The Seneca Inheritance Tax Service (SITS) INFORMATION MEMORANDUM

Transcription

1 The Seneca Inheritance Tax Service (SITS) INFORMATION MEMORANDUM

2 Seneca Partners Limited 12 The Parks, Newton-Le-Willows, WA12 0JQ T: F: E: W: Registered Office: 12 The Parks, Newton-Le-Willows, WA12 0JQ Authorised and Regulated by the Financial Conduct Authority

3 The Seneca Inheritance Tax Service (SITS) Contents: Taxing Matters 01 Inheritance Tax Details 03 Our Solution 05 How it Works 06 How will SITS protect your money? 10 Credit Approval Process 11 Our Team 13 FAQs and Costs 14 Case Study: Secured Property Lending 16 Case Study: Asset-Based Lending 18 Case Study: Secured Corporate Lending 19 Summary 21 Definitions 22 Important Notice - Potential Risks 23

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5 01 Taxing Matters The Seneca Inheritance Tax Service is managed by a specialist team focused on delivering a flexible and secure Inheritance Tax solution which enables clients to retain ownership and access to their money. they take to become effective. One theme in the majority of these methods is the loss of control of your assets, potentially permanently. Using existing tax legislation on Business Property Relief (BPR) and our long standing experience in running conservative lending strategies, Seneca Partners has created the Seneca Inheritance Tax Service (SITS). This is a simple, low-risk solution to the issue that allows you to retain ownership of your assets and still maximise the IHT relief you receive. Inheritance Tax (IHT) is a challenging issue for an increasing number of UK families due to the combined impact of house price inflation, changes in UK tax legislation, the uncertain future for long term care and the complexity and cost of existing options for IHT mitigation. At present the UK tax authority (HMRC) will take 40% of your hard-earned wealth, over a threshold of 325,000 (this is known as the individual s nil rate band), after you die. There are a number of ways to reduce your family s exposure to IHT, such as insurance policies, gifts and trusts, but these have varying degrees of cost, complexity and how long

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7 03 Inheritance Tax Details The nil rate band above which IHT is payable currently stands at 325,000. The shares will remain under the ownership of investors and, subject to at least three months notice and sufficient liquidity at qualifying company level, this will allow them to withdraw money from SITS in the event of any unforeseen circumstances arising in the future. The value of the estate is determined by adding together any assets, such as properties, life insurance policies, savings and investments and pension plans not held in trust as well as a percentage of any gifts made in the seven years leading up to death. Business Property Relief The Finance Act in 1976 introduced Business Property Relief (BPR) to encourage investment into unquoted trading companies and prevent them being broken up in order to pay IHT. This relief is well established under law and investments qualifying for BPR are eligible for 100% relief from IHT. The Seneca Inheritance Tax Service is a discretionary investment management service that will invest in one or more companies whose shares qualify for BPR. Two years after making an investment into SITS we anticipate the shares held in these companies will qualify for BPR which will result in their value being reduced to nil for UK IHT purposes and therefore not subject to Inheritance Tax.

8 04 At Seneca Partners we have designed the SIT Service to provide simple and effective results for investors. We are looking to deliver both competitive returns and protect investors assets for the long-term. To that end we are targeting a 4% p.a. increase in the Net Asset Value of the companies in which the Service invests.

9 05 Our Solution The critical areas for us in designing this service were to ensure: It focuses on preservation of Investors capital SITS is a discretionary service which invests in one or more BPR Qualifying Companies on your behalf. We ensure that the primary purpose of such Qualifying Companies is the preservation of capital. It is easy to use Investors do not need to undergo any medicals or use any complex legal structures to hold their investment. It is effective as quickly as possible SITS is effective just two years after shares are issued in the BPR Qualifying Company, potentially giving 100% relief from IHT at this point. It leaves ownership in the hands of Investors Investors can withdraw any portion of capital with at least three months notice if their situation changes (Note: This is subject to cash availability in the BPR Qualifying Companies and any IHT benefit is lost on the money withdrawn from the service).

10 06 How It Works Investors in the service benefit from Business Property Relief on the underlying investment into Qualifying Companies giving them 100% relief from IHT after two years. Investor chooses to invest into SITS Seneca Inheritance Tax Service The Portfolio Manager selects underlying investments on behalf of the Investor Qualifying Company Property Lending Bridging Finance Asset-Based Lending Secured Corporate Loans Potential loans to be made by the Qualifying Company into different types of assets. These are fully secured to protect Investors capital. SITS is structured to ensure Investors retain ownership of their investments and do not have to gift their assets away in order to obtain IHT relief. SITS is relatively easy to use with no need for complex trust arrangements, medicals or expensive legal bills. THE SENECA EIS PORTFOLIO SERVICE

11 07 Diversification is achieved through a portfolio approach to lending. Custodian Arrangements Investors subscriptions (in the form of shares in one or more Qualifying Companies) will be held by The Share Centre Limited ( TSC ), an FCA authorised custodian. The shares in the Qualifying Companies will be registered in the name of Share Nominees Limited ( SN ) which is an associated company of TSC and will hold shares in custody for each investor. Seneca Partners, the Portfolio Manager, invests your money into one or more unquoted limited companies, the shares in which are expected to qualify for BPR. Seneca Partners also administers and manages these companies. Seneca Partners will provide these Qualifying Companies with effective management, deal flow and execution in order to achieve the objective of capital preservation. The principal BPR Qualifying Company is currently Seneca Secured Lending Limited ( SSL ), and this provides secured loans to asset-backed businesses operating across a diverse range of sectors. Property Lending Bridging Finance Asset-Based Lending Secured Corporate Loans

12 08 Worked Example An Investor s estate is worth 2,000,000 and is made up of property, savings, investments and life insurance. He is 62 years old and is considering how he can minimise his estate for IHT purposes, but is also worried about how he will fund any unforeseen expenses in the future. If he does nothing at all, his IHT bill will be 670,000, equivalent to over one third of his assets. He decides to invest 800,000 into SITS. After two years his IHT liability will be reduced and his potential IHT bill is reduced by 320,000. Crucially his investment in SITS remains entirely in his ownership and he can withdraw money in line with the SITS withdrawal process to cover future expenses such as long-term care fees or top up his pension income without affecting the IHT relief on the remaining investment. By investing 800,000 in SITS, the estate can save 320,000 in IHT providing the investment had been held for more than two years at the point of death. Note: The above scenario is illustrative only and takes no account of the fees associated with the Service. For further information on fees please refer to Schedule 1 of the Investment Management Agreement.

13 09 Without using BPR Using BPR through an investment in SITS Total Assets 2,000,000 2,000,000 Less nil rate band ( 325,000) 1,675,000 1,675,000 Amount invested in Seneca Inheritance Tax Service 0 800,000 Amount Liable to IHT 1,675, ,000 Amount Due in IHT 670, ,000 Possible IHT Saving 0 320,000 This example is for illustrative purposes only and is based on current legislation. Tax rules and regulations are subject to change and depend on personal circumstances. It is recommended that you take independent advice before making any investment decision. Further, the above does not take any account of the fees associated with the Service. THE SENECA EIS PORTFOLIO SERVICE

14 10 How will SITS protect your money? SITS targets an annual uplift in net asset value of each Qualifying Company of 4%. With capital preservation at the heart of the SITS investment strategy, we prioritise protecting your money. These four pillars support our investment and credit decisions: Diversification Diversification is achieved through the spread of short, medium and long-term loan agreements, the strong mix of lending opportunities, the use of different underlying assets to provide security across a wide range of different borrowers as well as the variety of underlying trades of borrowers. Credit Policy Strict adherence to our credit underwriting policies across all areas results in a consistent approach to lending decisions ensuring that lending opportunities which fall outside of the agreed lending criteria are rejected. Prudence Logical and well-established processes for deal origination and a focus on working with existing and well-known borrowers further deepens the level of comfort for Investors. Strength of the underlying covenant is a crucial component in the decision making process. Loans will not be made where there is any element of planning risk. Asset Security Loans will be secured on the assets of each borrower.

15 11 Credit Approval Process Each Qualifying Company into which SITS invests will undergo appropriate pre-lending due diligence, together with rigorous, ongoing performance monitoring. Legal Due Diligence Financial Due Diligence Rigorous Control and Monitoring CRITERIA Security Analysis Credit Committee Approval Risk Analysis Repayment Analysis Each element of the above process will aim to deliver: A comprehensive review of risk and returns profiles for all new investment opportunities Lending structures to provide appropriate levels of control and security Assets able to deliver attractive cash flows and maintain suitable levels of return and liquidity A balanced blend of asset risk and sector exposure Assets monitored on an ongoing basis to ensure performance and preservation of capital

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17 13 Our Team Ian Currie Michael Beverley The Seneca team is involved with all stages of the lending process and has complete oversight of the selection, execution and management of any lending decision. Founder of Seneca Partners Ex-MD of Apax Corporate Finance, Altium Ex-Senior Managing Partner Arthur Andersen Richard Manley Nick Leitch Steve Charnock Tim Murphy Ex-KPMG, NM Rothschild Ex-Ernst & Young, Head of Asset-Based Lending, Endless Private Equity Founder of Seneca Partners Ex-MD Charterhouse Securities Ex-Deloitte Partner and National Head of Leveraged Finance at RBS The experienced Seneca team is key to ensuring we only lend to the highest quality opportunities.

18 14 FAQs and Costs How do I invest? Complete the application form and return to; The IHT Team, Seneca Partners Ltd, 12 The Parks, Newton-Le-Willows, WA12 0JQ. Attach a cheque to your application form or, when requested, arrange a funds transfer. Once funds have cleared, investment will be made on your behalf. When will the two year BPR qualifying period start? The two year BPR qualifying period will commence at the point that the Portfolio Manager arranges the acquisition of shares in the BPR Qualifying Company and these are issued to the SITS Investor. What are the initial charges associated with SITS? There is an initial fee of 2% (plus VAT) of the sum invested into SITS which is payable by the Investor to the Portfolio Manager. Subject to agreement between the Investor and his adviser or intermediary and where instructed to do so, a further fee of up to 3% (plus VAT where applicable) may be paid to an Investor s adviser or intermediary from an Investor s subscription. The subscription less the initial charges will be the amount invested into the BPR Qualifying Company. What are the ongoing charges associated with the Service? of up to 1% per annum (plus VAT where applicable) may be paid to an Investor s adviser or intermediary by the Portfolio Manager to reflect management time allocated to the ongoing monitoring of the investment on behalf of the Investor. This payment will be by agreement between the Investor and the adviser and will be paid from the redemption of the appropriate number of shares held by Investors in the Service. What are the costs at the BPR investee company level? Each Qualifying Company will be responsible for its own running costs incurred in the normal course of business. An annual monitoring fee of 1% (plus VAT where applicable) is payable to the Portfolio Manager and in addition to which, the Portfolio Manager will provide the services of its employees, whether directly or indirectly (including by secondment) to a Qualifying Company, and may re-charge the costs of employment of such employees to the Qualifying Company. An aggregate amount will be invoiced by the Portfolio Manager for providing the services of its employees to the Qualifying Company together with the costs of any of the Portfolio Manager s employees directly employed by the Qualifying Company. This excludes however the costs of any non-executive directors appointed by the Qualifying Company, and, for the avoidance of doubt, the fee payable pursuant and other running costs incurred in the normal course of business, will not exceed 2% (plus VAT where payable) per annum of the aggregate amount invested in that Qualifying Company by Investors. Subject to agreement between the Investor and his adviser or intermediary and where the Portfolio Manager is instructed to do so by the Investor, a fee

19 15 How often do you value my shares? There are two valuations a year, April 5th and September 30th. You may however request quarterly valuations which will be supplied where required. Do I control my shares? Your shares are held by a Nominee (Shares Nominees Limited) with you as beneficial owner. Day to day decisions relating to your shares (such as voting at general meetings) will be made by the Portfolio Manager on your behalf but neither the Portfolio Manager nor Share Nominees Limited can deal with your shares other than to affect a withdrawal of funds when requested by you. What happens when I die? 1. In the event of death, your estate will notify SITS and it will receive a valuation of shares held. 2. In addition to their wider obligations, the Executors will complete an IHT 412 form, including the SITS shares and then send it to HMRC to review and assess qualification for BPR. Once this is established and BPR status accepted, the value of the investment at the date of death will be considered to be nil for UK IHT purposes and therefore not subject to Inheritance Tax. 3. Thereafter, any request by the beneficiaries to withdraw monies will be dealt with in line with the SITS standard withdrawal procedures. How do I withdraw monies from the service? For those who wish to withdraw monies this is achieved through a redemption of shares. There are two windows for any repayment and these are immediately following the bi-annual valuation. We require at least three months notice to arrange this. How is any withdrawal treated for tax purposes? Funds that are withdrawn will no longer qualify for the IHT benefits that SITS offers. In addition, any increase in value over the initial investment that is returned to you will be subject to income tax at dividend rates.

20 16 Case Study: Secured Property Lending The Seneca approach to property finance is tightly controlled and exits are identified at the time of the loan being made. Background to Seneca Secured Lending Property Activity Our property finance offering typically involves the provision of short-term, secured lending to purchasers of commercial and residential properties prior to refurbishment or conversion. These are usually refinanced by traditional mortgage lenders once work is complete. Deal sources: From existing borrowers and a network of mortgage brokers. An Investment Example TERM 7 months A building has been converted into 24 student rooms and 3 flats which generate over 100,000 p.a. of rental income. Work was completed on schedule and a pre-agreed mortgage was drawndown to complete the exit and repayment within seven months. Security by way of 1st fixed charge over the property. LOCATION North West EST. VALUATION 2m AMOUNT LENT 800,000 LOAN TO VALUE 40% SECURITY POSITION First Charge

21 17 Every transaction is monitored regularly to ensure borrowers are meeting their agreed timescales for refurbishment in order to meet their repayment terms. Property was converted into studios for students and young professionals. The loan was repaid in five months. TERM LOCATION 5 Months North West EST. VALUATION 430,000 AMOUNT LENT 150,000 LOAN TO VALUE 35% SECURITY POSITION First Charge Four semi-detached houses. The builder completed the refurbishment and the prearranged mortgage was drawn to complete our repayment within three months. TERM LOCATION 3 Months North West EST. VALUATION 400,000 AMOUNT LENT 140,000 LOAN TO VALUE 35% SECURITY POSITION First Charge

22 18 Case Study: Asset-Based Lending Background to Asset-Based Lending Our asset-based lending offering is the provision of short to medium-term secured lending to businesses. Investment Example The opportunity was referred by a member of our intermediary network. The company sought a loan facility of 300,000 for three months to finance an advantageous stock purchase. Deal sources: From an extensive network of accountants, lawyers and business advisers. Security The loan was secured on the assets of the business supported by an asset-backed personal guarantee from the company owner. Security for the loan totalled 550,000 on a forced sale basis. Investment Outcome The loan was repaid in full after eight weeks. Ensuring that there is a prudent level of security is the cornerstone of all of our lending decisions.

23 19 Case Study: Secured Corporate Lending Background to Secured Corporate Lending Our Secured Corporate Lending offering involves the provision of short and medium-term secured loans to UK-based companies. Investment Example The borrower was introduced to us through our financial intermediary network. Deal sources: From an extensive network of intermediaries and other lending providers. The assets to be provided as security for the loan were subject to an independent valuation by a professional third party valuer. This valued the assets on a break-up basis and the agreed loan to value was 37%. The loan was repayable in equal monthly instalments over three years. Security The loan was secured by a debenture over the assets of the company supported by a professional third party valuation. Deal Assessment Period Seneca worked on the deal for over three months prior to the investment, covering legal, financial and commercial due diligence.

24 20 THE SENECA EIS PORTFOLIO SERVICE

25 21 Summary Why invest in the Seneca Inheritance Tax Service? Predictability Simple, quick and effective solution No loss of ownership Capital preservation approach Diversification across different asset classes and business sectors Established team with significant experience in credit underwriting Ongoing reviews of risk and returns for all asset exposures Assets are chosen to deliver attractive cash flows, security and liquidity A well defined and coherent Risk and Credit Policy framework supports all lending transactions ensuring safety of investors capital is paramount

26 Definitions BPR IHT Seneca Partners SITS SSL Investor Portfolio Manager Qualifying Company TSC SN Business Property Relief Inheritance Tax Seneca Partners Limited, 12 The Parks, Newton-Le-Willows, WA12 0JQ Seneca Inheritance Tax Service Seneca Secured Lending Limited, 12 The Parks, Newton-Le-Willows, WA12 0JQ Each individual who invests in SITS Seneca Partners Limited A company whose shares are expected to be eligible for BPR The Share Centre Limited, Oxford House, Oxford Road, Aylesbury, Buckinghamshire, HP21 8SZ Share Nominees Limited, Oxford House, Oxford Road, Aylesbury, Buckinghamshire, HP21 8SZ

27 Important Notice This document constitutes a financial promotion pursuant to Section 21 of the Financial Services and Markets Act 2000 ( FSMA ) and is issued by Seneca Partners. Seneca Partners Limited is authorised and regulated by the Financial Conduct Authority under reference number and its registered office is at 12 The Parks, Newton-Le-Willows, Merseyside, WA12 0JQ. This document is only intended for release in the United Kingdom and is not for publication or distribution in any other jurisdiction. It does not constitute a public offering in the United Kingdom. The Portfolio Manager reserves the right to update this document from time to time. Advice Before making any decision to invest in the Seneca Inheritance Tax Service, you are strongly recommended to seek advice from an Independent Financial Adviser authorised under the FSMA who specialises in advising on inheritance tax planning and investments of this type. The Portfolio Manager has taken all reasonable steps to ensure that the factual content contained in this document is accurate and the statements of their opinions herein are reasonably held. Some material included in this document is derived from public or third party sources, and the Portfolio Manager and the Investment Adviser disclaim all liability for any errors or misrepresentations which any such inclusions may contain. Prospective Investors should not regard the contents of this document as constituting advice relating to legal, taxation or investment matters and are advised to consult their own professional advisers before contemplating any investment or transaction. Potential Risks The Seneca Inheritance Tax Service may not be suitable for all potential Investors. An investment in SITS involves investing in one or more unquoted companies which generally carries a higher degree of risk. You should carefully consider the risks associated with making an investment in the Seneca Inheritance Tax Service set out on this page. However, these risks do not necessarily comprise all those associated with an investment into the Seneca Inheritance Tax Service. Additional risks and uncertainties currently unknown to the Portfolio Manager (such as changes in legal, regulatory or tax requirements), or which they currently believe are immaterial, may also have a materially adverse effect on SITS or on the value of shares in each Qualifying Company. Investment Risk An investment into the Seneca Inheritance Tax Service may not be right for you. Please take independent advice on whether this investment is suitable for you and think carefully about the risks involved with your investment. Whilst the strategy and objective of SITS is to provide you with preservation of capital, through the prudent use of security for its lending activities, it is possible that you may not get back the money that you invest into SITS. There is no guarantee for your capital or for any return and past performance is no guide to future performance. Additionally if only a small level of funds are raised then there can be no guarantee that all SITS objectives will be achieved. This means that a less diversified set of loans will be made than could have been made if a higher level of funds had been raised. Where charges are taken wholly or partly out of an Investors capital, it will be at the expense of capital which will either be eroded or future growth constrained. Legislative Risk SITS relies on the current legislation relating to Business Property Relief and Inheritance Tax as well as other company rules and regulations. All of these are subject to legislative change which could remove the tax benefits of your investment. The information in this document is correct as of December 2014 and may not be current. Taxation Risk The IHT benefits of investing in SITS depend on your own personal circumstances and BPR. You should always consult a professional adviser before investing. Liquidity Risk Investors money committed to the Seneca Inheritance Tax Service will be invested in Qualifying Companies, the shares in which will not be quoted on any market, and Investors may find it difficult to realise them for value, if at all. It is intended that all exits for Investors will be through a reduction in a Qualifying Company s share capital and repayment by the Qualifying Company itself to exiting Investors. The Qualifying Company will need to generate the cash necessary to pay an exiting Investor either from new Investors or from repayments of loans made by the Qualifying Company and there can be no certainty as to the availability of cash to Investors who wish to exit. In addition, Investors need to hold the shares for a minimum of two years in order to benefit from Business Property Relief. As a result of the above you may be unable to realise your investment in SITS when you would like to, especially if other Investors are looking to exit at the same time.

28 Seneca Partners Limited 12 The Parks, Newton-Le-Willows, WA12 0JQ T: F: E: W: Registered Office: 12 The Parks, Newton-Le-Willows, WA12 0JQ Authorised and Regulated by the Financial Conduct Authority