BR Guide Second Edition

35 BR INVESTMENT OPTIONS BR Insurance Options There are two types of insurance products associated with BR. The rarer form of insurance offers some protection if the BR-qualifying investments lose money. The amount of protection varies, and the fees will naturally increase for higher levels of protection. The second type is a form of life cover, usually at an additional cost. As mentioned previously, one of the risks of BR is that IHT reliefs only apply once the investment has been held for two years. This insurance will cover the IHT if the client dies before the two-year mark. Some BR services offer this bundled into their BR products, though it is possible to buy from a third party even if the provider does not. When considering whether to take out this insurance, advisers need to consider the health and circumstances of the client, the additional cost of the insurance, as well as what exclusions apply. Advisers should also compare these factors against the cost of a generic 2-year life insurance policy. Though this will likely have more stringent criteria, it may be cheaper, depending on the individual client and provide the adviser with a rebatable commission not offered by the bundled product. It’s important to understand that no policy will insure against HMRC not granting BR. Liquidity Management in BR Investments Investors need to be holding BR-qualifying shares at death in order to benefit from the relief. So, while two years is the minimum holding period to qualify, the reality is that the investment horizon is likely to be longer. But our immediate financial needs have become more unpredictable. While BR offerings can be a solution to the vulnerability of cash to both inflation and IHT, the liquidity provisions allowing access to capital invested should be carefully examined. Whatever the quoted withdrawal timeline, BR managers should have robust liquidity strategies in place. TIME:ADVANCE LIQUIDITY PROVISION CASE STUDY TIME:Advance invests in Elm Trading Ltd which operates various trades through underlying subsidiaries. TIME:Advance has several layers of liquidity provisions aimed at facilitating its target withdrawal timeline of 14 days. Under normal market conditions, the buffer provided by the regular income streams in levels 1 to 3 (see liquidity case study opposite), has been very successful in meeting withdrawal requests, including some very sizeable ones within a two week period. 3.5 1. In the first instance, TIME seeks to meet any withdrawal request by a sale of the exiting investors’ shares to incoming investors. This is a fairly typical approach for a BR investment that is reliant on investor inflows. TIME:Advance has a strong track record of fulfilling withdrawal requests within 14 days, partly due to its strong investment inflows. 2. If there are insufficient incoming investors to meet withdrawal requests, TIME will seek to facilitate an exit through the cash reserves of Elm Trading Ltd. TIME employs an active cash management approach sustained through the income generated by the businesses owned by Elm Trading. It continually monitors cash reserves and its investment criteria focuses on cash generative sectors to assist with liquidity provision. Self Storage, Property Lending, Wind Energy Renewables, Solar Energy Renewables, Hydro Energy Renewables and Biomass Energy Renewables each have fairly predictable income streams. 3. Withdrawal requests (that cannot be met by a sale of the investor’s shares) in excess of Elm Trading’s income and cash reserves will likely be met on the maturity of one or more loans made by Property Lending, rather than a sale of assets from the other subsidiaries. Property Lending's loan terms are typically from 2.5 months to 33 months in duration, and mature at staggered intervals throughout the year. Property Lending is therefore in a position to regularly provide a source of liquidity for TIME:Advance. 4. Many of the underlying subsidiaries directly own physical and illiquid assets. These assets could be made available for sale in the event of a significant run of redemption requests although this would likely take time to achieve. CASE STUDY The Eynsham Solar site sits within TIME's diversified renewable energy portfolio. The site is located 9 miles west of Oxford, to the north of the A40. The site was developed by Solar Century, one of the leading UK solar installers and developers, and has been operational since March 2014. It is accredited under the Renewables Obligation (RO), one of the main support mechanisms for large-scale renewable electricity projects in the UK. With 13.5MWp of solar PV panels installed across the site, the project is expected to generate over 13,452MWh of energy annually, enough to power 4,076 homes. There is no long term debt secured against these assets so the returns are not geared. TIME:Advance liquidity case study