IHT & EIS Portfolios

The Midas Inheritance Tax (“IHT”) relief portfolio is a discretionary investment service which attempts to harness the growth available by investing in small companies whilst utilising the inheritance tax reliefs granted by the Government. The objective is to overcome these tax threats and fulfil our clients’ goal of increasing wealth. Clients may avoid inheritance tax by choosing to invest in either a lower risk balanced or growth IHT relief portfolio, dependent upon their circumstances. Midas’ specialist expertise in this area will ensure that portfolios are invested in line with individual clients' requirements.

Inheritance Tax relief portfolios are not a collective investment, they are bespoke discretionary portfolios arranged for each individual investor.

“What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin.” Mark Twain.

The Tax Benefits

Investment in the Midas IHT relief portfolio aims to have two important tax benefits:

   •  100 per cent relief from Inheritance Tax (“IHT”) via Business Property Relief,
      if held for two years; and

   •  Only 10 per cent Capital Gains Tax (“CGT”) via Taper Relief at Business Asset rates,
      payable on any sale of shares in a qualifying AIM company, held for two years or more.

Business Property Relief was introduced in the 1976 Finance Act. The 1996 Finance Act amended the provisions making it significantly more attractive to private investors concerned about potential inheritance tax liabilities. Under the amended rules any qualifying investments held for two years or more at the date of death will benefit from 100 per cent business property relief, i.e. their value will effectively be disregarded for inheritance tax purposes on any transfer of shares. This means that, after two years of holding an IHT relief portfolio, the value of these investments will be excluded from any IHT computation.

Once the two year holding period has expired the investment can be retained, or transferred, but must be invested in qualifying investments until either the estate is crystallised or the Potentially Exempt Transfer time period has passed. In addition to Business Property relief, the shares also qualify for accelerated Business Asset Taper relief. This means that the effective CGT rate payable falls to 10 per cent after two years.

The qualifying rules are less complex than those for Enterprise Investment Scheme (“EIS”) relief. All classes of security can qualify for IHT relief portfolios and these securities can be currently issued, whereas EIS relief is only available on newly issued shares. IHT relief portfolios can include preference shares and convertibles, even if the underlying company has fully listed ordinary shares. The main restrictions are:

   •  The securities must be unquoted and for these purposes this includes shares quoted
      on the AIM and OFEX markets; and

   •  The securities must not be in a company whose primary trading activity consists of
      dealing in land or buildings, stocks or shares, or holding investments.

“My friend, when life’s toil has sapped your youth, your immortality is but your generous legacy. Guard it well from the tax man.”
Anonymous.

Why use Midas Investment Management Ltd (“Midas”)?

Midas is a discretionary manager of private client, trust and institutional money but private client investment management is the focus of our business.

We are proud of our investment performance. Midas manages the Manchester & London Investment Trust plc which has achieved the following:

   •  Money Observer’s best UK Mainstream Trust for both 2004 and 2005;

   •  Investment Week’s best UK Investment Trust 2004;

   •  Outperformed the FTSE All Share by 36.5 per cent over three years and 91.9% over five years
      to the end of April 2006 (on a dividend reinvested basis); and

   •  Rated by Standard & Poor as the best UK Growth Trust over five years to 30th April 2006.
      (Source-Money Management, May 2006).

The clients who may benefit

   •  Mature clients who have cash on deposit exceeding their immediate requirements who wish
      to reduce, or remove, any forthcoming IHT liability by investing this cash for two years
      in an IHT relief portfolio;

   •  Beneficiaries under a will who can execute a deed of variation to place assets into a trust
      invested in an IHT relief portfolio to mitigate IHT on the death of the beneficiaries or on the
      subsequent death of a family member; and

   •  Clients borrowing against existing shares, bonds or a property to establish a portfolio
      of preference or ordinary shares, may reduce the taxable value of their estate, and the value of
      the assets will effectively be disregarded for IHT purposes if held for two years.

“The estate tax is an act of economic waste which is damaging to all.” Joseph Schumpeter, Austrian Economist.

Portfolio construction reduces risk

Midas will invest your portfolios on a discretionary basis, in a selection of AIM and/or OFEX companies which qualify for Inheritance Tax relief and which we also view as attractive investments. We offer two types of portfolio to suit your requirements:

   •  growth portfolios are constructed from medium to high risk shares orientated towards
      growth not income; or a

   •  lower risk balanced portfolio which is lower risk than the growth portfolio and at the same time
      aims to offer attractive income.

A typical portfolio (dependent on the portfolio size) will hold in excess of a dozen companies to ensure a spread of risk. These companies will be predominantly traded on AIM, with the rest being on OFEX but they will not be in private companies with no market facility for trading of their shares.

AIM is a market operated by the London Stock Exchange and has raised over £11 billion in capital since its launch in June 1995. There are over 900 companies traded on AIM with a combined market capitalisation exceeding £22 billion. OFEX is a prescribed market under Section 118 of the Financial Services & Markets Act 2000, authorised and regulated by the Financial Services Authority. Since its launch in 1995, OFEX issuers have raised in excess of £1.2 billion.

"Inheritance tax does immense economic damage and is perverse and counter-productive for its own ostensible purposes, egalitarian or otherwise."
Barry Bracewell-Milnes, Institute of Economic Affairs.

Investment Methodology

To understand the potential of any investment we assess the following:

   •  The quality and depth of the management team and their shareholdings;

   •  Value of fixed assets;

   •  Their products or services in relation to their market;

   •  Future prospects including sales growth potential and any possible movement in margins; and

   •  Evaluate the companies’ financial position including debt and pension liabilities.

Even in the growth portfolio, we prefer to avoid start-up situations and other high risk sectors such as technology or biotechnology unless profitable in at least two of the last three years.

We endeavour to ensure that a company qualifies for IHT relief at the time of investment and continually monitor its ongoing qualifying status.

In the low-risk balance portfolio, it is important to note that Midas will attempt to gain exposure to trading businesses which are asset backed and this may reduce the spread across differing industries of the holdings in the portfolio.

“A dog who thinks he is a man’s best friend is a dog who obviously has never met a tax lawyer.” Fran Lebowitz, US Author.

Types of investment in each portfolio

We are particularly keen on the sectors and attributes that we describe below in order to give an illustration of our investment style:

Lower risk balanced portfolios

Pubs & Brewers - we particularly like regional brewers in areas where change is considered carefully. We look for asset backed situations where debt gearing is well structured and margins can be maintained.

Housebuilders - we concentrate on regional builders who have a strong niche. Gearing should be controllable and valuation multiples attractive.

Preference shares in companies with strong profitable trading records, decent interest cover and controlled gearing levels.

Growth portfolios

Support Services businesses with high levels of predictable revenues from long term contracts with strong covenant clients such as public sector and government bodies.

The Midas team managing your assets

Mark Sheppard qualified in 1996 as a chartered accountant with Deloitte & Touche in London where he gained experience in advising on a number of venture capital deals. He then moved to ABN Amro where he became a smaller companies analyst and was part of the Restaurant, Breweries and Pubs team, which was voted the second best in the 1998 Reuters UK Smaller Company Survey. The following year Mark moved to the UK Smaller and Mid Cap Institutional sales team that was voted the second best team in the 1999 survey. In 2001, Mark became Chief Executive of Midas Investment Management Limited. Mark has been involved in the management of a number of investment funds including the Manchester & London Investment Trust plc.

Please note that Mark has the added benefit of being a qualified chartered accountant which we believe is beneficial when managing a tax relief portfolio. Mark is also assisted by a team of further investment professionals.

Competitive charges for specialist service

The annual management fee is based on the value of the portfolio and commissions are levied on individual deals. Once a portfolio is fully invested we would expect the level of ongoing dealing commissions to be minimal.

Annual Management Fee

The annual charge is 1.5 per cent plus VAT of the value of the portfolio, reducing to 1 per cent plus VAT for portfolios above £0.5m. Fees are debited semi-annually in arrears (i.e. 0.75 per cent every six months), subject to a minimum management fee of £375 plus VAT.

Commission on Trades undertaken

Our commission on the first £2,000 is a minimum of £20 per bargain. For transactions with a value above £2,000, our commission rate is 1 per cent. However, transactions over £10,001 are charged at a rate of £100 plus 0.45 per cent (on the balance above £10,000). Additional charges are also made for irregular custody and settlement services, third party cheques and various other administrative tasks undertaken, as defined in the Midas “Our Charges including ISA and PEP Fees” sheet enclosed. There will be no initial set up commissions unless the client is referred by a third party financial adviser.

“All money nowadays seems to be produced with a natural homing instinct for the Treasury.” Prince Phillip, Duke of Edinburgh.

Cost Comparison Table

Click Here to see the Cost Comparison Table

Administration and reporting

We provide a comprehensive portfolio administration service which includes quarterly valuation and transaction packages, contract notes posted on the day of dealing, an annual consolidated income schedule and a nominee service.

Clients have access to the investment team at all times. Furthermore, we are happy to provide some assistance to our clients’ professional advisers in the preparation of the investors’ underlying tax returns.

We understand that clients seek financial soundness and efficiency for their assets so Midas uses the market leading clearing agent, Pershing Securities Ltd (“Pershing”) and your holdings will be held in Pershing’s nominee, Pershing Keen Nominees Limited.

Pershing was established in 1939 and is now owned by the Bank of New York, which is one of the largest banking and financial services organisations in the world. This financial stability allows Pershing to offer, subject to insurance cover, all nominee clients protection up to the total net equity amount in excess of the £48,000 provided for by the United Kingdom Financial Services Compensation Scheme. Pershing offers an excellent service and it is for this reason that they are used by a large percentage of stockbrokers authorised and regulated by FSA.

Identification documents

In accordance with UK Anti-Money Laundering regulations, we require copies of any two of the following documents:

   •  an extract from a full passport (i.e. a copy of the front cover and pages showing photograph,
      personal details and signature, date and place of issue and serial number); and

   •  recent copy of a bank/building society or utility bill confirming residential address.

Incentive for IFA’s and Tax Advisers.

On the referral of clients, third party financial advisers may be paid both initial and recurring commission. Please contact us for details.

“Just let ‘em feel that you can save ‘em something on taxes and nobody will keep you out.” Warren Buffett.

Contact details

Should you wish to take advantage of our Inheritance Tax relief service, please contact Mark Sheppard on 0161 228 1709.