Where Now for the Renewables Investors? Consider Business Property Relief.

The industry experts speaking at our EIS (Enterprise Investment Scheme) masterclass on 5th March raised some interesting ideas around relief from Inheritance Tax. This is one of the key benefits of EIS, but it’s actually not a feature of EIS at all – it just so happens that the qualification criteria for EIS are tighter than the qualification criteria for Business Property Relief (BPR), so any EIS investment will de facto be 100% IHT exempt after a two year qualifying period.

What has any of this got to do with renewables? Well, renewables have been the most popular EIS investment over the last few years. The research we carried out for the EIS industry report we published last year indicated that energy was the biggest investment sector within the EIS (28% of investment opportunities) and primarily comprised renewable energy investments.

But now projects based around FiTs and ROC incentives no longer qualify for the EIS, where are clients going to put their money as they begin to exit their EIS investments?

Well, many of the investors in renewables are reasonably conservative. They went into renewables because they were large scale, asset-backed investments with well developed technologies underpinned by government incentives. They were predictable and therefore low risk.

These same conservative investors may now have financial planning needs around mitigating the inheritance tax that their estates will be liable for.

What’s important to remember is that, by virtue of their EIS investments, they will already have held BPR qualifying assets for the two year qualifying period required for IHT exemption. For clients who are reaching the point where IHT is a consideration, it would be a shame to let the qualification lapse and have to restart the clock.

For advisers of clients in this particular situation it might be worth considering investment into products that utilise BPR.

BPR products are usually structured as a discretionary investment management service, so the investment process is as quick and simple as it is with any other kind of fund. They are ran by small cap managers with the objective of capital preservation and are invested solely in BPR qualifying assets – they are not necessarily high risk if the underlying portfolio is well constructed, and certainly no more risky than EIS. And those renewable energy projects that are underpinned by FiTs and ROCs still qualify.

A major benefit is that, the client can retain access to the investment funds (obviously subject to the liquidity of the underlying investments), or with some product even take a regular income – so clients are not forced to make irreversible decisions or lock money up for long periods. An investment into a BPR product could be a way of retaining the qualification for the relief without having to commit funds indefinitely.

Furthermore, under the BPR rules there is a generous three year window to purchase replacement assets, so there is no real urgency to make the investment once clients exit the EIS. Advisers can take time to find the right product for their client.

For advisers who are interested in finding out more about investment products that utilise Business Property Relief our forthcoming BPR industry report is scheduled for publication next month and our BPR masterclass will be held in London on the 28th April. http://goo.gl/RqMnn9

Advisers who would like to pre-register for a complimentary copy of the report can do so by taking our short survey here: http://goo.gl/fBQbg4

Thanks

Dan