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Octopus Inheritance Tax ServiceDetails ofunderlyinginvestmentsJune 2022
Three tax solutions,one expert provider.Find out more by visiting octopusinvestments.comBefore you start, please rememberFor UK investors only It is important to remember that the value of an investment, and any income from it, can fallor rise, and you may not get back the full amount you invest. The Octopus Inheritance Tax Service invests in unquoted companies. The shares of unquotedcompanies could fall or rise in value more than the shares of companies listed on the mainmarket of the London Stock Exchange. They may also be harder to sell. The value of tax relief will depend on your personal circumstances and may change in thefuture. The availability of tax relief depends on the portfolio companies maintaining theirqualifying status.This document does not constitute advice on investments, legal matters, taxation or any othermatters. We recommend you seek professional advice before deciding to invest.All information in this document is correct at 31 March 2022 unless otherwise stated.Issued by Octopus Investments Limited, which is authorised and regulated by the FinancialConduct Authority. Registered office: 33 Holborn, London EC1N 2HT. Registered in England andWales No. 03942880. We record telephone calls. Issued: June 2022. CAM010380-2206
Introducing the OctopusInheritance Tax ServiceYou don’t have to be particularly wealthy to leave behind a largeinheritance tax bill when you die. But there are ways to invest thatallow you to pass on more of your wealth to your family.Since its launch in 2007, the Octopus Inheritance TaxService has helped thousands of people to plan forthe future. At the same time, the investments madeby the service are also having a positive impact, withthe money being put to good use in sustainable andworthwhile sectors across the UK.When you invest in the Octopus Inheritance Tax Service,we’ll invest your money in one or more unlisted UKcompanies. These companies meet the requirementsto qualify for government-approved relief frominheritance tax after just two years, provided you stillhold the investment when you die.Traditional estate-planning solutions can be inflexible.For example, making gifts in your lifetime or settlingassets into trust can both result in the loss of access toyour hard-earned wealth and take seven years beforebecoming exempt from inheritance tax.Each company carries out a range of trades in line withthe investment objectives of the Octopus InheritanceTax Service. Companies are expected to:The Octopus Inheritance Tax Service can deliver a fasterroute towards inheritance tax exemption that is alsoflexible enough to adapt to your needs should yourcircumstances change. Qualify for Business Relief. Target sustainable growth of 3% a year over thelong term for investors.Talk to Octopus to find out moreIf you are considering investing in the Octopus Inheritance Tax Service, you should ensure that youhave first read the product brochure and the terms and conditions. You can find these on our websiteoctopusinvestments.com, or call us on 0800 316 2295 and we will send you a copy.Octopus Inheritance Tax Service3
About FernFern Trading Limited (Fern) is an example of one of the portfoliocompanies that is held in the Octopus Inheritance Tax Service.Fern is managed by Octopus and is wholly owned by investors inthe Octopus Inheritance Tax Service.Fern began trading in 2010 and has grown to become the parent company of a large trading group. This groupnow comprises nearly 300 companies, the majority of which are based in the UK. In recent years, Fern has furtherdiversified its business by entering overseas markets in countries with stable economic conditions. In 2018, Fern wasnamed as one of the 1000 companies to inspire Britain by the London Stock Exchange Group.Fern has a diverse trading strategy but focuses itsbusiness activities in areas where Octopus has extensiveexperience, such as fibre, renewable energy, healthcareinfrastructure and property financing. These areas havebeen selected for their ability to generate predictablegrowth over the longer term.Like any trading company, Fern’s business strategy hasevolved since it was established. The chart on the rightdetails Fern’s current business, although this will changeover time and may include sectors not shown here.You can find out more about Fern by visitingferntrading.com.In addition, these sectors make a valuable contribution by: Helping the UK to meet its targets for renewableenergy production. Helping the UK economy to grow by releasinghousing stock for redevelopment. Helping address the housing and care needs ofan ageing population. Helping the UK Government meet its target of atleast 85% of premises having access to gigabitcapable broadband by 2025.Fern is the UK’s largest producer of solar energy from commercial-scalesites. Fern has built on this expertise, and owns additional renewableenergy sites such as wind, biomass and landfill gas.4Details of underlying investments
Fern’s business linesBased on the management accounts for the periodending 31 March 2022.Property lending18%Wind24%Fern employs more than 1000people across its businesses,and provides employment formany more people indirectlythrough the contracts it places.Healthcare4%Fern’s fill gas and biomass13%Owning and operating assetsProperty lending82%18%(Commercial 51%, Developmental 38%,Bridge 8%, Bridge-to-let 2%, Buy-to-let 1%)Owning and operating assetsEnergy: Fern owns and operates 162 solar energysites, 19 landfill gas sites, 6 biomass plants,19 windfarms, 1 energy from waste plant,and 26 reserve power plants.Fibre: Fern owns and operates six fibre broadbandcompanies that are developing fibre networksthroughout the UK. Fern also owns and operatesa company which provides the technology platformthe fibre companies all operate on.Healthcare: Fern owns a retirement accommodationdeveloper with four sites in use and one underdevelopment. Fern also owns a private hospitaldeveloper which operates two sites.Property lendingFern has lent more than 2.1 billion acrossnearly 2,000 short-term loans. Fern has 149live property loans.Octopus Inheritance Tax Service5
Fern’s performanceFern targets sustainable growth for shareholders over the long term.12-month discrete performanceAnnualised performance based on time heldFinancial yearShare price growthIf you held shares inFern forMay-21 May-2210.28%1 year10.28%May-20 May-214.56%2 years7.38%May-19 May-200.00%3 years4.86%May-18 May-196.97%4 years5.38%May-17 May-180.70%5 years4.43%May-16 May-175.56%6 years4.62%May-15 May-163.44%7 years4.45%May-14 May-154.40%8 years4.44%May-13 May-143.56%9 years4.34%May-12 May-134.06%10 years4.31%May-11 May-124.11%11 years4.30%Average annualisedgrowthSource: Octopus Investments, 2 May 2022Source: Octopus Investments, 2 May 2022The performance data in the table above and thegraph opposite, show Fern’s share price only. They donot take account of initial fees, dealing fees or annualmanagement charges associated with investing in theOctopus Inheritance Tax Service. They should not beviewed as performance information for the OctopusInheritance Tax Service. Performance is calculated basedon the share price for Fern’s shares at 2 May each year.The above table shows the average annualised growthin Fern’s share price as at 2 May 2022. For example, ifyou bought shares in Fern on 2 May 2016 and still heldthem on the 2 March 2022, then they would havegrown at an average of 4.43% a year for five years.It is important to remember that the annual growthrate could have been higher or lower than the 4.43%average at certain points.Please remember: Fern’s past performance is not a reliable indicator of future performance.About our Annual Management ChargeThe Octopus Inheritance Tax Service has an annual management charge of 1% (plus VAT) which isonly taken after an investor instructs us to sell shares. Most importantly, we will only deduct thischarge from any growth of the Octopus Inheritance Tax Service above 3% a year, calculated over theinvestment period.Returns are not capped. However, the target of the Octopus Inheritance Tax Service is to deliversustainable growth over the long term and investors should not expect to see returns significantlyhigher than 3% after fees (and of course it could return less).6Details of underlying investments
Growing Fern responsiblyFern is entirely owned by investors in the OctopusInheritance Tax Service and is managed by Octopus.We make a point of growing the size of the businesssteadily. This strategy helps us to target predicablegrowth for investors.How does it do this? We have a steady consistent level of new capitalbeing invested. This gives our investment teams thetime and predictability needed to deploy moneyin the best opportunities. We have been able to match growth in ourinvestment teams with Fern’s scale. As a result,Octopus has a 150-strong investment team to deploymoney and manage Fern’s assets day-to-day. Fern operates in sectors where Octopus has extensiveexperience, and when entering new sectors, it is ableto do so cautiously.Fern’s share price growth since inception ( )1.81.71.61.51.41.31.24.2% Share Price Growth TargetFern Share Price3% Octopus Inheritance Tax Service Investor /06/202101/05/2022Octopus Inheritance Tax Service7
Owning and operating renewableenergy sitesBy owning and operating a range of energy-generating assets, Fern ishelping the UK meet its target for renewable energy production.Energy-generating assetsFern’s strategyMany forms of renewable energy assets generate someof their income from government incentives, as well asfrom the sale of the energy they produce either directlyto customers or via intermediaries. Governmentincentives for renewable energy are ‘locked in’ for theexpected life of each site once it is operational andaccreditation has been granted. This means that anychanges to subsidies that are announced after incentiveshave been accredited would not be expected to alter therevenues generated by each site.Fern owns more than 200 renewable energy sites,ranging from commercial scale solar installations,windfarms, biomass plants and landfill gas sites.Sites are either acquired when they are operationalor when they are ‘shovel ready’, meaning they havebeen granted planning permission and constructioncan begin. Fern earns revenues from the sale of energydirect to end users or via intermediaries. Sites will alsogenerate revenues from government incentives wherethey have qualified for them.The long-term predictability of the income offered bythe government incentives, and the increase inconsumer demand for energy supply, make renewableenergy an attractive investment. In recent years,improved technology has made renewable energy sitescheaper to build and more reliable. This has made theconstruction and operation of renewable energy sitesmore attractive, even without government incentives.Fern has chosen to raise external project financefrom banks and institutions, which is secured (likea mortgage) against its operational sites. Raisingfinance in this way enables Fern to acquire moresites, diversifying its business. Mainstream banks haveprovided more than 900 million of this project finance,a clear indication of the quality of Fern’s renewableenergy sites and Fern’s financial stability in general.Fern only acquires commercial scale, institutionalgrade renewable energy assets. These are highlysought after assets by investors such as pensionschemes due to the predictability of their income, soin the event that Fern would need to provide liquidityto investors, it would be able to sell the sites quickly.Fern also owns 26 reserve power plants. These plantsgenerally run during periods of high demand forelectricity and therefore command a much higherprice per unit of energy generated.8Details of underlying investments
Case study: Beinneun wind farmBeinneun wind farm is a 108.8MW wind farm consistingof 32 wind turbines located in the Scottish Highlands.It produces c. 278,000 MWh of power each year.As part of the community benefit scheme agreed duringthe planning permission process, Beinneun wind farmhelps fund local social and environmental initiatives.The latest project, the Glengarry Community WoodlandsEco-Tourist Development Project, constructed holidayaccommodation for visitors to the community ownedwoodland in Invergarry. Tourism is a key source ofrevenue for Glengarry Community Woodlands.This project will sustain existing jobs, create new jobs,and help continue to deliver the benefits that thecommunity purchased the woodland for. It will alsoattract more visitors to the area, which will benefitother local businesses.The renewable energy sites ownedand operated by Fern have the annualcapacity to power every home inNorthern Ireland.Through Fern, Octopus is one of the UK’slargest investors in commercial-scalerenewable energy installations. The expertrenewable energy team at Octopus comprises80 sector specialist investment managers.The team are also responsible for a numberof institutional and listed renewable energyfunds, apply exactly the same method andinvestment approach to the sites Fern owns.The site is also supported by the government-backedRenewable Obligation Certificate (ROC) subsidy.Octopus Inheritance Tax Service9
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Why does Fern operate in this sector?Predictability: Fern’s renewable energy siteshave clear upfront costs and many of thembenefit from long-term inflation-linkedgovernment incentives.High-quality assets: Fern owns commercialscale sites that are all constructed to thehighest technical standards.Diversification: Fern owns and operates morethan 200 separate sites. These generate energyfrom different sources, including solar, wind,biomass plants and landfill gas.Octopus Inheritance Tax Service11
Short-term property financeHelping the UK economy grow by releasing housing stockfor redevelopment.Bridging finance is a type of short-term loan, pendingthe arrangement of a larger loan or a loan with a longerterm. It allows an owner or developer to acquire a newproperty before having sold one they currently own. Itwas traditionally provided by banks, but in recent yearsother lenders, like Fern, have entered the market toaccess the profitable and predictable returns available.Fern lends directly to experienced property professionalsand receives all of the revenues generated from eachof its loans, including arrangement fees, interest andearly repayment fees. A typical property loan madeby Fern will be between 3 and 36 months in duration,against a residential property and secured via a firstlegal charge. This means Fern will be the first lenderto be repaid by the developer when the property issold or remortgaged.Loans are only made after an independent valuationfrom a Royal Institution of Chartered Surveyors (RICS)member has been commissioned. This means thatFern can be confident that the property against whicheach loan is secured is worth significantly more thanthe value of the loan. So, if one of its loans cannotbe repaid by the borrower, it can apply to have theproperty sold, which should generate sufficient saleproceeds to recover the loaned amount.Case study: Northampton developmentIn February 2022, Fern funded a construction loan ofjust over 9 million, to assist the purchase of a site inNorthampton. This loan will fund the refurbishmentand conversion of a vacant Grade II Listed shoe factoryinto 89 apartments with private parking.Northampton is one of the UK’s largest towns. Itoffers both residential and commercial opportunities,making property in the area high in demand fromyoung professionals and investors. The apartments willbe situated just a 5-minute walk from the city-centreand are close to a number of amenities and transportlinks, including a train service to London Euston takingjust 54 minutes.The borrower behind this deal is a very experienceddeveloper who intends to sell the units on the openmarket. They expect the apartments to sell quicklydue to a lack of similar stock in the area and theunique features of the building.Why does Fern operate in this sector?Asset-backed: Loans are secured against a property, and Fern lends at conservative loan-to-value (LTV)ratios. The current average LTV is 63.1%.1Liquidity: The average loan length when issued is 15 months1, giving Fern a healthy level of regular cash flow.Diversification: There are currently 149 live property loans issued to independent borrowers.Data as at 31 March 2022.112Details of underlying investments
An established and award-winningproperty lending businessOur property finance team specialises inshort-term lending to professional propertydevelopers and experienced landlords. Theteam have lent over 5.62 billion across morethan 4,060 loans. Capital losses across thisloan book have been 0.03% with 4.6 billionof loans repaid.The property team work with brokers andproperty investors to provide bespoke,customer focused financing solutions acrossthe residential, commercial and developmentsectors. Loans typically range from 500,000to 10 million.The property finance team atOctopus was established in 2009.The team of 77 specialists has lentmore than 5.62 billion to date.Octopus Inheritance Tax Service13
Healthcare lending and operatingHelping address the housing and care needs of an ageing population.As life expectancy in the UK increases, so does the needfor suitable accommodation and services to supportour ageing population. This means that there’s a largeand rapidly growing market in the UK for high-qualityhealthcare property, as well as a need for investmentto make sure this growth continues.Octopus is an award winning specialist investor inUK healthcare real estate, with a team of 20 sectorspecialists in our healthcare team. They provide financefor UK property investment and development.The Octopus healthcare team aims to deliver a betterhealthcare experience by investing in carefully designedcare homes, retirement villages and other healthcarefacilities. The healthcare team works closely withoperators and developers to create inspired surroundingsthat transform the lives of the growing population.Case study: Rangeford Villages LimitedFern owns Rangeford Villages Limited (Rangeford),which specialises in creating high quality residentialenvironments for people aged over 60. It buildscontemporary retirement communities in which peoplecan live in attractive surroundings with a wide rangeof amenities and leisure activities on their doorstep.Unlike the traditional care home concept, wherepeople live in a home for just 18 months on average,Rangeford expects residents to move in much earlier intheir lives, benefiting from progressive levels of care astheir needs change over time. Each village has centralamenities that offers levels of service equivalent to anupscale hotel. Amenities vary depending on locationbut generally each community will include a centralfacility which typically includes a spa, salon, gym,swimming pool, restaurant and bar/lounge.Residents can also access onsite healthcare services bysubscribing to ‘wellbeing’ packages that can be tailoredto their particular needs. Once a site is complete,Rangeford sells units to residents to live in and continuesto manage the day-to-day activities of the retirementvillage. Rangeford currently has three retirement villagesin use and one under development: Wadswick Green(near Bath), Pickering (Yorkshire) and Cirencester (inthe Cotswolds).14Details of underlying investments
An established and award-winninghealthcare teamThe healthcare team manages over 1.3 billionof investments, with a focus on care homesand retirement communities – sectors requiringsignificant investment given the UK’s agingpopulation. The team also creates strategicpartnerships with leading healthcare operators,creating exceptional healthcare facilities you’dchoose for your loved ones.Octopus Inheritance Tax Service15
Owning and operatingultra-fast fibre networksBy building and operating fibre broadband networks, Fern is helpingthe UK Government meet its target of at least 85% of premises havingaccess to gigabit capable broadband by 2025.Full fibre networksFern’s strategyFibre to the premises (FTTP), the process of connectingultra-fast fibre to your front door, is needed to deliverthe UK’s targets for fast broadband. Fern owns sixcompanies in this sector to build and operate essentialinfrastructure required to bring connectivity tocommunities all across the UK.Fern has been pursuing opportunities in the fibrebroadband sector for several years. It made its first twoacquisitions in 2019, and now owns and operates sixcompanies in the sector: Jurassic, Swish, Giganet,Vorboss, Allpoints and Vitrifi.Fibre infrastructure businesses are expected to deliverlong-term, stable returns. The assets benefit fromstrong customer demand and steady revenues, makingthem an attractive business for Fern to own.Demand for high-speed broadband is growing, andthere is a ready-made customer base for companiesbuilding these networks.The number of people working from home has steadilyincreased in recent years and accelerated due to theCovid-19 pandemic. Full fibre is therefore becoming anessential service across the country and is increasinglyreferred to as the ‘fourth utility’.Remarkably, still only 28% of homes across the UK haveaccess to a full fibre connection.1 Fern’s fibre companiesare on a mission to change this statistic in the areasthey are deploying to.116Ofcom Connected Nations Spring Update, May 2021.Details of underlying investmentsFern’s strategy has been to build networks that bringhigh speed connectivity to underserved communities.Fern’s companies are the only full fibre providers inmost of the areas they build in, therefore Fern likesthese businesses because it expects demand to remainstrong for many years.Fern is currently building networks across ten countiesaround London, the South and South West. It istargeting a total of one million properties by 2025.
Case study: Jurassic FibreJurassic Fibre is based in Exeter and plans to roll out fullfibre to over 360,000 residential and business premisesacross Devon, Dorset and Somerset. It was acquired byFern in February 2019.Jurassic Fibre was founded by a team who hadsuccessfully introduced full fibre in the Caribbean andwanted to bring high quality internet access to the UK.Jurassic employs around 320 local people and is growingrapidly. The company prides itself on its customers beingat the heart of the organisation, with honest pricing,no fixed term contracts locking customers in, reliableconnectivity, and a network that extends into rural areasand doesn’t just stop at the large cities and towns.The team are three years into their network roll outand speedily expanding to meet customer demandfor ultrafast connectivity. It’s not only residential andbusiness customers benefitting. One of the team’ssuccesses was providing connectivity to a Covid-19vaccination centre at short notice, supporting thegovernment vaccination programme and localcommunity.Octopus Inheritance Tax Service17
Fern’s board of directorsFern’s experienced Board of Directors is responsible for determiningthe strategy of the business. It is also responsible for accountingfor the company’s business activities to shareholders.Paul LathamChief ExecutivePaul is chief executive of Fern Trading. He is also a managing director of Octopus Investments,where he has worked since 2005. Octopus Investments is a key supplier of resource and expertiseto Fern. Paul’s dual role ensures that this relationship works well and always operates in the bestinterests of Fern’s shareholders.Paul has had various general management and internal consulting roles across a number ofsectors and brings with him a wealth of industry and business experience, including buildingkey elements of the infrastructure for Capital One Bank (Europe) plc as it grew from a start-upbusiness to a company with 2,000 employees.Keith WilleyNon-Executive ChairmanKeith is an associate professor of strategic and international management and entrepreneurshipat London Business School as well as a senior lecturer at University College London. He also holdsvarious non-executive directorships and advisory roles.His career has spanned academia, consulting, investing and hands-on operational roles withinindustry and the venture capital world.Peter BarlowNon-Executive DirectorPeter has over 30 years’ experience in international financing of infrastructure and energy. Asthe director of finance/corporate finance treasury activities.He has spent over 20 years working in Europe, the US, Australia and Asia for HSBC, Bankof America and Nomura, financing acquisitions and greenfield projects in the energy andinfrastructure sectors. He is also a non-executive director of InfraCo Africa, a donor-fundedinfrastructure development company.18Details of underlying investments
How to investFern is managed by Octopus on behalf of investors in the OctopusInheritance Tax Service. The only way to buy shares in Fern is throughthe service.The Octopus Inheritance Tax ServiceSpeak with your financial adviserFull details of the risks and benefits of the OctopusInheritance Tax Service are contained in the productbrochure, which we recommend you read in full beforemaking any investment decisions. You can view a copyonline at octopusinvestments.com. Alternatively, callour Investor Support team on 0800 316 2295 and theycan send you a copy in the post.We recommend you take financial advice beforemaking or adding to your investment. Your financialadviser will be able to help you decide whether theinvestment is suitable for you, and they can also helpyou to complete an application. If your adviser has anyquestions, they can visit our website or call our BusinessDevelopment Managers on 0800 316 2067.” At Octopus, we try to communicate information as clearly and simply as possible, but our clients can alwayscall us if they have any questions and we’ll happily talk things through with them. We don’t offer financialadvice but we’ll do whatever we can to help.” – Hazel Gross, Investor Support
0800 316 nvestments.comOctopus Investments33 HolbornLondon EC1N 2HT
Source: Octopus Investments, 2 May 2022 Annualised performance based on time held If you held shares in Fern for Average annualised growth 1 year 10.28% 2 years 7.38% 3 years 4.86% 4 years 5.38% 5 years 4.43% 6 years 4.62% 7 years 4.45% 8 years 4.44% 9 years 4.34% 10 years 4.31% 11 years 4.30% Source: Octopus Investments, 2 May 2022
