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Industry Update | April 2023
Business relief
Surveying the Business Relief landscape: diversifying with asset finance
Unleashing the power of technical support: does your BR manager offer expert help to achieving clients’ planning goals?
Lending in a rising interest rate environment
Thought Leadership
Case study of a young BR investment manager
VENTURE CAPITAL TRUST
IHT planning and the AIM: a look at investment strategies
AIM to become an increasingly useful tool in investors’ tax planning kitbags
Writing Business Relief cases: on demand webinar
Avoiding concentration risk in Business Relief investments
Demystifying AIM listed companies: from Wild West to enviable eco-system
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In three short years, Business Relief (BR) will turn 50 years old. For close to half a century the tax-advantaged scheme has undergone multiple changes, most designed to broaden its scope and make it more generous, rather than to limit its use. In 2023, with the government’s inheritance tax (IHT) receipts set to hit £7 billion for the very first time — and households expected to pay £37 billion in inheritance tax over the next five years — the need for effective estate planning solutions has never been more pressing. BR is one reason why IHT has been called a “voluntary” tax. Indeed, BR offers a reliable way to mitigate the eventual IHT liability of one's estate upon death — and, in some circumstances, to reduce it to zero. It is essential for investors and their advisers to understand the nuances of BR and to stay up to date with the latest market trends. The BR Industry Update aims to help individuals stay informed and adapt their strategies to ensure that they can make the most of this crucial tax-advantaged scheme. In this issue, we delve into a range of pressing BR topics, offering valuable insights and expert analysis: How might the Spring Budget 2023 impact BR investors? Spring budget 2023: a plan to get the economy moving attempts to provide some answers. During periods of economic uncertainty, traditional investments may experience volatility, resulting in potential losses. But looking into Investing in Business Relief during economic uncertainty, we find that investing in unlisted companies through BR investment can provide investors with diversification and the potential for long-term growth. While Surverying the Business Relief landscape: diversifying with asset finance, it becomes obvious that asset finance investments can provide a hedge against inflation, as lease payments can be adjusted to reflect inflation rates. Unleashing the power of technical support: does your BR manager offer expert help to achieving clients’ planning goals? Features a BR manager that provides technical support to financial advisers, including guidance on the eligibility of investments for BR, identifying and assessing investment opportunities, and ensuring compliance with tax regulations. Lending in a rising interest rate environment can be a viable strategy for investors seeking to invest in Business Relief (BR), as explained in this interesting article. Concentration risk can arise when an investor's portfolio is heavily invested in a particular type of unlisted company or sector, leaving them solely exposed to the performance of those companies or sectors. Avoiding concentration risk in BR investments reveals the antidote to this investment risk. The Case study of a young BR investment manager proves that being a new kid on the block has unsuspected advantages. The Alternative Investment Market (AIM) is poised to play a greater role in tax planning for investors. In AIM to become an increasingly useful tool in investors’ tax planning kitbags, we see that London’s junior market is now an attractive option for investors to diversify their portfolios and manage their tax liabilities. In "IHT planning and the AIM: a look at investment strategies", a prominent BR manager anaylses the benefits of pairing a strong growth manager with a strong value manager. "Writing BR cases", an on-demand webinar, explores useful tips to help advisers write BR cases with confidence. "Demystifying AIM listed companies: from Wild West to enviable eco-system" explores how AIM has moved from something of a "wild west" in its early days to a more refined investment market today.
Introduction
Market Update
Considerations for Investment
Industry Analysis
Managers in Focus
What's on the Horizon
Further Learning
The BR universe today
The Business Relief universe today
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With estate planning being referred to as “the big opportunity of 2023” this industry update of Business Relief (BR) comes out at a crucial time. The soaring inheritance tax (IHT) receipts, affecting a growing number of families, have highlighted the urgent need for dependable IHT mitigation solutions.
learning objectives
Identify the main developments and news in the Business Relief market Evaluate the key fees and charges applied by Business Relief managers Recognise the various factors that will affect the Business Relief market in the coming months Analyse some key topics of particular relevance to the BR sector Outline some sectors and strategies that successful BR managers are leveraging
Readers can claim up to 2 hours’ structured CPD. Click here to claim your CPD. By the end of the update readers will be able to:
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Business Relief investment report: navigating opportunities and risks
The BR universe today Surveying the Business Relief Landscape: Diversifying with Asset Finance Unleashing the power of technical support: does your BR manager offer expert help to achieving clients’ planning goals? Case study of a young BR investment manager Investing in Business Relief during economic uncertainty Lending in a rising interest rate environment AIM to become an increasingly useful tool in investors’ tax planning kitbags IHT planning and the AIM: a look at investment strategies Avoiding concentration risk in Business Relief investments Writing Business Relief cases: On demand webinar Demystifying AIM listed companies: From Wild West to enviable eco-system Continuing professional development About Intelligent Partnership
Covid changed context for BR
name surname
- Marcus stuttard
Very quickly, companies on AIM were able to access equity capital rapidly and at scale
The VCT universe today
ubbed alternatively as a “back to work budget” and a “budget for growth”, Jeremy Hunt’s Spring Budget 2023 aims to eliminate barriers that hinder business investment, with the goal of making "Britain a technological superpower". However, the response from business groups to the Chancellor's presentation to Parliament on March 15 was mixed. The Confederation of British Industry (CBI) praised the Budget, lauding it as a "strong second act" and emphasising its support for people and productivity. On the other hand, the British Chambers of Commerce (BCC) commended the Chancellor for improving free childcare for working parents and introducing full capital expensing, but the Federation of Small Businesses (FSB) criticised the Budget for failing to provide sufficient support in key areas and neglecting small businesses. Meanwhile, the Institute of Directors (IoD) strongly endorsed the decision to allow all investment expenses to be offset against revenue for tax purposes in the year of expenditure, and urged for the policy to continue beyond its initial three-year period.
- Van Hoang, Investment manager, Blackfinch Investments
The clearer market environment post-Brexit, as well as a tighter grip on the pandemic, creates an outlook conducive to increased listings on AIM.
Opening Statement Update Overview
1. INTRODUCTION
Market Composition Fees and Charges
3. Considerations For Investment
Are Hostile Takeovers A Danger To AIM? AIM In FCA’s Proposals
4. Industry Analysis
What Has The Market Been Doing? More AIM Positivity 2021 AIM Listing What's Driving the Market? The Autumn Budget 'AIM' for success, not perfection Focus Drives Pandemic Return Small is Beautiful Combatting Climate Change Health is Wealth What the Managers Say
2. market update
Amati Global Blackfinch Blankstone Sington Close Brothers Hawksmoor investment Puma investments Sarasin & Partners Stellar investment TIME investments Unicorn Comparison Table
5. managers in focus
More AIM-focused EIS Future Market Changes Considered What The Managers Say
6. what's on the horizon
Learning Objectives CPD and Feedback About Intelligent Partnership Disclamer
7. further learning
Spring budget 2023: a plan to get the economy moving
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BIDDER JURISDICTION (FIRM OFFERS)
Here’s a recap of the relevant changes and their potential impact on the BR sector:
role, Intelligent Partnership
Smaller stakes have little choice
Unfortunately, individual retail investors are unlikely to hold a large enough stake to change the outcome of these votes. But, on the other hand, in the vast majority of takeovers seen in the first half of 2021, there was a substantial bid premium where the share price increased during the offer period. The highest was an eye-watering 79%, although more commonly, it was in the lower, but still very pleasing 20% - 50% range.
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The Confederation of British Industry (CBI) praised the Budget, lauding it as a "strong second act" and emphasising its support for people and productivity.
What could the budget mean for Business Relief (BR)?
The corporation tax will increase from 19% to 25% starting this month, primarily affecting businesses with profits over £250,000. Companies with profits between £50,000 and £250,000 will receive some relief, while those with profits below £50,000 will see no change. Impact on BR Investments: The corporation tax increase may impact BR investments as investors may prioritise companies that can benefit from the relief offered to lower-profit businesses. This could lead to BR investments focusing more on smaller-scale or early-stage companies that fall within the tax relief thresholds.
Corporation Tax Increase
The corporation tax will increase from 19% to 25% starting this month, primarily affecting businesses with profits over £250,000.
The EIS universe today EIS: The smart money goes north Find the gems: The art of identifying and investing in resillient businesses Three need-to-knows about knowledge-intensive-companies EIS: A tool in the net zero journey, despite renewables ban How the rise of healthtech is transforming our healthcare experience Going for growth with EIS EIS open offers jump by 24% Regulation 2023: It's more than just Consumer Duty EIS dealflow: Building pipelines for funding success Bionic Arms for Ukrainian soldiers Continuing professional development About Intelligent Partnership
The £25 billion super-deduction tax break will be replaced with "full expensing," allowing businesses to write off 100% of qualifying capital expenditure in the UK against taxable profits in the same year. The Treasury estimates that this change will cost £9 billion initially, compared to £25 billion for the super-deduction, but will decrease over time. Impact on BR Investments: The introduction of full expensing may make it more attractive for BR investors to invest in businesses with significant capital expenditures, as it will provide an immediate tax benefit. This could lead to BR investments focusing on companies with substantial growth potential and capital requirements.
Full Expensing and Business Investment
Investment Zones
Twelve "investment zones" will be established across the UK to offer businesses enhanced tax relief and lighter regulations. These zones must demonstrate partnerships between local government and a university or research institute to foster innovation. Impact on BR Investments: Investment zones will likely make it more appealing for BR investors to invest in companies located within these regions, as they can take advantage of enhanced tax relief and reduced regulations. This could result in BR investments concentrating on businesses operating in these zones and collaborating with local research institutions.
intelligent-partnership.com mohamed@intelligent-partnership.com
Mohamed Dabo
Senior Editor, Intelligent Partnership
By Mohamad Dabo, Senior Editor, Intelligent Partnership
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The BR universe today Surveying the Business Relief Landscape: Diversifying with Asset Finance Unleashing the power of technical support: does your BR manager offer expert help to achieving clients’ planning goals? Case study of a young BR investment manager Investing in Business Relief during economic uncertainty Lending in a rising interest rate environment AIM to become an increasingly useful tool in investors’ tax planning kitbags IHT planning and the AIM: a look at investment strategies Avoiding concentration risk in Business Relief investments Writing Business Relief cases: On demand webinar Continuing professional development About Intelligent Partnership
2021 AIM LISTINGS
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Surveying the Business Relief Landscape: Diversifying with Asset Finance
sset financing provides specialist lending solutions to SMEs by providing an upfront injection of capital, enabling businesses to reach their goals. In some cases, private lenders are able to put a Business Relief (BR) tax wrapper on the loan facility, which can make it an attractive investment opportunity for individuals considering their estate planning. Along with the tax incentives, investors have a clear line of sight on stable and predictable returns, as well as the opportunity to help boost the growth of some of the UK’s most prominent sectors. The Praetura Inheritance Tax Planning Service utilises a successful specialist UK lender to deliver for their clients. Praetura Lending Division started trading in 2013 with a highly experienced team with an advanced credit process. By harnessing the benefits from Business Relief, their team has helped deliver industry-leading returns and capital preservation for their advisers and investors.
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But what is asset financing?
Simply put, it’s a loan given to businesses that utilises its assets as collateral. It’s a funding solution used mostly by the SME sector and came into prominence after the 2008 financial crisis when a funding gap started to appear following a shift where high-street banks moved away from this type of secured lending. Subsequently, the UK witnessed a considerable rise of non-bank independent lenders entering the space and many of these now represent some of the biggest financiers in the sector. Praetura’s lending team is a great example of this; having commenced operations in 2013, they have built a lending book of over £330m to date and lent to over 5850 businesses.
Let’s say a logistics business is looking to expand its geographical footprint and acquire new customers, it will often need additional upfront capital to aid the expansion. This could be through the purchase of new equipment, such as plant machinery or vehicles, however such upfront costs can put pressure on a company’s cash flow. Asset financing can support these purchases by spreading the cost over time with smaller, regular repayments, whilst enabling immediate business growth. It’s a flexible solution for SMEs and can help companies across a wide range of sectors, especially in times of an unstable economic landscape, when maintaining working capital can become increasingly important.
What kind of businesses can apply for asset financing?
This type of financing provides investors with a highly diversified, secured lending strategy which can see the client’s investment secured against thousands of underlying customer agreements, across a broad range of industries. Loans are underwritten using prudent realisable values of the assets being used for securitisation, and in the event of a client default, the lender usually has clear title to the asset, which can minimise any potential downside. This can prove to be an effective underlying trade in BR as it provides predictable annual returns, as well as the liquidity and control to allow investors to withdraw capital in the event that this is required. To date, investors in Praetura’s lending businesses have enjoyed stable returns and significant asset coverage with less than 0.1% capital write-offs across the portfolio businesses since 2013.
What does this mean for BR?
Finally, by strategically targeting the SME sector, alternative lenders can positively impact the performance of their loan book, as many smaller businesses may struggle to secure the required funding from traditional sources such as big banks. This gives the likes of Praetura a competitive advantage when it comes to negotiating the terms of such loans. This is especially prevalent in this economic environment dictated by higher interest rates, where there is an opportunity to achieve greater interest income on an SME loan. For potential investors into the Praetura Inheritance Tax Planning Service, it allows Praetura to offer a stable and predictable 4.5% per annum net return whilst qualifying for inheritance tax exemptions through the BR tax wrapper after just two years.
How does this impact performance for alternative lenders?
Asset financing can support these purchases by spreading the cost over time with smaller, regular repayments whilst enabling immediate business growth.
It allows Praetura to offer a stable and predictable 4.5% per annum net return whilst qualifying for inheritance tax exemptions through the BR tax wrapper after just two years.
praeturaventures.com jon.prescott@praetura.co.uk
Jonathan Prescott
Partner, Praetura Ventures
By Jonathan Prescott, Partner, Praetura Ventures
MORE AIM POSITIVITY
nvestment advisers are constantly looking for ways to optimise their clients' investment strategies, particularly when it comes to estate planning. One powerful tool that financial advisers can leverage is Business Relief (BR). But investing in BR is not without its challenges. The technical aspects of the estate planning tool can be complex, especially when combined with other IHT planning methods.
Ensuring healthy adoption
According to EY, global IPO volumes rose 87% and proceeds rose 99% year-on-year in the third quarter of 2021. A key drviver was the rebound of the IPO markets in Europe, Middle East, India and Africa (EMEIA).
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Unleashing the power of technical support
Unfortunately, transforming our healthcare systems is not merely a case of simply implementing technology. Adoption is crucial. Previously, a catalyst was lacking for the mass adoption of an expansive form of digital healthcare. This catalyst came in the form of the pandemic, which shifted behaviours and supercharged innovation. The pandemic revealed the enormous pressure on healthcare systems and structural inefficiencies. The net outcome was a realisation that things needed to be done differently. Working from home and social distancing practices made old models of care, such as GP visits and certain types of in-patient hospital care visits, suddenly seem inefficient and prohibitively costly. The behavioural change swept away traditional ways of thinking about healthcare delivery. For example, the pandemic tailwind for adoption has supported the wider embrace of tech-led delivery models that harness technology to enable remote monitoring and testing. These delivery models can improve diagnosis and screening, as well as the timing of interventions, while boosting operational efficiency and lowering costs.
At the intersection of healthcare and technology, advances in 'healthtech' are driving down costs, while improving patient access and outcomes.
Bigger impact
The impact of technology will become more obvious as it is adopted and, arguably, the impact will be far more significant in the clinical environment than for therapeutics. Over the next decade, robust data will reveal the scale of change. We see the greatest impact in three ways: better access to clinical care; improved clinical outcomes for patients; and reduced costs. Ultimately, however, the best indicator of positive impact will be improved quality of life for patients. The pace of digital adoption in healthcare is driving more investors into the space. The healthtech revolution is just beginning, but we are already seeing how it can transform the healthcare experience.
The irony of the pandemic is that its legacy might not be how it diminished our healthcare systems, but how, ultimately, it made them more resilient. It has also deepened the investment case of digital care in the UK. For context, the UK is home to the largest number of digital health start-ups in Europe since 20101 . With a combination of early-stage venture capital and re-affirmed NHS goals towards a digital care future, we see the opportunity set widening further. There are still challenges, however. Adoption is accelerating but it won't happen overnight. For the next few decades, we will need to see doctors, nurses, and other healthcare professionals work in symphony with technology- this is the key to unlocking the power of cutting-edge digital solutions. This means developing clinical solutions that can be incorporated into existing workflows and achieving immediate practical impact. By leveraging technology in smarter ways, we can improve access to high-quality care - but also drive out costs and inefficiencies. Solutions need to be intuitive and seamlessly flow into existing practices. At an inception level, collaboration is vital. We need to create an ecosystem where private capital can engage with start-ups and early-stage companies to enable stakeholders, from software engineers to clinicians, to work in concert. This will then allow them to leverage the NHS and other healthcare systems to provide sustainable value-added solutions and deliver high-quality care.
Pandemic problem-solving
Unleashing the power of technical support: does your Business Relief manager offer expert help to achieving clients’ planning goals?
Scaling solutions
The scale of the challenge ahead requires early-stage innovation. This is happening. 2021 was considered a breakthrough year for healthtech and biotech, with a global record amount of venture capital investment to the tune of $79 billion. Healthcare also remains one of the least digitalised sectors, leaving plenty of room for growth. However, we must be able to scale solutions if we are to tackle significant challenges such as an ageing population. Our focus is on supporting tech-led companies further up the early-stage curve with established revenues. The themes of these innovative leaders range from robotics that prepare surgeons for the operating room to enhanced imaging technology -such as, real-time images from ultrasounds can be cleaned using algorithms that move imaging from 2D to 3D. This allows clinicians to get a more accurate picture and better plan for interventions. It also reduces surgery downtime and the need for CT scans or X-rays. By making the process more real-time, surgery times can be cut by 20-30%, which ultimately means more patients going through the operating theatre.
Dr Nigel Pitchford
We need to create an ecosystem where private capital can engage with start-ups and early-stage companies to enable stakeholders, from software engineers to clinicians, to work in concert.
This is where BR managers can help financial advisers achieve their investment and tax-planning goals. The managers can bring a wealth of specialised expertise to the table, allowing advisers to make informed decisions and take advantage of the opportunities presented by BR. Stellar Asset Management is a good example of a BR provider whose level of technical support goes beyond what you’d expect from a manager of its size. Sean Burrows, Regional Account Manager for Central, West, and South England is a former adviser, compliance manager, head of a major insurance company’s life and trust department and specialist in IHT advice, with 25 years of experience. He shares the sort of technical and practical expertise that can be invaluable to advisers:
BR manager expertise can powerful
It’s important for advisers to look at the bigger picture and not just focus narrowly on Business Relief. Sean’s knowledge and experience allow him to offer a holistic view of a client's situation, enabling advisers to identify potential issues and opportunities that may have been overlooked. Sean cites the case of an adviser who was looking at EIS and SEIS solutions for a CGT bill in the event of their client, a director, selling their business. “Both of these products are very useful in their design but their lack of liquidity, after further discussion, would not meet all the clients’ needs for the capital and to cover the CGT liability.” The answer? “Corporate Business Relief can be used for both IHT and CGT purposes, in some circumstances, and this allowed us to look at a solution that not only deferred capital gains but also provided for the liquidity that the client needed.”
Encouraging advisers to consider the broader context and innovative planning ideas
Sometimes a small adjustment can make a big difference. For instance, there is a simple way to extend the 0% trust periodic charges applicable to BR-qualifying shares held in trust, even when their value has been realised and the funds used by the trust to acquire alternative non-BR-qualifying assets: “The settlor should write to the trustee to ensure the BR-qualifying assets are retained in the trust for at least seven years, so that, if they die within seven years of settling them into trust, they don’t come back into charge as a failed PET. But preferably, the minimum holding period by the trust should be 10 years + 1 day,” explains Sean. He goes on, “this is because BR-qualifying assets are exempt from periodic charges and any periodic charges over the next 10 years, no matter what the trustees invest the asset value in during that period, are determined by the charge applicable at the last tenth anniversary of the trust.”
Actionable specifics that enable advisers to implement minor adjustments with significant effects
The level of service and value in the technical expertise that experts like Sean can offer aligns with the requirements of the Consumer Duty, which aims to generate the best outcomes for clients. It also demonstrates the commitment of BR managers like Stellar Asset Management to help advisers help their clients achieve their financial goals and protect their wealth for future generations.
Client-centric, Consumer Duty compliance
The managers can bring a wealth of specialised expertise to the table, allowing advisers to make informed decisions and take advantage of the opportunities presented by BR.
www.stellar-am.com enquiries@stellar-am.com
Sean Burrows
Regional Account Manager Stellar Asset Management
By Sean Burrows, Regional Account Manager, Stellar Asset Management
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Case study of a young Business Relief investment manager
eing the new kid on the block is not easy when starting any fund. It takes persistence, commitment and belief. Not to mention expertise. While these are attractive qualities, the lack of track record (even though past performance is not necessarily an indicator of future performance) can be a massive roadblock for potential investors. On the other hand, there are actually some notable positives and Business Relief (BR) funds are no exception:
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Some new managers can bring experience and expertise from previous activities in the BR-qualifying trade.
New funds will not experience the legacy issues that others may have done.
At any one time there are over 60 offers open in the BR market (MICAP). This makes for a fairly broad selection, but any additional diversification opportunities are to be welcomed, particularly when it is considered best practice to diversify investments across a number of managers because of the similarity of sectors that many focus on.
New offerings do not have to spend the time, energy and ultimately expense (management time doesn’t come free) spent to oversee issues of investments from years ago. This allows for greater concentration on finding the best current deals.
New funds will not experience the legacy issues that others may have done. For example, there is little possibility that among the existing investments are some that may not yet have been sufficiently down valued to reflect their true value in current circumstances.
They may also carry over relationships with relevant professionals like financial advisers who have enough trust in them from working with them previously, that they are prepared to be early investors, when the AUM of the BR fund is minimal. This is a great sign for other investors and is the case for Zenzic, whose first £10 million of investment reflects this confidence.
Of course, building a successful BR fund takes time, with eventual focus on successful deaths – where BR was successfully claimed and IHT relief confirmed. But before all of that, the tax tail shouldn’t wag the investment dog, so performance is key. For Zenzic, that’s progressing exactly as its experience expects. Target returns are being met, and in fact projected to be exceeded over the next 12 months. All underlying loans are performing, and the pipeline of new projects is healthy.
Extra incumbents mean more competition that can bring prices down and service levels up. Take Zenzic Capital, for example, an investment manager that entered the BR market just a couple of years ago. It offers an eye-catching target return of 6% per annum, well above the average of 4.45%.
Some new managers can bring experience and expertise from previous activities in the BR-qualifying trade. A good example of this is Zenzic with their real estate lending service which they have been running outside of a BR wrapper for close to a decade. Zenzic has carried out lending on real estate projects totalling more than £150m in value, as well as advising on projects worth more than £1bn during the same period.
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Investing in Business Relief during economic uncertainty
This section takes a look at the state of the Business Relief market based on the number of offers in the market. Unless otherwise stated, this analysis uses data obtained from the MICAP platform and is correct as of 10 March 2023.
he current economic climate has brought the cost-of-living crisis to the forefront of public attention. With inflation still running at 8.8% and uncertain support for businesses, many are struggling to stay afloat. This is especially true for family businesses, who face rising costs for energy, transportation, raw materials, and wages, while consumers have less disposable income to spend. In these challenging times, investing in Business Relief (BR) can offer a potential solution. BR is a tax relief designed to help small and medium-sized businesses by reducing the amount of inheritance tax due on their assets. This can provide a significant boost to business owners who are looking to pass on their assets to future generations. Investing in BR-qualifying companies can also provide a potential hedge against inflation and recession. By investing in companies that are less vulnerable to economic downturns, investors can protect their portfolios from market volatility. Being typically illiquid, BR investments are less affected by short-term market fluctuations. Moreover, BR-qualifying companies often invest in assets that have intrinsic value and are less susceptible to inflation. This includes investments in property, renewable energy, and infrastructure, which tend to hold their value even in times of economic uncertainty. Overall, investing in BR can offer a potential solution for businesses looking to navigate the challenges posed by inflation and recession. By diversifying risk and investing in assets that are likely to hold their value in the face of economic uncertainty, investors can protect their portfolios and provide a boost to their businesses. It is important, however, to ensure that by diversifying risk, business owners do not jeopardise their BR status. Now, let’s take a closer look at the investment prospects that are available in the BR market for prospective investors.
The BR sector has remained strong in the face of the current economic challenges, with 70 offers currently open, which continues the steady progression we saw in our previous analysis. There were 65 open offers in April last year and 69 in September.
Open offers: a gradual uptick
The open offers invest in AIM-listed companies (55.7%) and asset-backed companies (44.3%). The strategies suggest that BR managers are prioritising growth and security, which are two critical factors during a period of inflation: Shares on the Alternative Investment Market (AIM) are often seen as offering an easy opportunity to pass on wealth to the next generation without incurring Inheritance Tax (IHT). In principle, an investor buys AIM shares which qualify for BR, survives for more than two years, and then passes them on to their children by Will. Asset-backed companies carry a significantly lower risk of complete capital loss since the assets used to secure the investment can be utilised to offset any capital losses caused by defaults.
Investee companies: zeroing on growth and security
The average return per open offer is 4.45%. However, as stated in our previous report, the target returns vary by investment strategy. Presently, open offers aim for a maximum return of 7% for Capital Preservation and Growth, and up to 10% for both Growth and Growth & Income. Despite significant market challenges, it implies that certain open offers are still striving for returns that surpass inflation.
Target returns
The government's latest alterations to its tax budget will sustain the positive progress that the VCT sector has achieved in recent years. In the future, the significance of VCTs in the UK's financing environment is projected to grow as investors seeking to invest in the future of UK SME businesses, admist geopolitical and economic instability, are drawn to these vehicles due to the important tax incentives they continue to offer.
Many advisers report seeing clients question fees amid the inflation. In a recent survey, more than a third (39%) of advisers said clients are less willing or unable to pay fees due to inflationary pressure. So, perhaps it’s no wonder that many of the fees charged by the open BR offers have remained unchanged since our last analysis in September. Among those that have changed, initial charge to investee companies stands out, declining by a third (33.33%).
Fees and charges
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The data suggests a bright outlook for EIS, offering hope for investors aiming to take advantage of the UK’s most ambitious companies.
BR is a tax relief designed to help small and medium-sized businesses by reducing the amount of inheritance tax due on their assets.
Initial Charge to Investors Excluding Adviser Fee Initial Charge to Investee Company Total Initial Charge AMC Charged to Investor AMC Charged to Investee Company AMC Annual Per Fee Exit Per Fee Annual Per Hurdle Exit Per Hurdle Initial Deal Fee Exit Deal Fee Annual Admin Charge
0.92 0.20 1.12 0.89 0.35 1.20 0.71 0.14 0.26 1.43 0.47 0.52 0.30
0.90 0.30 1.18 0.88 0.35 1.18 0.71 0.14 0.26 1.42 0.44 0.49 0.30
March 2023
September 2022
% change
Spring Budget 2023: a plan to make “Britain a technological superpower” VCT investing on AIM: how to navigate the investment cycle for maximum returns 5 myths about Venture Capital Trusts What to do for an encore How will VCTs perform this year? Making a big impact on small businesses VCT: The underrated advantages of being the new kid on the block VCT’s evolving client profile: take another look at your client bank Who’s afraid of higher interest rates? Why now is the best time in 10 years to buy private markets The opportunity in healthcare
The current open offers adopt four major investment strategies: growth (by 39.7% of the open offers); capital preservation and growth (39.7%); growth and income (17.6%); capital preservation and income (2.9%). Managers appear to have a preference for sectors that have the potential for growth in the current climate of inflation and global tensions (97% of the offers are focused on growth). This allocation strategy is particularly effective in BR, where there are relatively few sector restrictions (with the exception of businesses dealing mainly in securities, stocks or shares, land or buildings, or the making or holding of investments). The current regulations permit a broad range of BR-eligible investments for UK investors, including forestry, renewable energy (such as solar and hydro power), property finance, and asset-backed businesses like pubs, health clubs, and hotels. Additionally, stocks listed on the Alternative Investment Market (AIM) generally qualify for BR relief. BR offers investors the opportunity to hedge their investments by investing in businesses that are likely to thrive during periods of inflation. Some underlying investments that qualify for BR have a positive correlation with inflation, such as shorter-term loans with regular rate negotiations.
Rising inflation underscores one of the most important lessons of investing: portfolio diversification is critical to investment success. Diversifying one's investments across multiple asset classes can mitigate the risk exposure. BR provides tremendous opportunities for diversification. The current open offers invest in 16 companies on average, across a wide range of sectors, aiming for growth and diversification. In reality the average number of investee companies can be higher than 16. This is because the tally includes managers who use single companies as an investment vehicle. What happens is that a significant number of BR investment managers establish a single company, in which investors can become shareholders, and subsequently invest in third-party BR-qualifying companies.
Diversification
+2.22% -33.33% -5.08% +1.14% No change +1.69% No change No change No change +2.38% +6.82 +6.12% No change
Charges
Minimum subscription
For its intended purpose, BR remains relatively inexpensive. As noted in our previous report, the minimum subscription for open offers is typically £25,000, but it can be as low as £15,000. However, even a £15,000 investment in BR can result in savings of £6,000 in IHT.
The BR sector has remained strong in the face of the current economic challenges, with 70 offers currently open, which continues the steady progression we saw in our previous analysis.
s inflation rises, it creates both winners and losers. Savvy investors strive to align themselves with the winners to reap the benefits of high interest rates. High inflation rates significantly impact lending and can cause both positive and negative outcomes for customers and lenders. For the winners, however, the gains can be considerable, and they can go beyond the financial. Arranging loans for companies that perhaps do not meet the big banks’ strict lending criteria and are too small to tap the bond market has proved very fertile ground for many of UK’s non-bank lenders.
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When a Business Relief (BR) provider is involved in lending, the aim is to generate returns for investors through the interest earned on loans made to businesses or individuals. These returns can be used to pay dividends to investors or to fund the growth of the business in which they are a shareholder. Furthermore, BR providers that are involved in lending can offer investors the opportunity to invest in one or more specific industries. For example, Seneca’s IHT Service is used to fund lending for social housing, commercial property, stock funding and vehicle financing. Other providers offer a different blend of lending, as well as investment in renewable energy, leasing or technology.
High inflation rates significantly impact lending and can cause both positive and negative outcomes for customers and lenders.
BR and lending can equal regular dividends and targeted sectors
Non-bank lenders thrive
The current inflationary environment has certain potential benefits for many non-bank lenders and their investors:
Higher interest rates could increase income
At face value, one potential benefit of lending in a rising interest rate environment is the opportunity to charge higher rates of interest, with the aim of producing higher returns for investors. However, more expensive lending and the increased costs generally seen by borrowers might also result in an increase on loan defaults, diluting the perceived benefit of charging higher rates.
Credit standards improve
In an inflationary environment with rising interest rates, borrowers may see banks becoming more selective about the types of loans they offer and the borrowers they approve, tightening their lending criteria, seeking more onerous covenants and increasing the rates at which they will offer loans. This can lead to the exclusion of borrowers who may have previously qualified for a bank loan or drive others to seek finance from non-bank sources. If those non-bank sources do not increase their lending rates to the same degree as the banks, an opportunity is created to inject higher quality lending into their loan books, thereby lowering the attendant risks to investors’ capital.
The lending process becomes more efficient
Lending in a rising interest rate environment can also provide a faster and more efficient loan process for borrowers. Whilst banks can often have complex and time-consuming underwriting processes due to their size, stakeholders and regulatory requirements, smaller lending institutions are in a position to simplify and speed up the process, while still maintaining rigorous underwriting standards. This can lead to borrowers who qualify for bank lending to still seek finance from non-bank sources, again helping to maintain or improve the quality of the loan book.
Non-bank lenders experience a surge in loan requests
For non-bank lenders, such as Seneca, the knock-on effect of all of the above can be an increase in demand for loans. In Seneca’s case, this increase in demand has allowed it to offer investors in one of its investee companies a rights issue, whereby those investors can buy further shares. Not only does this allow the company to fund these additional lending opportunities, the rights issue itself should have certain Inheritance Tax benefits for investors who, in many cases, might see the value of these offer shares considered outside of their estate for IHT purposes as soon as they are allotted.
When a Business Relief (BR) provider is involved in lending, the aim is to generate returns for investors through the interest earned on loans made to businesses or individuals.
senecapartners.co.uk peter.steele@senecapartners.co.uk
Peter Steele
Retail Operations Director, Seneca Partners
By Peter Steele, Retail Operations Director, Seneca Partners
senecapartners.co.uk siobhan.pycroft@senecapartners.co.uk
Siobhan Pycroft
Investment Manager, Seneca Partners
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t was a change that offered significant benefits to investors too. Not only could they get access to some really interesting fast-growing companies not previously available in an ISA, but the added bonus of three tax benefits in one: 100% income tax and capital gains tax relief, as well as a route to pass on the ISA free of inheritance tax (IHT), providing the investments qualify for business relief and the investor has held the shares for at least two years when they die.
AIM has had a number of success stories over the past 10 years – AB Dynamics, a global supplier of automotive testing products, listed on AIM in May 2013 with a market capitalisation of £14m at a share price of 86p. Today its shares are valued at £17.80. Its employee base has grown from 50 to 400 over the decade.
But as we reach the 10th anniversary, just how popular have AIM ISAs been?
Source: British Buisness Bank
In July 2013 Sajid Javid, then economic secretary to the Treasury, set out rules that would allow AIM shares to be held within stocks & shares ISAs as part of the government’s efforts to stimulate investment into UK small and medium-sized enterprises (SMEs) and jumpstart the economy.
While more and more people have taken advantage of their ISA allowance, the majority of this has been invested in cash ISAs and mostly main market stocks & shares ISAs. Over the past decade, the value invested in ISAs has increased over 75% to an estimated £687bn, of which 58% is held within stocks & shares ISAs. But over the same 10-year period, the ISA amount invested in the whole AIM Market has grown at a much slower rate. With a total AIM market value of £97bn, the amount invested in AIM is only 57% higher than in July 2013. Further, over that time, the size and shape of the AIM market has also changed with the number of companies listed on AIM decreasing by 25%. The data also shows that the tax advantages of AIM ISAs remain largely unused despite government incentives. HMRC data from 2021/22 shows that business relief, which would include AIM shares and shares in private businesses, was used by 2,820 estates, a drop in the ocean when you consider that on average 23,000 estates have exceeded the IHT threshold in recent years. Also, over 7 million are aged over 65, yet the use of AIM shares to mitigate a potential IHT liability remains low.
So why has AIM remained a less-used tool in the UK’s financial planning kitbag?
AIM stocks – which are typically fast-growing companies – are higher risk and performance can be volatile. This was particularly true of 2022, which proved a difficult year for AIM. However, it is possible to generate good investment returns over time. Companies we seek out, for example, often have revenue lines built patiently over many years and deliver good cash flows that can be recycled into further growth. And there are now far more mature companies on the AIM market. This maturity has been recognised too by institutional fund managers. There is now a higher level of institutional ownership from UK equity funds often looking to the AIM market for growth ideas. In the technology sector, 85 software companies are listed on AIM, in contrast to the scarcity of technology companies listed on London’s main market.
AB Dynamics
Only 4% of UK deaths result in an Inheritance Tax charge, yet HMRC’s IHT receipts have ballooned to a record £6.1bn in 2021/22, which was up 14% on the previous year.
AB Dynamics, a global supplier of automotive testing products, listed on AIM in May 2013 with a market capitalisation of £14m at a share price of 86p.
But do I really need to be concerned about IHT?
Only 4% of UK deaths result in an Inheritance Tax charge, yet HMRC’s IHT receipts have ballooned to a record £6.1bn in 2021/22, which was up 14% on the previous year. With a freeze to the IHT nil-rate band until 2028, combined with inflation, it would be reasonable to expect the proportion and value of estates that are liable for an IHT charge to rise much further. The extended freeze of the nil-rate band is going to bring IHT into scope for a larger proportion of households. As such, we expect AIM, subject to any changes to tax legislation, to be an increasing useful tool in people’s tax planning kitbag. This can only aid further the continuance of AIM’s maturity over the next 10 years by providing capital to AIM-listed businesses that further enables some excellent smaller UK businesses to grow.
By Joseph Cornwall, Investment Manager, Puma Investments.
pumainvestments.co.uk advisersupport@pumainvestments.co.uk
Joseph Cornwall
Investment Manager Puma Investments
1) AIM Market - London Stock Exchange 2) Gov.uk - Commetary for annual savings statistics, June 2022 3) Gov.uk - Inheritance Tax statistics: commentary, 28 July 2022
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pposites attract - or do they?
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Or is it?
Oil and water repel. Yin and Yang are – Yin and Yang. Introverts and extroverts rarely end up chatting happily in the corner at parties. As in life, fund management likes to pigeonhole. Growth and value being the most regular sparring partners. In fund management you have one thing to do; buy at the price that equates to a discount to the earnings potential of a company. Then one of two things happen – the stock goes up because you bought an undervalued asset that everyone else loves, or the earnings exceed expectations. Or they don’t. That’s it. A judgement call based on fact.
The blue line is a growth fund and the orange is a value fund. The graph shows performance over five years, a period when growth was largely in favour, up until the last quarter of 2021.
By Judith MacKenzie, Partner, Downing
downing.co.uk sales@downing.co.uk
Judith MacKenzie
Partner, Downing
The wild animal introduced into the equation is the stock’s reaction to everyone else making that judgement – so you may also need to understand how others might value the entry point (share price) and the earnings potential. I like the first part (based on fact), but I don’t like guessing how another human (or algorithmic trader) might view the stock. Because of that, we don’t buy ‘stocks’ – that is a unit of something that’s been dissected. We look at every share we buy as being the company itself. If we buy one share in a company, we would be prepared to buy 100% of it. These are not objects or synthetics. These are companies with sales, marketing, people, manufacturing. They do stuff. Markets merely speculate. If we take the common view that trying to time markets and think about other investors’ behaviour is a fool's game, then why do we try and ‘guess’ what style should be in favour, and when? As Charlie Munger said, “Our predictions and judgements are better than most, because we make fewer of them.” Therefore, sticking with a view and not tampering with it should be a rule of thumb for investment success. Simon Evan-Cook, Fund Manager at Downing, suggests keeping it simple within multi-manager strategies by pairing a strong growth manager with an equally strong value manager. And then leaving it alone. This means that returns are less volatile, smoother, and managers aren’t left with the unenviable position of having to decide when to switch horses. The graph below illustrates the point eloquently.
The blue line is a growth fund and the orange is a value fund. The graph shows performance over five years, a period when growth was largely in favour, up until the last quarter of 2021. At this point, value started to outperform. If you invested half your monies in each one of the mandates, you arrive at the red line. You would have endured less volatility and benefited from the best of both worlds – without the pain of trying to time markets. Simple. The Downing AIM Estate Planning Service (AIM IHT portfolios) has a value tilt. This makes us value investors, and is evidenced by the valuations of the funds’ holdings (PE and EV/EBITDAs) being lower than that of the index. What’s the benefit to this investment strategy? We believe if you buy a stock when it is value, or ‘cheap’, you are less dependent on having to get ‘everything’ right in its growth journey. If you buy it when it is on a PE of say 25x, you are buying forward years of predicted growth. If these long-dated cash flows don’t come home to roost, then share prices tend to remind you that you called it wrong. This was experienced in technology growth stocks through 2022, and we think that it will continue. A primary goal for the Downing AIM IHT services is to not erode capital. The typical age of an IHT investor is over 70 and they tend to be investing to pass down value to the next generation. It’s worth noting too that Downing offers downside protection insurance as standard for investors under age 90, which protects the initial net investment of a loss of value of up to 20%. Steady and reliable is what these investors tend to look for - and therefore, buying long-dated future earnings adds a degree of risk and volatility to a portfolio. As a fund manager, a strategy that enables buying earnings that are more certain can perhaps lead to a steadier journey, rather than paying heavily for what might be uncertain dramatic growth. However, we also realise that some investors want the best of both worlds – the excitement of a growth stock, but the reliability of a value approach. One way of achieving this could be through pairing the Downing AIM IHT Service with another portfolio to attain a 50/50 balance and leaving it alone. Let the growth portfolio benefit in momentum markets and the value portfolio benefit in more challenging times. The most reassuring thing for a fund manager is seeing your portfolio perform as you would expect it to in volatile markets. Following the turbulence of 2022, this strategy adopted by Downing demonstrated exactly this and the Service performed well relative to sector and peers in this more challenging market. We are boring and hopefully predictable. If you want something more dynamic then pair us with something growthy and enjoy the excitement of the equilibrium that doing nothing brings.
We also realise that some investors want the best of both worlds - the excitement of a growth stock, but the reliability of a value approach.
40% 35% 305 25% 20% 15% 10% 5% 0% -5%
Jan '18 Jul Jan '19 Jul Jan '20 Jul Jan '21 Jul Jan '22 Jul
A B C D
A - Fidelity - UK Smaller Companies W Acc in GB [34.47%] B - UK Small cap: 50% Fidelity & 50% TB Amati TR in GB [23.43%] C -TB - TB Amati UK Listed Smaller Companies B Acc in GB [9.64%] D - Numis Smaller Companies Excluding Investment Companies GTR in GB [0.00%]
Source: FE Analytics 29/12/2017 to 30/12/2022
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Avoiding concentration risk in BR investments
The current surge in the number of EIS offers can be seen as a sign of growing optimism over the UK’s economic growth outlook for 2023. This optimism is being fuelled mainly by evidence that inflation has peaked as energy costs ease.
The EIS universe today Consumer Duty: What it could mean for EIS investments EIS: The smart money goes north Find the gems: The art of identifying and investing in resillient businesses Three need-to-knows about knowledge-intensive-companies EIS: A tool in the net zero journey, despite renewables ban How the rise of healthtech is transforming our healthcare experience Going for growth with EIS EIS open offers jump by 24% Regulation 2023: It's more than just Consumer Duty EIS dealflow: Building pipelines for funding success Bionic Arms for Ukrainian soldiers Continuing professional development About Intelligent Partnership
Not all investments or business interests will qualify for BR. Typically, BR will be available for shares in unquoted qualifying companies, including minority holdings; shares in qualifying companies listed on the Alternative Investment Market (AIM); and interests in unincorporated qualifying trading businesses, such as partnerships. It's a fact of life, however, that shares in these unlisted or AIM-listed companies can fluctuate more dramatically than those of larger companies listed on the London Stock Exchange's main market, thereby exacerbating any existing concentration risk. Typically, investment managers will vary share acquisitions across qualifying trades in different asset classes, industries and in companies of divergent maturities. Focus on diversification varies across investment managers, but there is a traditional concentration among BR unlisted providers on renewables and infrastructure. Consequently, manager diversification does not always equal sector diversification. One place to find that is in managers that have unique sector focus. Triple Point, for example, is the only provider to offer leasing as a BR qualifying investment. It has also developed a sector tool to enable investors and advisers to establish the levels of sector diversification offered by unlisted BR providers.
Spreading out your BR investments to reduce risk
Since the lease payments are received at varying, but regular intervals across the year, returns are generally predictable and reliable. Because of the number of agreements, it would take a substantial number of delayed payments or defaults to disrupt income payouts to investors. The lease terms of the deals also vary and this can help to smooth out potential volatility in difficult periods. When interest rates go up, higher lease fees can be applied to deals which come up for renewals at different intervals.
Volatility of return through the economic cycle
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oncentration risk is the potential for a lot of the investments in a client’s portfolio to move in the same direction. If those investments constitute a big proportion of the portfolio and all lose value at the same time, for example as a result of market shocks, this can pull down the value of the entire portfolio to a potentially unrecoverable value. As a general practice, diversification is an important strategy for any investment portfolio to spread risk, minimise potential losses and potentially increase overall returns over time.
C
Focus on diversification varies across investment managers, but there is a traditional concentration among Business Relief (BR) unlisted providers on renewables and infrastructure.
Sector focus/Underlying assets
The trade of lending and leasing assets to a huge range of organisations, from the NHS to smaller firms across the UK, means that Triple Point has literally thousands of agreements for assets from ambulances to bin lorries. The resultant debt financing book includes multiple debtors, many of which are high quality, public bodies. Consequently, the failure of one lending and leasing arrangement, with one or two entities, is unlikely to have a material impact on the overall value of the debt financing book. Also, leasing and infrastructure finance are typically uncorrelated to other major asset classes such as equities and property.
The regularity of income means that it is not difficult to predict and manage the availability of cash to facilitate current or future redemption requests. So, concentration risk is clearly a driver of various levels of diversification, but these examples suggest that, when carefully considered, some diversification strategies can bring additional benefits.
Liquidity
www.triplepoint.co.uk contact@triplepoint.co.uk
Billy Brown
Strategic Relationship Director, Triple Point
By Billy Brown, Strategic Relationship Director, Triple Point
ast year in the UK, over £5.9 billion was paid in IHT alone, and this figure is projected to grow to £7.3 billion by 2025. We are on the cusp of the greatest generational wealth transfer in history, with baby-boomers set to pass on trillions of pounds over the coming decades to future generations. In this useful webinar hosted by Octopus, join a panel of industry experts looking to unpick how crucial it is for families to understand inheritance tax implications, and why Business Relief (BR) qualifying investments are an important tool to have in an advisers’ estate planning toolkit. Introduced in the 1976 Finance Act, the BR landscape has been long established with managers like Octopus operating at the forefront. However, advisers still find that they are often met with trepidation from investors who may not be entirely familiar with BR products and the risk profile associated. Join Octopus who ask all the key questions to help broach BR with your clients and can guide you through the process from explaining what BR is, how it works in practice, through to writing client cases with confidence. Additional highlights include:
Key Risks
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Writing Business Relief cases: On demand webinar
The value of an investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest. Tax treatment depends on individual circumstances and could change in the future. Tax relief depends on portfolio companies maintaining their qualifying status. The shares of unquoted and AIM-listed companies could fall or rise in value more than shares listed on the main market of the London Stock Exchange. They may also be harder to sell.
CLICK HERE for "Writing Business Relief Cases".
Why inheritance tax is a growing concern and the importance of BR. A panel of financial advisers join for a discussion on how they approach writing BR cases. Special guest Mark Greenwood, Director of Compliance Services at SimplyBiz, gives practical tips around risk, suitability, and Consumer Duty. How to choose the right investment for a client.
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. 03942880. CAM012913.
1 HMRC tax receipts and National Insurance contributions for the UK (monthly bulletin), HMRC, February 2023. 2 Passing on the Pounds report, Kings Court Trust, 2017. 3 HMRC Shares and Assets Valuation internal manual, HMRC, March 2016.
By Octopus Investments
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Demystifying AIM listed companies: From Wild West to enviable eco-system
he Alternative Investment Market (AIM) has been in operation for almost 30 years and over that time has gone from strength to strength. Although more than 4,000 companies have been listed since its launch in 1995, today there are 800 companies listed on the exchange, which hints at how AIM has moved from something of a ‘wild west’ in its early days to a more refined investment market today. But what are the attributes that make AIM investments a useful tool in an investor’s kit?
Badge of quality
Every AIM listed company has to appoint a Nominated Advisor (Nomad), who is responsible for guiding the business through all regulatory requirements. The Nomad will attend board meetings to keep a close eye on business performance and ensure ongoing compliance with exchange rules. Nomads act as a kind of regulatory police for AIM and have a deep insight into their companies. If they feel a company is breaking the rules they can resign their role, effectively delisting the offending company, unless it can find another Nomad to take over the role. This provides a strong incentive for companies to play by the rules.
AIM explained
The Alternative Investment Market (AIM) was launched in 1995 replacing the Unlisted Securities Market (USM). Since 1995 more than 4,000 companies have joined AIM and more than £130 billion has been raised in primary and secondary capital from a very wide range of investors making AIM the world's most successful small company stock market. There are no specific minimum eligibility requirements for admittance to AIM. However, securities traded on AIM must be freely transferable and must be capable of electronic transfer and the company must appoint and retain a nominated advisor and broker. Investing in AIM shares via an ISA offers tax breaks. AIM is not a recognised exchange which means that a large subset of companies qualify for Business Relief, possibly making them free of Inheritance Tax.
AIM had experienced exponential growth in total market value due to the weight of new companies listing, but the average market caps barely exceeded £50 million.
Even after the major correction in 2022, it is still a factor of 4.5x to an average value of £115 million per company.
Current state of play
While the market capitalisation of AIM has increased substantially since the GFC, there is still a very wide distribution of the size of companies on AIM. While it is impressive that 15 companies are capitalised over £1 billion, 211 – or one-quarter of companies on AIM - are capitalised at less than £10 million. This is a level where a company should consider whether it is worth the effort and cost of even being publicly quoted. Further, 60% of AIM companies are capitalised at less than £50 million, which is below the threshold at which most institutions invest, predominantly because of poor liquidity. In our mind, this dispersion effectively creates two distinct buckets of companies. Bucket one is 'investment grade', where the company is large enough to be of interest to institutional investors - giving it proper access to capital. It would also have a high quality Nomad in place, demonstratable growth track record, strong market position and consistent profitability. The second is a 'speculative' bucket, which consists of everything else, and is likely to be sub-institution in size, with a patchy growth track record and may not yet be profitable. In our view, the investment grade/speculative cut-off is around £100 million market value although there are some interesting businesses up and coming in the £50 million - £100 million bracket. Ultimately, if you are looking to invest, rather than speculate, the opportunity set on AIM is probably around 200 companies, or less than 30% of all companies in the index. This opportunity set, while not without risk, presents significant potential for those looking for tax-efficient investments in some of the most exciting businesses around.
By Raymond Greaves, Head of Equity Funds, TIME Investments
time-investments.com 020 7391 4747 questions@time-investments.com
Raymond Greaves
Head of Equity Funds TIME Investments
While AIM represents an opportunity for investors to diversify their portfolios and find interesting companies with genuine growth potential, the shares also enjoy multiple tax benefits. From 2013, it has been possible to include AIM shares in an ISA, this means that - as with any ISA investments - there is no capital gains tax to pay on profits, and investors will not pay any income tax on dividends. AIM shares are also exempt from stamp duty. Second, because AIM is not a recognised exchange, many companies on AIM may qualify for Business Relief, therefore making them free of Inheritance Tax after just two years of share ownership. Many Business Relief services, such as the TIME:AIM service, have been created to take full advantage of this feature. Many businesses that are still largely in family ownership, such as FW Thorpe, MP Evans and Watkin Jones, choose to list on AIM and occasionally main market companies will move to AIM specifically to take advantage of this tax relief.
Tax incentives
In 2002, the total value of AIM was about £10 billion, equivalent to one decent sized main-market industrial company, like British Aerospace. In other words, it was a particularly small market. By 2007, AIM had experienced exponential growth in total market value due to the weight of new companies listing, but the average market caps barely exceeded £50 million. Further, following the Global Financial Crisis (GFC) it was back to an average cap of a just £25 million per company. For many, these companies were just too small to invest in. Since the turn of the decade, despite the huge attrition rate of companies on AIM, the average market value has increased dramatically, by a factor of 7x between 2008 and 2021. Even after the major correction in 2022, it is still a factor of 4.5x to an average value of £115 million per company. The maturation of AIM from a ‘Wild West’ pre-GFC into a much larger market of fewer, but higher valued businesses is sometimes misunderstood and largely unrecognised. Similarly, trading volumes today are far higher than they were in the late noughties, despite fewer companies, implying much better liquidity in general. These are all good signs of a much more mature marketplace.
A more matured marketplace
Important information The information contained in this article does not constitute and should not be construed as constituting investment or any other advice by TIME Investments. There is no guarantee that the target return objectives of TIME:AIM will be achieved and investors should recognise that their capital is at risk and they may get back less than they invest. The levels and bases of, and reliefs from, taxation may change in the future. The levels and bases of, and reliefs from, taxation may change in the future. Any favourable tax treatment, such as Business Relief, is subject to government legislation and as such may change.
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This publication contains general information only and the contributors are not, by means of this publication, rendering accounting, business, financial, investment, legal, tax or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Neither the contributors, their firms, affiliates nor related entities shall be responsible for any loss sustained by any person who relies on this publication. The views and opinions expressed are solely those of the authors and need not reflect those of their employing institutions. Although every reasonable effort has been made to ensure the accuracy of this publication, the publisher accepts no responsibility for any errors or omissions within or for any expense or other loss alleged to have arisen in any way in connection with this publication.It is not an offer to sell, or a solicitation of an offer to buy, the instruments described in this document. We recommend that prospective investors consult their own suitably qualified professional advisers concerning the possible tax consequences of purchasing, holding, selling or otherwise disposing of any of the investment options in this publication. .This publication is based on the authors’ understanding of the structure of the arrangements detailed, the current tax legislation and HM Revenue & Customs practice as at March 2023 which could change in the future. Intelligent Partnership is not authorised and regulated by the Financial Conduct Authority and does not give advice, information or promote itself to individual retail investors. It is the responsibility of readers to satisfy themselves as to whether any arrangement contemplated is suitable for recommendation to their clients. Tax treatment depends on an investor’s individual circumstances and may be subject to change. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. This publication is not included in the CLA Licence so you must not copy any portion of it without the permission of the publisher. All rights reserved.
Evaluate the key fees and charges applied by Business Relief managers
Identify the main developments and news in the Business Relief market
Analyse some key topics of particular relevance to the BR sector
Outline some sectors and strategies that successful BR managers are leveraging
Recognise the various factors that will affect the Business Relief market in the coming months
Disclaimer
To find the content relevant to each of the learning objectives, simply check the top right of each article where there is a colour bar corresponding to the learning objective(s) it relates to. Each learning objective is assigned it's own colour in the left hand column below.
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Focus on quality drives pandemic returns SEIS expanded to support Government’s focus on innovation and entrepreneurs Are hostile takeovers a danger to AIM investors and UK PLC? Focus on quality drives pandemic returns SEIS expanded to support Government’s focus on innovation and entrepreneurs Are hostile takeovers a danger to AIM investors and UK PLC?
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Introduction Market update Consideration for investment Industry analysis Mangers in focus Whats on the horizon Further learning
About Intelligent Partnership
We organise focused events and provide a suite of materials to keep advisers and industry professionals up to date with the latest developments and on course to meet their training and CPD targets. Our range of engaging, accessible and CPD accredited resources includes:
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