A RETURN WITHOUT VOLATILITY? Guy Myles Octopus Investments

Transcription

1 A RETURN WITHOUT VOLATILITY? Guy Myles Octopus Investments

2 Important Information. Please note that past performance is no guide to future performance. The value of an investment may go down as well as up and an investor may not get back the full amount invested. Tax reliefs and rules are subject to change. Investments into a VCT must be retained for a minimum of five years in order to retain the upfront income tax relief and EIS investments must be retained for a minimum of three years in order to retain the upfront income tax relief. The market for VCT or EIS investments may be limited and it could be difficult for an investor to realise their holding. A VCT or EIS investment should be regarded as a long-term investment. The scenarios in this presentation are for illustrative purposes only and may not be relied on. The content of this presentation is based on our understanding of the current HM Revenue & Customs interpretation of tax rules and regulations, which may change. Recipients of this document are reminded that an investment in any product offered by Octopus may only be made on the basis of the information contained in the relevant prospectus or brochure. The tax reliefs available from an investment in a VCT or EIS are dependent on the VCT or EIS receiving and maintaining HM Revenue & Customs approval. Investments made by Octopus will be into companies which we reasonably believe to be qualifying investments (under the relevant rules) at the time of investment but we are not able to make any guarantee of their ongoing qualifying status. Octopus does not provide investment advice. We recommend that any potential investor seeks financial advice from an appropriately authorised person as to whether a particular investment is suitable for them. This presentation is exempt from section 21 of the Financial Services & Markets Act 2000 and is not required to be and has not been approved for the purposes of the Section. If this document is passed to any other person, you must ensure that you have taken responsibility for it under the financial promotions rules and identified yourself as the issuer. Octopus Investments Limited is authorised and regulated in the UK by the Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS. Registered office: 8 Angel Court, London EC2R 7HP. Registered in England & Wales under No

3 ABOUT OCTOPUS Founded in 2000 to provide customers with innovative and effective investment solutions Growth of 100% per year in FuM over last five years FuM more than 600 million Leading VCT manager in the UK Product range includes: - Venture Capital Trusts - Enterprise Investments Schemes

4 OCTOPUS CREDENTIALS Award winning fund manager Octopus voted Best VCT Provider of the Year at the Professional Adviser Awards in January 2007 and again in January 2008 Octopus voted The Badenoch & Clark Business of the Year Award and The 3i Growth Strategy of the Year Award at the 2008 National Business awards

5 PLUGGING THE PENSION GAP

6 PLANNING IDEA: ACCELERATED PENSION PROVISION Two step pension funding Invest in VCT then transfer assets to pension Results in: - Greater tax relief - High returns

7 PLANNING IDEA: ACCELERATED PENSION PROVISION Initial Investment Invest into VCT 5 years 20% tax relief inside SIPP Income tax relief Higher rate relief

8 VENTURE CAPITAL TRUST (VCT) TAX BENEFITS Upfront income tax relief of 30% of amount invested (provided shares are held for five years) All dividends are tax-free All capital gains are tax-free

9 CASE STUDY VCT to SIPP Mr Collingwood Age 50* Income Tax Payable 12,000* Inherited 40,000 from uncle* Looking to retire at 65* Would like to increase his pension assets *for illustrative purposes only

10 STEP 1 INVEST INTO VCT Invest 40,000 into VCT Income Tax Paid 12,000 Tax Relief on VCT Investment 12,000 Net Income Tax Payable NIL Net cost of VCT Investment 40,000-12,000 = 28,000 *for illustrative purposes only

11 STEP 2: 2013 TRANSFER VCT TO SIPP VCT Now worth 80,000 Contribution of proceeds* of VCT disposal to SIPP VCT Value 80,000 Plus Grossing Up Tax Relief 20,000 SIPP Value 100,000 PLUS Higher Rate Tax Relief 20,000 Net Cost of 100,000 in Pension 8,000 A gain of 92,000 Tax free cash of 25,000 available net cost of residual pension of 75,000 = - 17,000 * Example assume shares are sold in 5 years time for twice the purchase price ( 2.00) *for illustrative purposes only Source: Octopus Investments, September 2008

12 TITAN 3 VCT TARGETING SIGNIFICANT CAPITAL GROWTH Octopus Investor Group Back UK entrepreneurs Leverage their knowledge and contacts Minimise investment risk Secure above average investment returns Investments into 27 companies 17.7 million committed Portfolio IRR 29.1%* Realised IRR 61.0% Targeting 25% IRR or 3x return within five years Source: Octopus Investments, September 2008

13 OCTOPUS EFFECTIVE TAX PLANNING

14 EIS SCHEMES WHAT ARE THEY? Enterprise Investment Scheme (EIS) Å Government scheme Å Investing into diversified portfolio of companies Å Portfolio constructed, managed and overseen by EIS Specialist such as Octopus Å Range of compelling tax reliefs

15 EIS SCHEMES TAX BENEFITS Å IHT Exempt in just TWO years Å Unlimited Capital Gains Tax deferral (includes all gains made over the past three years) Å 20% income tax relief (up to 500k of investment) Å All gains from the portfolio are tax-free Å Loss Relief reduces any potential downside losses

16 EIS USES CGT ARBITRAGE Capital Gain Invest into EIS 5 years Exit EIS Potential CGT due at 40% Income tax relief at 20% Actual CGT due at 18%

17 CASE STUDY CGT ARBITRAGE Mr Jones Sold a buy-to-let flat in July 2007* Made a capital gain of 100K after CGT allowance* Pays 20K pa income tax* Does not have any plans to use the proceeds on another property *for illustrative purposes only

18 STEP Invest 100,000 into EIS* Income Tax Paid 20,000 Tax Relief on EIS Investment 20,000 Net Income Tax Payable NIL Net cost of EIS Investment 100,000-20,000 = 80,000 CGT deferred = 100K x 40% = 40K (may be reclaimed if already paid) *for illustrative purposes only Source: Octopus Investments, September 2008

19 STEP 2: 2011 LOWER RISK, LOW GROWTH EIS EIS now worth 100,000 EIS sold 100,000 CGT now due ( 18%) 18,000 THEREFORE CGT Saving 22,000 Income Tax Relief 20,000 A gain of 42,000 * Example assumes shares are sold in 3 years time for purchase price ( 1.00) = 0% CAGR * for illustrative purposes only Source: Octopus Investments, September 2008

20 STEP 2: 2013 HIGHER RISK, HIGH GROWTH EIS EIS now worth 200,000 EIS sold 200,000 CGT now due ( 18%) 18,000 THEREFORE CGT Saving 22,000 Income Tax Relief 20,000 A gain of 142,000 * Example assumes shares are sold in 3 years time for twice the purchase price ( 2.00) = 25.99% CAGR *for illustrative purposes only Source: Octopus Investments, September 2008

21 PROTECTED EIS FUND Pre-approved by HM Revenue & Customs Lower Risk - the Fund will invest in a diversified portfolio of EIS qualifying companies with a view to minimising risk to capital - These companies operate with a high degree of predictability - Management fees are deferred and only paid if gross amount Invested is returned at the end of year three Liquidity Octopus will look to exit the investments after three years, at which point funds can be reinvested and qualify for a further 20% Income Tax Relief Source: Octopus Investments, September 2008

22 EUREKA An EIS investment targeting growth Portfolio service - All shares are held in client s name (not a pooled investment) - Average portfolio expected to contain companies - Each holding is taxed independently Portfolio normally invested over two calendar years - Clients will claim tax reliefs over relevant tax years Proven track record in unquoted company investments The team has generated an average return of 29% per annum since 2000 Source: Octopus Investments, September 2008

23 PLANNING IDEA IHT PLANNING FOR PREGNANT PORTFOLIO Client wishes to plan for IHT Asset portfolio pregnant with capital gains Client thinks paying CGT to save IHT is ludicrous Would like to pay neither but likes the income from the portfolio Invests into Protected EIS - No CGT on portfolio - No IHT on portfolio after two years - Income tax relief

24 CASE STUDY PROTECTED EIS Mrs Jones Estate worth 1,024,000 Inherited portfolio of shares from husband nine years ago All husband s assets passed to Mrs Jones Shares now worth 400,000 Capital gain on shares 100,000 Income tax paid 20,000

25 BEFORE AND AFTER Current Situation Value of Estate 1,024,000 Nil Rate Band (Hers) 312,000 Nil Rate Band (His) 312,000 Taxable Estate 400,000 IHT Payable = 400,000 x 40% = 160,000 Income Tax Payable = 20,000

26 PROPOSED SOLUTION Sell shares Invest proceeds: - 100,000 into EIS - 300,000 into other IHT schemes

27 BEFORE AND AFTER New Tax Position Value of Estate 1,024,000 Nil Rate Band (Hers) 312,000 Nil Rate Band (His) 312,000 Residual Estate 400,000 Less Exempt Assets* 400,000 Taxable Estate NIL IHT Payable = 0 x 40% = 0 Income Tax Payable = 0 *Assumes assets held for more than two years

28 QUESTIONS AND ANSWERS Guy Myles Angel Court London EC2R 7HP