ of the investment at
the date of Mrs Darcy’s death, is exempt from IHT calculations on her estate.
†
Please note, this ignores the impact of any fees and charges payable to Octopus or your investment adviser.
‡
Please remember that this may be less than the amount invested, and the investment may not be liquid. See page 10 for
a description of these risks.
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Octopus ITS | Brochure | July 2013
You ’re in CONTROL
Octopus designed Octopus ITS to be as flexible as possible. After two
years you can choose to retain the investment, or put it into trust – the
choice is yours.
INVESTMENT LIMITS
The minimum investment into Octopus ITS is
£25,000 and there is no maximum.
ADDING TO YOUR INVESTMENT
Once you become an investor, you can make
additional contributions of £10,000 or more at any
time. However, remember each ‘top up’ will take two
years to become inheritance tax exempt.
WITHDRAWALS
We understand that circumstances can change, so
if you need to sell any of your investment this can
easily be arranged. This will however impact the
amount you have shielded from inheritance tax.
Normally, withdrawals take up to one month to
process. However, if there are any major changes to
the BPR legislation associated with this product, then
withdrawals may take much longer and Octopus may
have to pay redemption proceeds by instalments.
Please note that the minimum withdrawal is £5,000.
Investing with Octopus
should be a simple,
enjoyable experience.
14
AFTER TWO YEARS
You have two options once the investment
becomes an exempt asset for inheritance tax
purposes (ie two years from the date of the original
investment into the underlying holdings). Your
decision depends on the level of control you want
to retain over your investment.
1. Hold the investment
You can continue to hold the investment yourself.
This will give you maximum control and allows
you to withdraw all or part of your investment at
any time.
2. Put it into a trust
If you are confident that you do not need access
to the capital, you might consider gifting all or part
of the investment into a discretionary trust. This
has a number of potential advantages:
n
n
n
You can arrange for the trust to pay you a level
of income every year
You can determine how the assets within the
trust are used (to pay school fees for example)
Gifting into a trust prevents the assets being
tied up in the probate process
If you do decide to transfer your investment
into a trust we will take our deferred annual
management charge at that point, and then on an
annual basis thereafter.
We recommend that you seek specialist
professional advice before establishing a trust.
Should you decide you wish to place your
investment in trust, we can provide a range of
example trust deeds.
Octopus ITS | Brochure | July 2013
about octopus
Octopus is an award-winning company built around the needs of
our investors.
OUR APPROACH
Octopus is an investment company with a
difference. We don’t believe in the ‘me-too’
approach to launching investment products and
we don’t hide behind industry jargon. Instead,
we’re straightforward in our communications and
disciplined in our product design – we only launch
products which solve real customer problems and
where we’re confident that they will deliver what
we say they will.
This has been our mission since Octopus was
founded in 2000. Thirteen years on, we’re one
of the UK’s fastest growing fund management
companies. We can count on the support of more
than 3,000 wealth managers and financial advisers
and 50,000 investors. Together they trust us to
manage more than £3.0 billion on their behalf.
We invest solely in areas of the market where we
see value and where hard work pays off. Wherever
possible we use government-approved tax wrappers
that not only reward investors for supporting the
UK economy, but also serve to enhance the risk/
return profile of our solutions.
OUR CREDENTIALS
Over the last decade, Octopus has won a number
of awards for its products and customer focus. We’ve
twice been voted one of the best 100 SMEs to work
for and in November 2012 we were awarded the
Financial Adviser 5 Star Award for quality service
from investment product providers. Our obsessive
approach to customer focus means that in an
industry where investment companies typically see a
fifth of their customers leave every year, we lose just
a fraction of this.
Hugi
Octopus
WHAT NEXT?
You should talk to your financial adviser about
investing in Octopus ITS. If you decide to invest,
please ensure you read the Terms and Conditions
and complete the relevant application forms. Copies
are available from your financial adviser or via
octopusinvestments.com.
In a recent independent
survey (Technical
Connections 2012), financial
advisers rated Octopus as
the best in the industry for
IHT support.
15
octopusinvestments.com
IMPORTANT INFORMATION
Nothing in this document should be regarded as
constituting legal, taxation, investment, or other
advice and prospective investors are advised to
consult their own professional advisers before
contemplating any investment.
Any decision to invest in this product should be made
on the basis of the information contained in this
brochure, and the terms and conditions.
This document does not constitute, and may not be
used for the purposes of, an offer or invitation to
treat by any person in any jurisdiction outside the
United Kingdom. This document and the information
contained in it are not for publication or distribution
to persons outside the United Kingdom. It does not
constitute a public offering in the United Kingdom.
1123-19-IHT-0713b
Please contact us on
0800 316 2298
Octopus Investments Limited has taken all
reasonable care to ensure that all the facts stated
in this document are true and accurate in all
material respects, and that there are no other
material facts or opinions which have been omitted
where the omission of such would render this
document misleading.
The information in this document was captured on
July 2013 and therefore may not be current.
Octopus Investments Limited, 20 Old Bailey London
EC4M 7AN is authorised and regulated by the
Financial Conduct Authority registered in England &
Wales under No. 3942880.
Telephone calls may be monitored and/or recorded
for regulatory, legal and training purposes.
or email us at
[email protected]
20 Old Bailey
London EC4M 7AN

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