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View on Octopus IHT service?

Investment | Specialist Helpful? 42

Asked by xanadu2402, submitted 15 November 2011.

Open Quote My friend has just invested in an Octopus Inheritance tax scheme.

Do you have any knowledge of this company and have you any comments?

My thanks for any help.
End Quote

Answered by Justin on 17 July 2012

Octopus Investments is a reasonably well established investment house that has been particularly active in the Venture Capital Trust market. Their investment success has been mixed to date, but then that arguably applies to just about every investment company, especially in the higher risk areas of the market in which Octopus tends to invest.

Octopus offers two services that target potentially reducing or avoiding an inheritance tax bill. Both take advantage of 'business property relief' (BPR), a perfectly legitimate tax allowance that means investments in unquoted companies will fall outside of an individual's estate provided they held them for at least two years within the five years before death.

Unquoted companies means those that are not listed on the stock market, although perversely HMRC also treats companies listed on the Alternative Investment Market (AiM) as unquoted.

However, HMRC does exclude some unquoted companies from qualifying, notably those dealing in property and investments (because it would increase the scope for BPR to be used as a pure tax dodge).

The Octopus Inheritance Tax Service (ITS) invests in privately owned companies while the Octopus AiM ITS unsurprisingly invests in AiM shares. The ITS charges 5.5% initially and 1% a year while the AiM ITS charges 5% and 2% & VAT. And both charge a 1% dealing fee, in the case of ITS on money you put in or take out and for the AiM ITS on every deal within the portfolio. While not untypical for this type of service, the fees are high and a big potential detractor.

Octopus tries to reduce risk within the portfolios by selecting safer companies (in theory at least) in which to invest. That's not to say the investments are low risk, both privately owned and AiM listed companies are potentially risky, plus liquidity can be poor meaning it may be hard to find a buyer if things go wrong. In terms of investment management ability I don't think Octopus is particularly any better or worse than most of their competitiors in this space.

Using BPR for inheritance tax planning is a long term commitment in that you should really intend to hold the investments until you die. The underlying investments are not without risk, so you could lose money. But overall BPR is a useful tax allowance that's certainly worth considering if you own significant assets (in addition to your home) that might land your estate with a big inheritance tax bill in future.


Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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