1. Building flexibility into inheritance tax planning
For professional advisers only.
Not to be relied upon by retail investors.
Building flexibility into inheritance tax planning
CISI
June 2018

2. Key risks and important information
The value of an investment and any income from it, can fall as well as rise. Investors may not get back the full amount invested.
Tax reliefs depend on the portfolio companies maintaining their qualifying status.
These products are not suitable for everyone. Any recommendation should be based on a holistic review of clients’ financial situation, objectives and needs.
The shares of smaller companies and unlisted shares could fall or rise in value more than other shares listed on the main market of the London Stock Exchange. These shares may also be harder to sell.
We do not offer investment or tax advice.
All information, unless otherwise stated, is sourced from Octopus Investments and is correct at 31 May 2018.
Tax treatment depends on individual circumstances and may change in the future.
Risks
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: June M2-CAM

3. Agenda 1 Exploring the inheritance tax landscape 2
Reviewing estate planning strategies 3
Accessing Business Property Relief-qualifying investments 4
Planning scenarios 5
How can Octopus support you?

4. funds under management1
Who are we?
More than
650
Employees
More than
£7.8bn
funds under management1
More than
125
investment managers
Established in
2000
Robust investment platforms covering sectors such as smaller companies, energy, property, healthcare
1Octopus Investments, March 2018.

5. Our investment platforms
£1.5bn
£1.5bn
£1.0bn
£0.7bn
£2.8bn
Octopus
Energy
Octopus
Healthcare
Octopus
Property
Octopus
Ventures
Quoted
Equity and debt
Equity and debt
Debt
Equity
Equity and debt
The above adds up to £7.5 billion of £7.8 billion. The remaining £300k of AUM relates to intermediate capital and other
BPR
VCT
P2P
OEIC
For illustrative purposes only. Information as at 31 March 2018.

6. The inheritance tax landscape

7. Quiz What year was Business Property Relief introduced in the UK?
What will the RNRB allowance be in 2019/20?
What proportion of people believe that their ISA is IHT free?

8. More wealth is being passed down the generations
£5.5 trillion passed down in the next 30 years1
Annual IHT receipts passed £5 billion for the first time2
IHT receipts expected to top £6.5 billion by 2022/233
1Passing on the Pounds report, Kings Court Trust, February HMRC Tax & NIC Receipts, June HM Treasury Autumn Budget, 2017.

9. The “£1 million” residence nil-rate band
Additional allowance available to be claimed by the estates of homeowners who leave their residence to direct descendants
Not everyone will benefit. They have to:
Own a property
Have children
Have an estate worth less than £2 million
An opportunity to give valuable guidance to clients who are unsure if they’ll benefit
Legislation is complex – 90% of the general public don’t know what the implications are for them1
Nil-rate band
£325,000
Additional nil-rate band applicable only to a home
£100,000
£125,000
£150,000
£175,000
1Opinium research, 4 January Based on a weighted sample of 2,003 nationally represented UK adults (18+).

10. Why is IHT still increasing when the residence nil-rate band has been introduced?
HMRC anticipate inheritance tax intake still rising
Ageing client base and baby boomers reaching old age
Significant rise in property prices
Stock market growth and increase in value of investments
Nil-rate band has remained unchanged since 2009
Many more clients are at risk of leaving behind an inheritance tax bill

11. Estate planning strategies

12. Gifting
Making gifts is a popular way to reduce an inheritance tax liability.
Clients give up access to their money
Clients need to survive 7 years for the gift to be free of inheritance tax
Taper relief – only helps with gifts worth more than £325,000
Gifts between spouses are free from inheritance tax
Make sure you keep a record of gifts made in a client’s lifetime.
Annual gifting allowance of £3,000 (can carry over one year)
Wedding gifts up to £5,000 are free from inheritance tax
Inheritance tax not paid on gifts to charities
Gifts out of regular income

13. Taper relief only applies to gifts of more than £325,000
Gifting – taper relief
Gifts typically become free from inheritance tax provided the person making the gift survives for seven years after the gift is made.
If the person who made the gift dies within seven years, the value of the gift will be included in their estate.
The person receiving the gift will have to pay any inheritance tax due.
Time between making gift an death
Rate of taper relief
0 – 3 years
No taper relief
3 – 4 years
20%
4 – 5 years
40%
5 – 6 years
60%
6 – 7 years
80%
7+ years
No inheritance tax due

14. The benefits and risks of gifting
An easy way to pass wealth onto the next generation.
It takes 7 years to become fully exempt from inheritance tax. 1 1
It’s irreversible. The person giving the money away loses ownership. 2
Easy to understand. 2
The person receiving the gift pays inheritance tax on it if the person making the gift dies within 7 years.
Can reduce the value of the estate on death. 3 3

15. Business Property Relief-qualifying investments
Government tax incentive encouraging investment into smaller and unlisted companies
Shares are held in the investor’s name meaning they retain access to their wealth in their lifetime
Can be passed to beneficiaries free from inheritance tax upon death, if held for at least two years
Portfolios of unlisted companies and those listed on the Alternative Investment Market
Likely to be a higher risk investment, not suitable for everyone
Access is subject to liquidity being available. Risks are explained on the following slide.

16. The benefits and risks of BPR-qualifying investments
Inheritance tax free after just two years (as long as it is held on death).
Capital is at risk and investors could end up getting back less than they put in. 1 1
Investment stays in the investor’s name and they retain access to it during their lifetime.
Tax relief depends on the investor’s personal circumstances and could change in the future. 2 2
It’s not possible to guarantee that an investment will definitely be BPR-qualifying when someone dies. 3
Potential for investment growth. 3 4
Investments can be volatile and shares may be hard to sell.

17. Trusts
Trusts can be used to ensure that assets are given to beneficiaries in a timely and controlled way, without incurring an inheritance tax bill.
People usually set up trusts as a way to make sure assets are kept in the family over generations. The biggest advantage of trusts is that they can be set up exactly to your own personal wishes.
Your client wants to leave assets to children or grandchildren, but don’t want them to have access until they’re a certain age
Your client wants to impose certain restrictions on how their estate is allocated to beneficiaries
Your client
wants someone to receive an income from their assets during their life, but ultimately wants the assets to be passed to someone else

18. The benefits and risks of trusts
Can reduce the value of the estate on death. 1 1
It’s irreversible.
Clients have a say over what happens to their assets after they have given them away. 2 2
It can be complicated.
Taxes may be payable upon setting up the trust and at various stages during the trust’s lifetime.
Can be useful for longer term intergenerational planning. 3 3
Inheritance tax might also be payable if the settlor dies within seven years. 4

19. Discretionary trusts
In 2006, the Government took steps to ensure that discretionary trusts would not be able to escape inheritance tax indefinitely. As a result, there are four stages where an inheritance tax charge could potentially arise in respect of a discretionary trust: 1
Entry charge – settlements into trust use up the settlor’s nil-rate band in priority. Settlements in excess
of the nil-rate band are subject to a 20% upfront charge to inheritance tax (a ‘chargeable lifetime transfer’). 2
Periodic charge – 6% charge arising on each 10-year anniversary of the creation of the trust, and applied
to amounts over the nil-rate band. 3
Exit charge – up to 6% charge applied when capital is distributed by the trust, where the trust capital
exceeds the nil-rate band. 4
Full inheritance tax charge – if the settlor dies within 7 years of settling assets into the trust, 40%
inheritance tax will be charged above the nil-rate band (with a reduction give for CLT paid when the trust
was settled.

20. How BPR-qualifying investments can interact with trusts
BPR and discretionary trusts
After two years, a BPR-qualifying investment can be settled into trust with no CLT, regardless of how high its value is. There is also no periodic charge or exit charge.*
BPR and loan trusts
Original capital is subject to inheritance tax. If repaid loan capital is invested into BPR, once the BPR-qualifying investment has been held for two years, shares can be left free from inheritance tax upon death.
BPR and IPDI trusts
Making a BPR-qualifying investment can help balance the demand for income during a spouse’s lifetime, with the beneficiaries’ desire to maximise or preserve their inheritance.
*While the trust continues to own only BPR-qualifying assets.

21. A summary of estate planning options
Gifting
BPR-qualifying investment
Trusts
Life insurance
Pros
Familiar
Easy to understand
Can reduce size of estate
Speed
Access and control
Doesn’t use up nil-rate band
Power of attorney potential
Reduces size of estate
Control over asset distribution
Can be used by beneficiaries to pay any inheritance tax due to HMRC
Cons
Can use up nil-rate band
Slow
Irreversible
Unsuitable for Power of Attorney
Small/unquoted companies present a higher degree of risk
Doesn’t reduce value of an estate
Irreversible and can be complicated
Various taxes payable
Medical underwriting required
Can be costly
Will form part of a taxable estate
Speed of relief
7 years
2 years
Whole of life
BPR-qualifying investments are only suitable for clients with the appropriate risk profile.

22. Planning scenarios

23. A note on the following scenarios
The following client tax scenarios are designed to assist you in developing your own client strategy where appropriate. Among other things, you will need to consider the eligibility and timings of tax reclaims and tax liabilities depicted, and also the impact of charges (i.e. initial fee and ongoing fees, including administration fees and an annual management charge), as relevant to the products(s) represented and/or any specific product you have chosen. The scenarios are based on real examples.
Our examples are for illustration purposes only and assume no loss or gain on the investment, although fluctuations will apply in practice. The tax situation should be assumed as is stated. Tax treatment is assumed as per current legislation and interpretation, which may change in the future.
The risk of the investments highlighted in these examples may be significantly higher than other mainstream investments.
For more details, including information on the associated risks, please see the relevant product literature.

24. Clients who require access to their investment
BPR-qualifying investments are made in a client’s name so they retain ownership – unlike gifts or trusts.
Access to capital is available, subject to liquidity.
Regular withdrawals can be set up if needed.

25. Clients who are elderly or in poor health
Investors in BPR-qualifying investments do not need to undergo underwriting or medical tests.
Two year period to inheritance tax-exemption starts as soon as capital is invested in qualifying companies.

26. Clients who want an inheritance tax-efficient ISA
Many people are unaware of inheritance tax liability on ISAs.
BPR-qualifying investments are available in ISA wrappers.

27. Clients with a power of attorney in place
Trusts and gifts deprive clients of access to their wealth.
Court of Protection is unlikely to agree to these types of solutions.
BPR-qualifying investments remain in client’s name so do not require Court of Protection approval.

28. Clients looking to settle assets into trust
There is no Chargeable Lifetime Transfer (CLT) when settling a BPR-qualifying investment into trust.
There are no periodic charges where a trust holds only BPR-qualifying investments.1
There are no exit charges for BPR-qualifying investments.1
1Providing trust holds solely BPR-qualifying investments. Other charges may apply.

29. Clients looking to settle assets into discretionary trusts
Typical discretionary trust
Settlement
4 years
7 years
10 years
20 years
20% chargeable lifetime transfer
(above nil-rate band)
Taper relief years 4 – 7 may reduce inheritance tax
Trust assets outside of settlor’s estate for inheritance tax
6% periodic charge
6% periodic charge
Further charge to inheritance tax if settlor dies within seven years of settlement
6% pro-rata exit charge if capital is settled on beneficiaries
BPR-qualifying investment into trust
No chargeable lifetime transfer
If investment is still BPR-qualifying, no periodic or exit charges1
1Any fees and charges related to the BPR-qualifying investment will still apply.

30. Clients looking to settle assets into discretionary trusts: an example
Scenario
Issue
Client wants to provide for their grandchildren.
Looking to leave £1 million across five grandchildren, but concerned about a potential divorce in the family.
Discretionary trust recommended.
Nil-rate band used elsewhere.
Charges involved would deplete trust capital.
Initial £200,000 CLT.
6% periodic charge every ten years.

31. Clients looking to settle assets into discretionary trusts: an example
A potential solution - for illustration purposes only
Invest the £1 million planned for trust into a BPR-qualifying investment.
Investment becomes inheritance tax free after two years, meaning it could be settled into trust without incurring the 20% CLT.
If trust continues to hold a BPR-qualifying investment, periodic and exit charges would be 0%.
Trust needs to keep holding the BPR-qualifying assets to ensure that no inheritance tax arises in excess of the nil-rate band if the settlor dies within seven years.
Non-BPR-qualifying assets
20% CLT 6% 6%
Settlement
10 years
Periodic charge
20 years
Periodic charge 0% 0% 0%
BPR-qualifying assets

32. Accessing BPR with Octopus

33. About BPR 100% relief from inheritance tax1
After being held for two years
Providing shares are held at time of death
Unquoted trading businesses
Some AIM-listed companies
Spousal transfer
upon death
Replacement property relief
1BPR is subject to HMRC assessment after death.

34. Our BPR-qualifying investments
Octopus AIM Inheritance
Tax Service
Tax ISA
Octopus
Inheritance
Objective
Growth
Capital preservation + 3% p/a growth
Structure
Discretionary management service
Discretionary
management service
Investments
AIM portfolio
Unquoted shares
Inheritance tax relief after two years 
Access and control1
Deferred annual management charge 
1Access is subject to liquidity being available, and control means investors remain the beneficial owner of their shares.

35. A reminder of the risks of our BPR-qualifying investments
Capital is at risk and investors could end up getting back less than they put in. 1
Tax relief depends on the investor’s personal circumstances and could change in the future. 2
It’s not possible to guarantee that an investment will definitely be BPR-qualifying when someone dies. 3 4
Investments can be volatile and shares may be hard to sell.

36. How can we help you?

37. Clients that Octopus can help you with
Clients who are elderly or in poor health
Clients subject to power of attorney
Clients who want to retain ownership over their assets
Clients who are selling or have recently sold a business
Clients who own their own company
Clients who want to set up a discretionary trust
Clients with an existing loan trust
Immediate post death interest trusts (IPDI)
Clients should be comfortable making high risk investments.

38. Collaborating with solicitors
Financial
advice
Clients settling assets into trust
Power of Attorney clients
Clients selling a business
Clients writing/ updating their will
Clients that have received a large pay-out
Tier 1 Investor Visas
Family Investment Companies
Clients going through divorce

39. Helping you explain estate planning to clients
Residence nil-rate band and gifting calculators
Guide to untangling
inheritance tax
Retail inheritance tax presentation
Go to octopusinvestments.com/estateplanninghub

40. Supporting partners when their clients pass away
Ben Charrington
Charlie McLellan
Discuss estates and probates team
Huw Morgan

41. How Octopus can help you find the right investment for your client
Regionally based BDM team
Regional events
Webinars
Product literature
Third-party suitability reports
Reasons for recommending
Due diligence reports
SIFA guide

42. Thank
you
Please get in touch with your local Octopus business development manager with any further questions on or by visiting octopusinvestments.com.

43. Appendix

44. The Octopus AIM Inheritance Tax Service
ISA
The Octopus AIM Inheritance Tax Service

45. Octopus AIM Inheritance Tax Service and ISA
These are investment objectives and are not a guarantee of what the investment will achieve. 1
Potential for significant growth. 1
Client capital is at risk. The value of an investment can fall as well as rise. 2
BPR qualifying. 2
Investing in small, unquoted companies brings volatility and liquidity risk. 3
Established and profitable companies. 3
AIM = Alternative Investment Market
Tax treatment is subject to personal circumstances, current legislation, and portfolio companies maintaining their BPR-qualifying status. 4
Proven management. 4

46. Octopus AIM Inheritance Tax Service and ISA: an overview
How it works
Diversified portfolio targeting growth.
20-30 Business Property Relief-qualifying AIM-listed companies.
Growth potential of smaller companies.
Scope to find hidden value.
Why AIM?
Highly experienced smaller company investment team.
Over £1.6 billion funds under management (FUM) in AIM-quoted companies.
Over 500 meetings with AIM companies each year.
Why Octopus?
FuM as at March 2018.

47. Quick facts about AIM AIM = Alternative Investment Market
Launched in 1995
Aggregate value of over £103 billion
AIM is the London Stock Exchange’s market for smaller companies looking to raise money for growth
Currently AIM is home to nearly 1,000 companies from numerous countries and sectors
Source: London Stock Exchange, March 2018.

48. The Octopus Inheritance Tax Service

49. Octopus Inheritance Tax Service1
BPR qualifying. 1
These are investment objectives and are not a guarantee of what the investment will achieve. 2
Targets predictable growth. 2
Client capital is at risk. The value of an investment can fall as well as rise. 3
Targets 3% return per year.
Tax rules can change. Tax relief depends on individual circumstances and on portfolio companies maintaining their BPR-qualifying status. 3 4
Access and control. 4
Access is subject to liquidity being available.

50. More than a decade of delivery by the Octopus Inheritance Tax Service
More than 10,000 active investors
Recommended by over 5,000 advisers
Over £500m of liquidity provided (usually within ten days)
Over 2,000 deaths eligible for BPR with no known challenge from HMRC
Market leader for BPR-qualifying investments1
“Octopus has raised more for its three IHT services than the combined total raised for all of the other 47 BPR services listed on the MICAP fund finder.”2
Liquidity and BPR cannot be guaranteed.
1Tax Efficient Review, MICAP Manager Report 2017.

51. An overview of the investment
Debt
PROPERTY
Equity
WIND 1
Money is placed in a discretionary portfolio service managed by Octopus.
24%
17%
Debt
SOLAR 1%
Equity
SOLAR
We use the money to buy shares on behalf of investors, in unlisted companies that we select, such as Fern Trading Ltd.
Fern’s sector allocation 2
Debt
RESERVE POWER
27% 2%
Debt
HEALTHCARE
Fern undertakes a range of trades including: 3
Equity
HEALTHCARE
Equity
RESERVE POWER
12%
Equity
LANDFILL GAS & BIOMASS 4% 2%
11%
The chart above details Fern's current business. This will change over time and may include sectors not currently shown here. Octopus Investments, 31 December 2017.