The next steps for your Octopus EIS investment. An Octopus guide

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1 The next steps for your Octopus EIS investment An Octopus guide

2 DRAFT Key investment risks For UK investors only. The value of an investment, and any income from it, can fall or rise. Investors may not get back the full amount they invest. Tax treatment depends on individual circumstances and may change in the future. Tax reliefs depend on the portfolio companies maintaining their qualifying status. The shares of smaller companies and EIS shares could fall or rise in value more than other shares listed on the main market of the London Stock Exchange. They may also be harder to sell. We do not offer investment or tax advice. We recommend investors seek professional advice before deciding to invest. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London EC1N 2HT. Registered in England and Wales No We record telephone calls. Issued: July CAM

3 This guide provides information about what to consider when thinking through your options for Enterprise Investment Scheme (EIS) qualifying shares which have passed through their 3 year minimum holding period and should not be regarded as investment advice. Octopus does not offer financial advice, and we strongly recommend talking to a financial adviser before making any investment decisions. If you have any questions about our products, please call us on Find it fast What this guide tells you 3 You don t have to decide now 4 A reminder of EIS tax reliefs 6 Your options explained 8 Understanding the key risks 14 Frequently asked questions 16

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5 What this guide tells you This guide has been written for people who hold or control shares in the Octopus Enterprise Investment Scheme (Octopus EIS). If you re reading this guide, it should be because one of the following applies: You ve held this investment for more than three years, the minimum holding period set by HM Revenue & Customs (HMRC). You ve inherited Octopus EIS shares, or you re the executor of the estate of someone who held the shares at the time of their death. This guide tells you what you can now do with your Octopus EIS shares. To give you an overview, you now have the following options: Continue to hold the shares (see page 8), in which case you don t have to do anything. Sell the shares (see page 10), and have the proceeds paid out as cash. Sell the shares and reinvest the money with Octopus (see page 11). Provided you are comfortable with the risks of a new investment, we can sell the shares and reinvest the proceeds into another investment product. The rest of this guide explains these options in more detail, as well as the risks associated with holding on to the shares or making a new tax-efficient investment. The next steps for your Octopus EIS investment 3

6 You don t have to decide now You can ask us to sell shares whenever you wish. We aim to sell shares every three months and our timetable can be found below. Please be aware that our ability to sell EIS shares depends on being able to find a buyer, so we can t guarantee when we ll be able to make the proceeds available. To date we ve always been able to provide liquidity according to the schedule below, however we can t guarantee this will be the case in the future. If we receive your request to sell shares before the below dates 1 February 31 March 1 May 30 June We ll aim to provide the proceeds from any share sales by 1 1 August 30 September 1 November 31 December This guide sets out the options available, but the right choice will depend on individual circumstances. Please note that we cannot offer financial advice, and we always recommend you talk to a financial adviser before making an investment decision. But if you have any questions about the EIS investment, please call us on and we ll be happy to help. 1 This timetable also defines when we d aim to have proceeds ready for transfer, should you wish to invest in another Octopus investment. 4 An Octopus guide

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8 A reminder of EIS tax reliefs If you purchased the Octopus EIS shares you should have already benefited from some or all of the tax reliefs listed below. If you inherited the shares there are a few things relating to these benefits which it s worth being aware of. Tax reliefs available through an EIS: Income tax relief If you bought the EIS shares you will have been eligible to claim income tax relief (up to 30% of the amount invested). If you ve now held the shares for more than three years you can sell them and keep any income tax relief claimed. If you ve inherited shares or you re the executor of an estate, you won t be able to claim any income tax relief on the shares. This benefit is only available to the original investor. Capital gains tax deferral If you ve used your Octopus EIS to defer a capital gain, you can continue to do this while you hold the shares. Once you sell the shares you may be liable to pay tax on the gain at the rate that applies to your personal circumstances. If you ve inherited the shares or you re the executor of an estate, then any capital gains tax liability deferred by the original EIS shareholder should ve been eliminated if they held the shares at death. Inheritance tax relief If you ve held the shares for more than two years they should be exempt from inheritance tax. Based on current legislation we would expect the shares to stay exempt for as long as you hold them. If you ve inherited the shares or you re the executor of an estate, then provided the original investor held the shares for two years prior to death, they should be exempt from inheritance tax. So the investment shouldn t form part of their taxable estate. Married couples and civil partners also have the benefit of transferring the shares to the spouse without resetting the two-year clock. 6 An Octopus guide

9 Tax-free growth This relief is only available if you are the original investor, or if your spouse transferred EIS shares to you prior to their death. If your EIS investment has increased in value, any profit you make from selling your shares should be tax-free. Note that for this relief to apply, the investors must have claimed income tax relief on the investment that has not subsequently been withdrawn. Loss relief This relief is only available if you are the original investor. If some of the holdings in your EIS investment didn t perform well, you may be eligible to claim loss relief. Depending on your personal circumstances, this can help offset the effect of any underperforming assets in the overall portfolio. If you d like to know more about this, read our Octopus guide to EIS loss relief. You can find this by visiting octopusinvestments.com/investor and searching for loss relief. Also if you have any questions please give our client relations team a call on Remember, the tax reliefs offered by an EIS will depend on the individual circumstances of each investor and are stated at the date this guide has been published. EIS tax reliefs are subject to HMRC changes. They also depend on the underlying companies maintaining an EIS qualifying status. The next steps for your Octopus EIS investment 7

10 Your options explained In this section, we explain your options in more detail. We don t offer tax advice or financial advice, and we recommend you talk to a financial adviser to help you decide which option is right for you. 1 Continue to hold the shares If you want to retain your Octopus EIS shares, you don t need to do anything. We ll continue to manage the investment. There are a number of potential advantages to keeping the shares, which you can read about below. There are also risks, so make sure you read pages 14 and 15 of this guide. Advantages of retaining your Octopus EIS shares Inheritance tax exemption Your Octopus EIS shares should stay exempt from inheritance tax for as long as you retain the investment. Capital gains tax deferral If you used the Octopus EIS to defer capital gains tax due from an earlier separate investment, this deferral will continue for as long as you hold the shares. Growth target of 3% We will aim to deliver a modest, steady rate of return of 3% a year while ensuring that the companies maintain their EIS qualifying status. Moreover, from this point on, we will only take our annual management charge if we hit this target. Of course, investors should remember that capital is at risk and you may not get back the full amount invested. See pages 14 and 15 for more information about the risks of this investment. 8 An Octopus guide

11 Access to regular liquidity You can ask us to sell shares whenever you wish. We will aim to provide liquidity on a quarterly basis, in line with the timetable provided on page 4 of this guide. Remember, our ability to sell your shares depends on being able to find a buyer, and we can t guarantee how long this will take. To date we have always been able to provide liquidity according to the timetable on page 4, however we can t guarantee this in the future. Remember, the tax reliefs offered by an EIS will depend on the individual circumstances of each investor. The tax reliefs mentioned in this guide were correct at the time of publication. EIS tax reliefs are subject to HMRC changes. They also depend on the underlying companies invested in maintaining EIS-qualifying status. Please read pages 14 and 15 for more about the risks of holding EIS shares. The next steps for your Octopus EIS investment 9

12 2 Sell the shares If you tell us to sell some or all of your shares, we will then find a buyer for them and pay the proceeds to you as cash, minus any accrued fees. To do this, you ll need to complete and return an Octopus EIS withdrawal form. Be aware that selling the shares could take time, and could have tax implications. For more information, please speak to a financial adviser before calling us. You don t have to sell the entire investment If you want to retain some of the tax reliefs while taking an income from the investment, then selling part of your EIS investment could be an attractive option. You can even create a regular income from your EIS investment, by following the timetable for selling shares.

13 3 Transfer to a new investment You may be interested in transferring into other products managed by Octopus. We ve outlined your options below, but before making any decision, please talk to a financial adviser who can help you decide what s right for you. We also recommend reading our product literature, available on our website or by calling our Client Relations team on Venture Capital Trusts (VCTs) If you are interested in other investments that offer income tax relief, you could consider VCTs. VCTs invest in smaller companies that are not listed on the main London Stock Exchange, and which meet the criteria for VCT investment. As with EIS investments, investors can claim upfront income tax relief up to 30% of the value of their investment. Be aware that you must hold VCT shares for at least five years, otherwise you will need to pay back any income tax relief you claimed. VCT investors don t pay any capital gains tax if the value of their VCT shares goes up, and there s also the potential for tax-free dividends, although these aren t guaranteed. Please note that the tax benefits of VCTs are not the same as with an EIS. For example, VCTs do not offer capital gains tax deferral or relief from inheritance tax and there is no ability to claim loss relief. Please read pages 14 and 15 for information about the risks of investing in a VCT. Estate planning investments If inheritance tax is your main concern, you could consider an investment that offers inheritance tax exemption. These invest in companies that qualify for a government incentive called Business Property Relief (BPR), which encourages investors to take on the risk of investing in smaller and unquoted companies. The next steps for your Octopus EIS investment 11

14 Provided an investor holds BPR-qualifying shares for two years, and still holds them at death, they can be left to beneficiaries free from inheritance tax. EIS investments that have been held for at least two years also qualify for BPR, which means that if you choose to reinvest the proceeds of the Octopus EIS into one of our inheritance tax services, it should be free from inheritance tax straight away. In other words, there is no two-year waiting period as there would be if you were making a new investment. Note that estate planning investments do not offer all the tax reliefs that EIS-qualifying investments do. Please read pages 14 and 15 for information about the risks of estate planning investments. Transferring your investment Our other products may not offer the same investment objective or tax advantages as your current investment, they may also have different fees and charges. It is important that you read the relevant product brochure, or in the case of VCTs, the prospectus and Key Information Document (KID), before making a decision, to ensure that you understand the risks involved. Octopus does not offer financial advice and we always recommend talking to a financial adviser before making any investment decisions. If you have any questions about our products, please call our Client Relations team on An Octopus guide

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16 Understanding the risks To recap, the three options we ve looked at are: Continue to hold the shares. Sell the shares. Sell the shares and invest the proceeds into another Octopus product, such as a VCT or estate planning investment. In addition, in this section we cover the relevant risks for all products referenced in this guide, however, if you want to transfer your investment into a new Octopus product, you should read the latest available product brochure. Investment risk Our products will place your capital is at risk and the investment return is not guaranteed. You may not get back the full amount you invest. Octopus EIS invests in small, unquoted companies. Our VCTs and estate planning investments invest in either smaller listed companies or unquoted companies. In all these cases, these should be viewed as higher risk than larger companies. Smaller companies are also likely to change in value more quickly than larger companies. Liquidity Liquidity describes how easy (or difficult) it is to sell an investment. The higher the level of liquidity, the easier it is to sell the investment and receive cash proceeds. Investments made by Octopus EIS are in unquoted companies, which are not as liquid as companies on the main market of the London Stock Exchange. This means they may be harder to sell. The same applies to VCT shares and estate planning investments, which may also be harder to sell than shares listed on the London Stock Exchange s main market. Taxation Rates of tax, tax benefits and allowances described in this guide are based on current legislation and depend on personal circumstances. These may change and are not guaranteed. The availability of tax reliefs also depends on the companies invested in maintaining their qualifying status. 14 An Octopus guide

17 Qualifying status Regarding Octopus EIS and our VCTs, we make every effort to ensure that the companies we invest in qualify for the relevant tax reliefs, and maintain their qualifying status. Please note, however, that there is no guarantee that companies will still qualify in the future, or that tax reliefs will still be available to you. If an underlying EIS company or Octopus VCT no longer meets the legislation requirements, this could mean the withdrawal of tax benefits. In this case you may need to repay any tax relief claimed on this investment. Inheritance tax relief Regarding our estate planning investments, HMRC assesses Business Property Relief on a case-by-case basis at the time of the investor s death, as part of the probate process. 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 the time of death can be passed to beneficiaries free of inheritance tax. The two-year timeframe, or qualification under replacement relief rules, commences when HMRC deems the investment has qualified for Business Property Relief. This may be later than the investment date. The next steps for your Octopus EIS investment 15

18 Frequently asked questions Selling your investment Q What if I m approaching one of the deadlines from the table on page 4? A If you re looking to sell shares but are worried that you could miss a deadline from the table on page 4, please give us a call on and we ll confirm this with you. Please note, if we have written to you recently offering you the option to sell shares for the first time, we may not be able to sell your shares in the timeframe specified in the table on page 4. Under these circumstances, the deadlines specified in the letter should override the dates in this guide. Q If I decide to sell my shares, how will you pay out the money? A We will pay the funds to your bank account. Q What happens if you can t find a buyer for shares I ve asked you to sell? A Initially, we would contact you to let you know that the option is not available at the time of your request. If you wanted us to continue with the sale, we would retain your request in our system and sell the shares for you at the earliest opportunity. Q Why can t I withdraw money from my other EIS portfolio(s)? A There are two likely reasons: Because you haven t held the shares long enough for us to offer you the option to sell the shares (EIS shares must be held for a minimum of three years in order to retain any income tax relief claimed). The nature of the investments means we are not able to offer the option to sell shares at this time for example, if we cannot currently find a buyer for the shares. About your tax benefits Q I used my EIS to defer a capital gain. Will I be liable for the capital gains tax if I sell the shares? A If you are the original owner of the shares, yes. When you sell your EIS shares, the capital gains tax becomes payable. You should talk to your financial adviser. If you are the executor of an estate, or you inherited the shares, you won t be liable for tax on a gain deferred into the EIS by the original investor. So long as the original owner of the shares held them at the time of their death, any deferred capital gains tax liability would have been eliminated when they passed away. 16 An Octopus guide

19 We re here to help If you have any other questions, please or give our Client Relations team a call on

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