presentation leeds

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18 April 2023

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COULD YOUR CLIENTS BE MAKING MORE USE OF BUSINESS PROPERTY RELIEF?

For professional advisers only and should not be relied upon by retail clients

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TAX EFFICIENT INVESTING WITH OXFORD CAPITALBACKGROUND

• Oxford Capital has been managing tax efficient investments since 1999.

• Partnership owned.

• 40 employees split between head office in Oxford and London.

• Managing assets in excess of £300m.

• Two core investment strategies – Growth and Infrastructure.

• Experienced investment teams with proven track records.

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TAX EFFICIENT INVESTING WITH OXFORD CAPITALINVESTMENT EXPERTISE

Investment Strategy Growth Infrastructure

Client Motivation

Potential for investment

returnTax planning investment

Offering

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TAX EFFICIENT INVESTING WITH OXFORD CAPITALTHE OXFORD CAPITAL JOURNEY

Investor Support Advisor Support

• Dedicated investor services team.• Efficient and timely management of EIS3

certificates.• Semi-annual cash statements and annual

audited valuation reports.• Annual investor reporting event for each

investment strategy.• Online support via Oxford Capital’s ‘Investor

Centre’.

• Business development support, including workshops with professional partners / introducers and joint presentations to clients.

• CPD qualifying workshops on how BPR and EIS can be integrated into holistic wealth planning.

• Regular updates (face-to-face, webinars, conference calls) on offerings.

• Dedicated investor services team.• Parallel reporting.• Online support via Oxford Capital’s ‘Investor

Centre’.

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AGENDA

1 UNDERSTANDING THE IHT PROBLEM

2 WHAT IS BUSINESS PROPERTY RELIEF AND WHERE DOES IT FIT?

3 IDENTIFYING SUITABLE CLIENTS

4 DESIGNING A CLIENT RECOMMENDATION

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UNDERSTANDING THE IHT PROBLEM

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BPR BACKGROUNDUNDERSTANDING THE IHT PROBLEM

• Assets in excess of £325,000 (the nil rate band) subject to IHT at 40%.

• The nil rate band is frozen at this level until 2020/21.

• New main residence nil rate band proposed from April 2017.

• Over £3.4bn collected by HMRC (2013/14).

• Generally regarded as a ‘voluntary tax’.

• As ‘asset values’ recover, the problem will only get worse.

• Ageing population.

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BPR BACKGROUNDTHE IMPACT OF AN AGING POPULATION

• Number of the UK residents aged 65 and over is 11.1m (representing 17.4% of the population).

• This age group has increased by 17.3% in ten years.

• Males over 75 up 26% (women up 6%).

Source – ONS 2012.

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BPR BACKGROUNDRISING HOUSE PRICES

• The average detached house is now valued at £323,100 (or 99.4% of the nil rate band).

• House prices are up, on average 11%, in five years.

• In London and the South East, prices have increased by almost 30%.

Region5 years

agoCurrent value

% change

London £524,300 £672,500 28.3%

North £228,900 £233,800 2.1%

Yorks & Humb

£223,400 £260,100 16.4%

N. West £251,100 £267,700 6.6%

E. Midlands

£206,700 £247,200 20%

W. Midlands

£266,600 £249,400 6.9%

E. Anglia £237,000 £299,200 26.2%

S. East £377,400 £490,400 29.9%

S. West £345,600 £377,400 9.2%

Scotland £257,000 £253,300 -1.4%

UK average

£290,200 £323,100 11.3%Source: Halifax Property Index Q3 2014.

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BPR BACKGROUNDESTATES PAYING IHT EXPECTED TO DOUBLE

• The number of estates paying IHT is expected to double.

• Over the next five years 236,000 estates are expected to be subject to IHT.

• By 2018/19, almost 10% of estates will be subject to IHT.

Tax year

Proportion of

deaths subject to IHT

(%)

Deaths (‘000s)

Number of deaths subject to IHT (‘000s)

2013-14 4.8 548.7 26.2

2014-15 6.5 547.9 35.9

2015-16 8.0 547.6 43.8

2016-17 9.0 548.0 49.1

2017-18 9.6 549.0 52.7

2018-19 9.9 550.6 54.5

Source – OBR 2013.

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BUSINESS PROPERTY RELIEF (BPR)BACKGROUND

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BPR BACKGROUNDHISTORY OF BPR

• Introduced by Finance Act 1976.

• Designed to prevent a business having to be sold to pay IHT.

• Provided as a statutory relief, it offers non-contentious tax savings.

• Relief available at up to 100%, depending on asset.

• Increasingly used as a wealth management solution.

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BPR BACKGROUNDTHE THREE PILLARS OF ESTATE PLANNING

ESTATE PLANNING

Solutions that utilise BPR Lifetime gifting Creating a fund to pay the IHT liability

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BPR BACKGROUNDKEY BENEFITS

Access and control retained.

No complex trust structures or medical underwriting.

FLEXIBILITY

SIMPLICITY

Can accommodate a change in circumstances.AVAILABILI

TY

TIMELINESS

IHT benefits are achieved after just two years and if held on death.

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BPR BACKGROUND

THE PROBABILITY OF SUCCESS

• Few estate planning solutions are effective immediately.

• Gift based solutions typically take seven years to be fully effective.

• BPR solutions provide freedom from IHT after just two years.

Current age

Male Female

Life expectancy

Probability of surviving two

years

Probability of surviving

seven years

Life expectancy

Probability of surviving two

years

Probability of surviving

seven years

65 18 97% 89% 20 98% 92%

70 14 96% 82% 16 97% 88%

75 11 93% 71% 12 95% 79%

80 8 88% 55% 9 91% 64%

85 5 80% 34% 6 84% 44%

90 4 68% 17% 4 73% 23%

95 2 53% 0% 3 58% 0%

Source: Office for National Statistics

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IDENTIFYING SUITABLE CLIENTS - BPR PLANNING IDEAS

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BPR PLANNING IDEASSUMMARY

‘Accelerated’ Estate Planning

Lifetime Gifting – Making Transfers Into Trust in Excess of the Nil Rate Band

Starting the Journey - Reducing the Costs of Estate Restructuring

BPR as a Trustee Investment – Managing the Periodic Charge

Mental Capacity – Powers of Attorney

Exit Planning for Business Owners

Death Bed Planning – It’s Never Too Late

The ‘Holy Trinity’

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LIFETIME GIFTING – MAKING TRANSFERS INTO TRUST IN EXCESS OF THE NIL RATE BAND

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LIFETIME GIFTING

A SIMPLE EXAMPLE

• Transfers into a ‘relevant property’ trust are chargeable lifetime transfers (CLT), with amounts in excess of the available nil rate band subject to tax at 20%.

• Where the person making the gift chooses to pay any liability, the effective rate of tax increases to 25%.

Value of transfer

£428,000

Less annual gifting exemption

£3,000

Value of CLT £425,000

Less, available nil rate band

£325,000

Amount subject to tax £100,000

Tax due at 20% £20,000

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EIS IN ACTION

LIFETIME GIFTING

£428,000

Available to gift

£328,000

DiscretionaryTrust

£100,000

BPR qualifyingassets

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EIS IN ACTION

LIFETIME GIFTING

£428,000

Available to gift

£428,000

DiscretionaryTrust

£100,000


Option 1

After two years, transfer

to existing trust

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EIS IN ACTION

LIFETIME GIFTING

£428,000

Available to gift

£328,000

DiscretionaryTrust (No.1)

£100,000


£100,000

Discretionary Trust (No.2)

Option 2

After two years, transfer

to new trust

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BPR AS A TRUSTEE INVESTMENT –

MANAGING THE PERIODIC CHARGE

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BPR PLANNING IDEASBPR AS A TRUSTEE INVESTMENT – MITIGATING THE PERIODIC CHARGE

• Relevant property trusts are subject to periodic charges every ten years.

• Where the trust assets exceed the nil rate band available, IHT is paid at 6% on the excess.

• Capital distributions are ‘added back’ when determining trust assets.

Value of trust fund

£1,325,000

Less, available nil rate band

£325,000

Amount subject to tax £1,000,000

Tax due @ 6% £60,000

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BPR PLANNING IDEASBPR AS A TRUSTEE INVESTMENT – MITIGATING THE PERIODIC CHARGE

Without EIS With EIS

Value of trust asset not qualifying for BPR £1,325,000 £325,000

BPR qualifying trust assets Nil £1,000,000

Amount subject to IHT £1,000,000 Nil

IHT payable @ 6% £60,000 Nil

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MENTAL CAPACITY – POWERS OF ATTORNEY

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BPR PLANNING IDEASPOWERS OF ATTORNEY - RESTRICTIONS ON THE ABILITY TO MAKE GIFTS

Section 12, MENTAL CAPACITY ACT 2005 - SCOPE OF LASTING POWERS OF ATTORNEY, GIFTS

(1) Where a lasting power of attorney confers authority to make decisions about P's property and affairs, it does not authorise a donee (or, if more than one, any of them) to dispose of the donor's property by making gifts except to the extent permitted by subsection (2).

(2) The donee may make gifts• (a) on customary occasions to persons (including himself) who are related to or connected

with the donor, or

• (b) to any charity to whom the donor made or might have been expected to make gifts, if the value of each such gift is not unreasonable having regard to all the circumstances and, in particular, the size of the donor's estate.

(3) “Customary occasion” means—• (a) the occasion or anniversary of a birth, a marriage or the formation of a civil partnership,

or

• (b) any other occasion on which presents are customarily given within families or among friends or associates.

(4) Subsection (2) is subject to any conditions or restrictions in the instrument.

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BPR PLANNING IDEASPOWERS OF ATTORNEY – HOW BPR CAN HELP

• No need to make a gift / create a trust.

• Assets are registered in the name of the donor.

• The donor retains full access to the investment, together with the proceeds.

• No need to involve the Court of Protection.

• Saving time and money.

• Freedom from IHT after just two years.

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EXIT PLANNING FOR BUSINESS OWNERS

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BPR PLANNING IDEASEXIT PLANNING FOR BUSINESS OWNERS

RESTORING BPR ON THE SALE OF A BUSINESS

• On sale, the proceeds will be in the estate of the client as BPR ‘shelter’ is lost.

• BPR can be ‘restored’ immediately by investing the proceeds in to BPR qualifying assets within three years, buying time to consider options and allowing significant amounts to be transferred into trust without lifetime IHT charges.

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BPR PLANNING IDEASEXIT PLANNING FOR BUSINESS OWNERS

BUSINESS SALE DUE TO ILL HEALTH

• What if the client is forced to sell a BPR qualifying business as a result of a terminal or critical illness? The illness may significantly reduce life expectancy. While sale may qualify for Entrepreneurs Relief, any gains will be taxed at 10%*.

• An investment into an EIS offers a potential solution given it attracts BPR qualifying status after two years.

*Assumes sale qualifies for Entrepreneurs Relief at 10%.**Subject to meeting qualifying criteria.

***Income tax relief of up to £300,000 could also be claimed.

Without EIS With EIS***

Gain on sale of business

£1,000,000 £1,000,000

CGT payable immediately*

£100,000 Nil

Proceeds net of CGT £900,000 £1,000,000

IHT arising on death £360,000 Nil**

Balance passing to beneficiaries

£540,000 £1,000,000

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DESIGNING A CLIENT RECOMMENDATION

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OVERVIEW OF CLIENT OBJECTIVES

• Freedom from IHT in the near term

• Typically seeking capital preservation

• A desire to balance the need for access with the opportunity to achieve a real return

• Flexibility to accommodate a change in circumstances

• The ability to access capital, either as a lump sum or a regular ‘income’

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BALANCING RISK WITH THE NEED FOR INVESTMENT RETURNS

• Many clients will be risk averse

• Diversification at an asset level can help manage specific risk

• Consider spreading the investment across a number of providers

• Important to achieve a ‘blend’ of liquidity options in order to allow the required level of access whilst also providing the potential for returns.

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CONSIDERATIONS WHEN ASSESSING A CLIENT’S NEED FOR ACCESS

• Not all clients will have the same need for access

• Arranging a suitable contingency fund remove the need to redeem investments – at least in the short term

• A diversified portfolio can offer a range of access options

• High level of access can impact on potential returns

• Many clients who request higher levels of access rarely utilise it.

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STRUCTURING THE INVESTMENT

Immediate:

• Review accumulation or income options

• Need to consider the client’s tax position

• Determine frequency of any withdrawals

• Should the application be in joint or single names

Future:

• Consider how the client’s circumstance may change over time

• Will this necessitate rebalancing a client’s portfolio?

• What are the costs and tax implications of making changes?

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ESTATE PLANNING SERVICE

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ESTATE PLANNING SERVICESUMMARY

Client motivation Tax planning investment.

Strategy

Discretionary investment management service investing in companies that qualify for BPR. Focus on capital preservation.

Structure

Subscriptions invested in one or more holding companies depending on portfolio selected.

Configurability5 investment options, offering the choice of access, income and growth.

Flexibility

Ad hoc and/or regular access to capital, the option of a regular income, plus opportunity to switch option if circumstances change.

Subscriptions

Minimum of £50,000. Minimum for top up £25,000. Subscriptions are invested monthly.

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ESTATE PLANNING SERVICEUNDERSTANDING THE INVESTMENT OPTIONS

CHOICE OF FIVE OPTIONS

Investment Option

Target dividend Income (p.a.)

Target capital growth (p.a.)

Target access to capital

Income 4% 6 months

Growth, with access 3% 1 month

Growth, with return 5% 6 months

Growth, balanced access and return

4%

Up to 50% within 1 month, with the balance after 6 months

Growth and Income 2% 2% 6 months

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Q&A

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REGULATORY NOTICE

We invest in companies for which there is no established or ready market for their shares. Capital is at risk and investors should only invest if they can afford to lose their capital. Investment is of a long term and illiquid nature. Past performance is not a reliable indicator of future results. Any tax advantages associated with investing are subject to change and depend on the individual circumstances of each investor.

This financial promotion is issued and approved by Oxford Capital Partners LLP (“Oxford Capital”) 201 Cumnor Hill, Oxford, OX2 9PJ. Authorised and regulated by the Financial Conduct Authority under number 585981. Applications for investment in funds/portfolios managed by Oxford Capital may be made only on the basis of the relevant Information Memorandum and application form, copies of which are available from Oxford Capital. No reliance is to be placed on the information contained in this document in making any such application. This material is directed only at persons in the UK and is not an offer or invitation to buy or sell securities. This document is not an offer or invitation to invest in products managed by Oxford Capital nor does it solicit any such offer or invitation.

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18 April 2023

EIS MAGAZINE EVENT Leeds - Tuesday 22nd September 2015

Presentation by:

John MarsdenFounder and Managing DirectorInnvotec Ltd

This presentation is approved by Innvotec Limited who is Authorised and

Regulated by the Financial Conduct Authority (FCA).

Innvotec Limited is registered in England and Wales Company Number 02030086.

Innvotec is a small authorised UK AIFM “Alternative Investment Fund Manager”

regulated by the FCA (FRN: 122365).

EIS MAGAZINE EVENT

TAX AND INVESTMENT PLANNING USING:

ENTERPRISE INVESTMENT SCHEME (EIS)

&

SEED ENTERPRISE INVESTMENT SCHEME (SEIS)

INVESTING IN HIGH GROWTH BUSINESSES

EIS MAGAZINE EVENT

Innvotec – where old meets new

Old - been around since 1987 and making venture* investments since 1989. New - a new and novel way of running a venture capital business.Result - a fast-growing, results driven manager focused on capital appreciation that is delivering performance for its clients. Its business model and lean cost structure results in Fund charges being competitive, results driven and with no need for “hidden” add-ons.

*venture= primarily early stage, not necessarily tech, investing

EIS MAGAZINE EVENT

Innvotec Background/ History

• Independent - ownership in hands of directors / staff.

• Clients - traditionally pension funds, corporates, ERDF (European money).

• Focus-capital appreciation.

• Regulated - from the outset, currently FCA as a small authorised Alternative Investment Fund Manager (AIFM). Can hold and control client money and assets.

• Early 2000’s - business modus operandi review resulted in working with Strategic Partners.

• 2009 - launched initial EIS Fund with Anglo Scientific as its first Strategic Partner.

• 2015/16 - 7 EIS/ SEIS Funds in conjunction with 5 Strategic Partners.

• 2015 - Bermuda subsidiary (Offshore money into Innvotec portfolio companies).

EIS MAGAZINE EVENT

Recap on benefits accruing to EIS / SEIS investing

• Set off against income tax.

• Capital gains tax deferral (partial exemption for SEIS).

• Carry back facility.

• Capital gains tax exemption on exit-3 year holding period.

• IHT reliefs- 2 year holding period.

• Loss reliefs.

EIS MAGAZINE EVENT

Income Tax Benefits

EIS SEIS

Relief 30% 50%

Annual Limits £1m £100k

EIS MAGAZINE EVENT

Capital Gains Tax Exemption/Deferral

EIS SEIS

Annual Limit Unlimited £100k

Deferral 100% 50%

Exemption 0% 50%

EIS MAGAZINE EVENT

Carry back facility

Against Income Tax CGT Reinvestment

EIS 1 year 3* years

SEIS 1 year 0** years

*Qualifying investment must be made one year before or three years after gain on which relief is sought.** Qualifying investment has to be made in same tax year.

EIS MAGAZINE EVENT

IHT benefits of EIS/ SEIS

• Investments outside of IHT net if held for more than 2 years.

• This is due to Business Property Relief (BPR).

• The investor will still retain access to the funds invested if needed.

• Various IHT planning opportunities.

EIS MAGAZINE EVENT

Gross investment

Income Tax relief @ 30%

CGT deferral relief @ 28% (assuming qualifying gains to defer)

Net Cost (Effective)

EIS example of cost of investment

£ £

25,000 100,000

(7,500) (30,000)

17,500 70,000

(7,000) (28,000)

10,500 42,000

EIS MAGAZINE EVENT

Gross investment

Income Tax relief @ 50%

CGT deferral relief @ 28% (assuming qualifying gains to defer)

Net Cost (Effective)

SEIS example of cost of investment

£ £

25,000 100,000

(12,500) (50,000)

12,500 50,000

(7,000) (28,000)

5,500 22,000

EIS MAGAZINE EVENT

Other benefits of EIS/ SEIS

• 100% Capital Gains Tax Exemption if shares held for 3 years.

• Loss Relief (to include negligible value claim) with amount of loss (less initial tax relief received) offset against income – this protects the downside.

EIS MAGAZINE EVENT

HMRC Reviews & Budget Changes

Recent HMRC reviews and budget changes have focused on tax reliefs going where they were intended to - namely investments where there is a degree of risk.

• This has resulted in the closing of “loop holes” with respect to EIS companies that carry little or no investment risk i.e. asset – backed, those whose business is dependent on feed-in tariffs, subsidised electricity generation.

• This increasingly hard-line approach to EIS investing will continue.

• Whilst there will still be offerings that will test “the edge of HMRC’s envelope”, funds, in the main, will increasingly have to invest in conventional private companies from the fledgling (in the case of SEIS) to the more mature, profit/ cash generating.

NB a company can’t apply for reliefs for the first time if it has been trading for more than 7 years or 10 years in the case of knowledge intensive companies and there is a £12m aggregate EIS limit (£20m for knowledge intensive companies).

EIS MAGAZINE EVENT

HMRC Reviews & Budget Changes

• Broadly speaking Fund Managers will continue to build EIS portfolios that will be classed as either capital “preservation” or “growth/appreciation” but the type of business to be targeted will revert to the more conventional trading company and more specifically its trading features (is it profitable / cash generative) and where it is on its valuation growth “curve”.

• SEIS portfolios by the very nature of the target companies have to be focused on growth/ capital appreciation.

• Occasionally there are “hybrid” funds appearing offering investors the prospect of investing in both SEIS / EIS opportunities in the same tax year. NB the same portfolio company can be in receipt of both SEIS and EIS in the same tax year.

EIS MAGAZINE EVENT

• Perceived to be more risky given target companies and they are but:

• Risks need to be analysed, known and understood and then matched against potential upside.

• Risks within a Fund lie in the business risks inherent in the individual companies and the accompanying probabilities.

• The “upside” depends on where the individual companies are on their growth curves.

Capital Appreciation Funds/ High Growth Opportunities(typically with a technology-bias)

EIS MAGAZINE EVENT

Capital Appreciation Funds/ High Growth Opportunities(typically with a technology-bias)

• Investors / advisers have no way of knowing anything about the type and stage of companies being invested in and depend on the expertise of the Fund Manager.

• Less understanding on the advisers’ part of the type of target companies leads to less inclination to recommend.

• The conundrum being that investors themselves want to support emerging UK-based companies and make a decent gain for so doing.

• So the more advisers know about the portfolio composition and how risk is being handled the more they are likely to recommend.

EIS MAGAZINE EVENT

Why invest in EIS / SEIS Technology Funds?

• There are many different types of technology.

• What makes a true opportunity in technology?

• When is a company ready for investment?

• What is disruptive technology?

• What is digital technology?

• The benefits of technology that have a global reach.

• Why EIS / SEIS technology investment strategies are different?

EIS MAGAZINE EVENT

Capital Preservation & Capital Appreciation

Capital preservation = seeking target private companies that are deemed by the Fund Manager to carry a minimal risk of failure and a good prospect of being able to “exit” and generate cash after the 3 year holding period. The ideal target is profitable and cash generative but requires additional funding to develop further and this can only come/ part come from equity. NB many profitable private companies would prefer debt so that their equity holding is not diluted.

Capital Appreciation = seeking target companies that the Manager believes have the potential for exponential increase in value, the position of such companies on the value growth curve increases as the various levels of risk are reduced. NB such companies are typically loss making and cash consuming, require further equity to fund their on-going progress. “Exits”, in many cases, are likely to be well beyond a three year window but the financial rewards can be substantial with, as a target, returns of 5x to 20x+.

So if there is appetite for EIS/ SEIS, a balanced portfolio would seem sensible.

EIS MAGAZINE EVENT

Risk mitigation in capital appreciation (EIS/SEIS) Funds

How to address this?

• Innvotec addresses this through its strategic partnering programme.

• Most Fund Managers whose business is based on tax-efficient investing do not have the (costly) specialist expertise in-house to offer investment products focused on capital appreciation.

• Innvotec is typical and yet is a firm supporter of growth focused funds. As an investment house it has opted to work with and alongside third parties, its “strategic partners”, who possess the necessary skills to build (or create) deal flow, evaluate the technology (if applicable), business strategy and stage of development of investment opportunities. The Partners then provide the required degree of “hands on” support during the post investment and development phase of the portfolio companies.

• The intention is to address as far as is possible the risk within each portfolio company and hence within the Fund.

EIS MAGAZINE EVENT

Innvotec’s strategic partners;

• *Anglo Scientific –EIS.

• *Startup Funding Club (SUFC)– SEIS.

• Oxford Innovation Opportunities Network (OION) – SEIS.

• FinTech Circle – SEIS.

• Bank House- EIS/ SEIS.

• Williams Advanced Engineering (EIS/SEIS)**.

Each Fund has a different and novel profile.* Flagship Partner

** subject to main F1 Board Approval

EIS MAGAZINE EVENT

Number 1 priority when advising clients is performance

Past performance no guarantee to future performance but:

• 7 EIS Funds, average uplift on cost 30%* (before tax benefits) FTSE comparative movement 25%.

• 2 SEIS Funds, uplift on cost of initial fund 29%* (before tax benefits).

*Based on standard valuation criteria of most recent 3rd party transaction in the shares

EIS MAGAZINE EVENT

EIS / SEIS Investment Approach

• The approach of working with knowledgeable specialists does help Fund Managers when working with businesses offering the prospect of fast growth but which carry a commensurate level of risk.

• Despite the risk, good and sustained performance from capital appreciation funds can be obtained.

• Investors like their money to be safe above all but then look for an above average return.

• Investors do like to feel that their tax reliefs can be used to make a difference.

EIS MAGAZINE EVENT

So why does Innvotec consider itself not a “me too” in the world of EIS/SEIS fund providers, probably because;

• Its undiluted focus on Funds offering the prospect of real capital appreciation.

• Its happy to share its Funds’ performance.

• Its business model of working with knowledgeable strategic partners each of whom is non-competitive with the others.

• Its policy of client friendly visible charging, together with a challenging performance hurdle that is portfolio based.

• Its approach to launching funds with novel themes.

• Its general “can do” approach.

EIS MAGAZINE EVENT

Thank you for your time

Any questions are welcome?

Alternatively, I would be delighted to speak on a one to one basis after the talk.

Tel: +44(0) 207 630 6990

Email: [email protected]

68

Downing Estate Planning ServiceFor investment professionals only

69

Important noticeInvestment professionals only

This presentation has been prepared for independent financial advisers, authorised and regulated by the Financial Conduct Authority, and has not been approved for any other purpose.

If you forward this document to any other person, you must ensure that you have taken responsibility for it under the financial promotion rules. The information contained herein is in summary form, subject to change, and has been set out for illustrative purposes only and no reliance should be placed upon it. Investment decisions should be based only on the relevant Downing Estate Planning Service Product Literature.

Downing LLP, Ergon House, Horseferry Road, London SW1P 2AL, is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 545025).

9 September 2015

Important notice

70

Key risks

Key risks

Investors’ capital is at risk. Set out below are some of the key risks involved with an investment through the Downing Estate Planning Service (the Service).

Taxation: rates of tax, tax benefits and allowances described in this presentation are based on current legislation and HMRC practice and depend on personal circumstances. These may change from time to time and are not guaranteed. In addition, any changes to the sectors that qualify as IHT trades may have a material adverse effect on the value of the shares or the ability to achieve the objectives of the Service.

IHT investments: there is no guarantee that sufficient investments in IHT Companies will be made within the expected timetable, or at all. In addition, IHT Companies may subsequently cease to qualify for IHT relief. In such cases, the IHT relief could be delayed or lost.

Liquidity: Although the Service will seek to provide access to funds on a monthly basis, in the event of substantial demand, there could be a delay because the investments made through the Service will be in unquoted companies, the shares of which are less liquid than listed shares. Such investments are also considered to be higher risk than securities listed on the London Stock Exchange.

Performance: past performance is not a guide to future performance and there is no guarantee that the Service’s objectives will be achieved. The value of investments and the income derived from them may go down as well as up and investors may not get back the full amount invested.

Please refer to the relevant Product Literature for a full list of the risk factors.

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Contents

• About us• Downing Estate Planning Service• Investment strategy• Case studies• Track record• Downside protection insurance• Distributions, access and charges• Conclusion• Appendix

Contents

About us

73

About us

About us

• Specialise in tax-efficient investments: VCT, EIS, IHT, AIM NISA

• Over £650m FUM; over £140m for BPR funds

• Established 1986

• We are a cautious investor: focus on yield and cash generative assets

Downing Estate Planning Service

75

• Strategy: Asset-backed and/or

renewable energy

• Entry/access: Monthly allotments and

access subject to liquidity

• Diversification: subscription

immediately spread across over 50

businesses

• Returns: Base target growth of 4% p.a.

(medium term) & upside potential

• Downside protection insurance



Key points

76

Downside protection insurance

• Downside protection insurance policy (underwritten at Lloyds)

• Designed to cover a loss of up to 20% of original net investment

based on total return: 75.6p to 94.5p, assuming 5.5% initial charges (Downing & IFA*)

• Cover for all subscribers up to age 90 at death (min. of 2 years cover)

• No medical questionnaire & no exclusions for pre-existing conditions

(max investment covered approx. £500,000)

• Premiums paid by Downing out of its fees

Downside protection insurance

Range of outcomes illustrating the effects of the Insurance Policy on £100,000 subscribed

Total Return at time of death

140,000 120,000 100,000 80,000 60,000

Insurance payout - - - 14,500 18,900

*Level of adviser charge is not fixed and Downing does not advocate any specific level.

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Distributions and access

Distributions, access and charges

• Distributions:

6 monthly at a level set by investor (subject to liquidity)

Provided by way of sale of shares

Can be deferred and switched on at later date

• Access:

Monthly access subject to 10 days’ notice and liquidity

No exit charges

• Liquidity for access from:

New funds raised

Cash within Fund

Maturing investments (e.g. secured short term loans regularly maturing)

Sale of investments

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Charges

Distributions, access and charges

Initial charge 2%

Annual management charge

2% plus VAT

Performance fee (on exit)

20% on cash proceeds over 4% p.a. compound

Both initial and ongoing adviser charges can be facilitated through this service.

Charges to underlying companiesDowning charges each business arrangement fees of 1%-2% (average 0.69% in the last 12 months)* of the amount invested plus a monitoring fee of up to 0.5% p.a. (average 0.25% in the last 12 months)*.

For full details of charges please refer to the relevant Product Literature.

Fund charges (for advised clients)

* To 31 May 2015, source: Downing LLP

Investment strategy

80

Investment strategy

Investment strategy

and/or

Asset-backed companies(Pulford Trading Ltd)

e.g. hotels, property development

Renewable energy companies(Bagnall Renewables Ltd)

e.g. solar, hydro & AD businesses

Subscribe through the Service

Direct investments Loans LoansDirect investments

81

Investment strategyWhy asset-backed businesses?

• Lower risk compared to businesses with no tangible assets

• Attractive range of sectors: hotels, pubs, care homes, nurseries

• Over 15 years’ asset-backed experience

• Invested >£150 million in asset-backed businesses since 2011

• Can do follow-on investments with proven operators

Investment strategy

Icon Hotels LLP, Humber Royal Downoak Ltd, Crown & Thistle

82

£43.5mAs at 30 June 2015

Source: Downing LLP

Pubs/property development, London£11.7m

Care home, Scotland£8.3m


Hotel, Grimsby £3.8m


Care home, Scotland £2.2m

Pubs, Warwick £2.1m

Property development, London £1.6m

Solar, England£1.5m

Solar, Surrey & Sussex£0.8m

Solar, England & Wales £0.6m

Sectors

Care

Hotels

Property dev.

Solar

Asset-backed portfolioDirect investments

83

Asset-backed portfolioLoans

AD, Norfolk£1.3m

AD, Exeter£4.7m

AD, Somerset£3.6m

Pubs, Home Counties£2.6m

Pubs, London£2.2m

Property development, Birmingham£2.1m

Property development, Devon£1.1m

Property development, Newcastle£1.7m

AD, Norfolk£1.6m

Property development, Bristol £1.5m

£30.7mAs at 30 June 2015

Source: Downing LLP

Property development, London £3.5m

AD, Dumfries£1.0m

Solar, Northamptonshire £1.0m

Property development, Bristol £0.5m

AD, Devon£0.5m

11 other investments under £500kTotal value £1.8m, various sectors

Sectors

AD

Pubs

Property dev.

Solar

Various

Case studies

85

Background• Acquisition of an 85 bed “turnkey” care home

located in Glasgow

Deal structure and terms• DIHT provided 75% of the funding required with

Management providing the balance• DIHT 8% p.a. paid interest and hold a 20%

profit share

Investment rationale• Experienced team with 10+ sites in England

and Scotland• Excellent location and client demographics

Progress

• The site has performed well• Bearsden has returned £3m of our original

investment through a bank refinancing

Pipeline• We have supported team to acquire and / or

build 3 further care homes that are performing in line with expectations.

Case Studies – Care Home

Investment partner: Care Concern Group

Investment vehicle: Bearsden LLP

Valuation 30 June 2015: £3.3m

86

Background• Construction of a 50,000 square foot data

centre in Birmingham (3MW)• Deal completed in summer 2015

Deal structure and terms• DIHT providing £10.4m of the funding with

partners providing £10.5m of sub-ordinated capital.

• DIHT 10.9% priority return and hold a 35% profit share.

Investment rationale• Outstanding and proven operational team and

co-investor• Market Opportunity to build a leading data

centre business in the Midlands.

Progress• The deal completed in the summer and

construction is underway.

Pipeline• Management have multi site experience and

there is an opportunity to roll out to additional, and identified sites.

Case Studies – Data Centre

Investment partner: Pure Date Centre Birmingham

Investment vehicle: Palmer Street LLP

87

Background• 58 bed Grimsby hotel, acquired in December

2010 for £1.6m• 3 star hotel in need of extensive renovation

works

Deal structure and terms• DIHT provided 85% of the funding required for

the purchase and the capex• DIHT 8% p.a. paid interest and hold a 50%

stake in the LLP

Investment rationale• Partnering with a hotel renovation company

(Icon) and a hotel management (Bespoke)• Under-supply of quality hotel rooms in the local

market, combined with strong corporate demand

Progress• The renovation project was successful and the

hotel now operates as a four star hotel• EBITDA increased from £160k in FY10 to

£525k in FY14

Pipeline• Currently assessing further opportunities to

build a portfolio of mid-market hotels in provincial locations with Icon Hotels

• This investment has also given us the opportunity to work with Bespoke Hotels, one of the leading hotel management companies in the UK, who we would strongly support to acquire and operate additional hotel properties

Case Studies – Hotels

Investment partner: Icon Hotels / Bespoke

Investment vehicle: Icon Hotel (Grimsby) LLP


88

Case Studies – Property Developments

Investment partner: Antic London

Investment vehicle: HB SP LLP


Background• Developing London properties – typically linked

to a pub (that they would operate)• Refurbishment or new build of residential or

commercial properties

Deal structure and terms• DIHT typically provides 80-90% of the funding

required for the purchase and the capex• DIHT 8% p.a. interest and hold a 50% stake in

the LLP

Investment rationale• Experienced London property developer and

pub operator.• Targeting well priced opportunities in areas that

have gone through or are going through gentrification

Progress• 3 x residential developments and 4 x pub

refurbishments completed• 2 x residential, 1 x commercial and 2 x mixed-

use developments and 2 x pub refurbishments currently ongoing

Pipeline• Developer has a regular flow of new

development opportunities• Currently progressing through the existing

works, and will look to take on new projects as these complete

89

Case Studies – Secured Lending

Investment partner: Downing LLP

Investment vehicle: Bridging Trading LLP (“BTLLP”)


Background• Lending vehicle created by Downing to take

advantage of attractive lending opportunities that are available to it through its VCT and EIS investments

• Enables DIHT to immediately start the BPR qualification period

• Loans allocated between Asset-Backed IHT and Renewables IHT

Deal structure and terms• Average interest rate of 9% on loans• Loans usually hold a first ranking position, with

an LTV of <30% • All loan proceeds flow back to the DIHT Funds

Investment rationale• Majority of loans provided to Downing VCT or

EIS investee companies, where Downing has significant controls over the borrower

• Excellent risk adjusted returns

Progress• Since 2012, the BTLLP loan book has grown to

over £60m (£27.3m allocated to Asset-Backed IHT and £34.4m to Renewables IHT)

• Loans provided to renewable projects, asset-backed trading businesses and property development projects

• BTLLP has never had to write off a loan that it has made

Pipeline• £23m (net) deal pipeline of new loans for the

second half of 2015 for BTLLP, which will be allocated between Asset-Backed IHT and Renewables IHT

90

• Funded 86 deals totalling >£300m within the sector since 2010• Funding construction through to operation provides access to

improved returns, whilst experience mitigates risks

Investment strategy

Willowglen Renewables Ltd, Hogsbrook Farm Woodbridge Solar Ltd, Ketton 1

Redstart Renewables Ltd, Kames Hydro Curlew Power Ltd, Oldside and Siddick

Why renewable energy businesses?

Investment strategy

£308m invested

2010 – Q1 2015

Source: Downing LLP

Solar£127.9m

Wind£12.4m

AD£147.2m

Hydro£20.1m

91

Renewables portfolioDirect investments

Rooftop solar, England & Wales £2.1m

Onshore wind, Lincolnshire & Scotland £4.6m

£15.3mAs at 30 June 2015

Source: Downing LLP

Commercial solar, England£5.9m

Rooftop solar, Devon & Dorset£2.7m

Sectors

Solar

Wind

92

Renewables portfolioLoans

Ground-mounted solar, S. England£7.6m

AD – CHP, Norfolk £2.9m

£34.6mAs at 30 June 2015

Source: Downing LLP


Onshore wind, Cumbria£0.4m


AD – gas-to-grid, Norfolk£3.9m

AD – gas-to-grid, Lincolnshire£3.4m

AD - CHP, Devon£1.9m

Ground-mounted solar, Lincolnshire£1.8m


Ground-mounted solar, Lincolnshire £1.1m

Sectors

AD

Solar

Wind

93

Allocation of loans and direct investments across the entire IHT portfolio:

Renewable energy loans• No of loans: 11• Value: £34.6m• % of IHT portfolio: 24.6%

IHT portfolio summary

£140.8mAs at 30 June 2015

Source: Downing LLP

Cash• Value: £16.7m• % of IHT portfolio: 11.8%

Asset-backed direct investments• No of investments: 11• Value: £43.5m• % of IHT portfolio: 30.9%

Renewable energy investments• No of investments: 4• Value: £15.3m• % of IHT portfolio: 10.9%

Asset-backed loans• No of loans: 26• Value: £30.7m• % of IHT portfolio: 21.8%

Track record

95

Target returns

Target return 4% p.a. over the medium term

Track record

Priority return 9.0%1

Management fee (incl. VAT) (2.4%)

Effect of cash drag (1.5%)2

5.1%

Corporation tax (1.0%)

4.1%

1 Current average priority return on direct investments – 9.3%

loans – 9.6%

2 1.5% cash drag equates to holding cash of 15% - 20% of net assets with no return. Current cash levels are 11.8%.

Target should be met by priority return alone

Equity upside is on top

96 Track record

Track recordDEPS quarterly share prices

Fe

b-1

3

Ma

y-1

3

Aug

-13

Nov

-13

Fe

b-1

4

Ma

y-1

4

Aug

-14

Nov

-14

Fe

b-1

5

Ma

y-1

5

Date

Conclusion

98

Conclusion

• Capital preservation strategy:

- Asset-backed and/or renewable energy businesses

- Downside protection insurance

• IHT relief after 2 years

• 4% p.a. base target growth over the medium term*

• Proven track record

• Invest into existing portfolio of 15 direct investments & 37 loans

already generating sufficient returns to achieve base growth of 4%

Conclusion

* Please note this is a target and is not guaranteed

Ergon House, Horseferry RoadLondon SW1P 2AL / 020 7416 7780Authorised and regulated by the Financial Conduct [email protected] / www.downing.co.uk

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