Blackfinch Adapt IHT

The Blackfinch Adapt IHT Portfolios are designed to help experienced investors protect their assets from inheritance tax. After two years, the investment should benefit from IHT relief, provided it is still held on death. Tax rules can change, and benefits depend on circumstances.

This is a discretionary managed portfolio service. Investors can choose between four investment portfolios: Ethical, Balanced, Balanced Growth, and Growth. Each portfolio has a different investment objective, with target returns from 3-5% per annum, not guaranteed.

Each investment portfolio will invest in up to three trading businesses: Henslow Trading Limited, a provider of asset-backed finance to small businesses and property developers; Sedgwick Trading, which establishes and operates renewable energy assets; and Lyell Trading, a provider of property development finance. The amount invested in each trading business will differ depending on the chosen investment portfolio. 

The service has net assets of £312 million. The three trading businesses own a portfolio of 65 energy assets and 51 loans. To date, there have been 168 claims for IHT relief following a shareholder’s death – Blackfinch Investments is not aware of any unsuccessful claims (September 2022).

• Target return 3-5% per annum, not guaranteed
• Regular liquidity: investors should usually be able to withdraw money monthly, on request 

The manager

The service is managed by Blackfinch Investments, part of the Blackfinch Group. The group was founded in 2004 by Richard Cook. Since then, the business has grown to over 120 employees and manages more than £650 million across its investment services (September 2022), including £312 million in the Blackfinch Adapt IHT portfolio service, making it the group’s largest offering.

The service is managed by 30 individuals in two investment teams: Property and Energy. The Property team is headed up by Investment Director, David Higson. David joined Blackfinch Investments in March 2017, and prior to this spent six years at PwC. The Energy team is headed up by Investment Director Stefan Agopsowicz. Stefan has been with Blackfinch since January 2013 and is involved in the analysis and valuation of potential new investment opportunities for the company’s portfolios.

Investment strategy

Investors are offered exposure to one of four Adapt IHT investment portfolios. Each portfolio pursues a distinct investment objective, which in turn determines the amount of capital to be deployed within each trading business. 

Trading businesses

1. Property development finance focus – Lyell Trading

Lyell Trading provides property development finance to property developers around the UK. Loans are provided for new build projects, redevelopments, or major renovation works. Lyell Trading will consider loans across all sectors and regions within the UK. A typical loan is between £500,000 and £10 million in size.

2. Renewable energy focus – Sedgwick Trading

Sedgewick Trading establishes and operates renewable energy assets across 47 sites in the UK. It focuses on proven technology such as onshore UK solar and wind energy assets. It aims to generate stable and predictable revenues over time with many projects benefitting from prior government subsidies. The business invests in subsidy-free developments, acquires subsidised operational projects, and uses Power Purchase Agreements with strong counterparts.

3. Asset backed finance focus – Henslow Trading

Henslow Trading provides asset-backed finance for business and property deals of £500,000 and £10 million. It is focused on transactions in established sectors with reputable partners, who share its Environmental, Social, and Governance principles. Whatever the type of loan, a quantifiable asset will underpin the lending, typically a building, land or business holding.

Investment portfolio

1. Ethical Portfolio. The Ethical portfolio targets a return of 3.0% per annum – not guaranteed. It invests primarily in renewable energy assets and low-carbon construction projects. 75% of its assets are invested in Sedgewick Trading, and the remainder in Henslow Trading.

2. Balanced Portfolio. The Balanced portfolio invests 30% in asset-backed lending via Henslow Trading, 30% in property lending via Lyell Trading, and 40% in renewable assets via Sedgwick Trading. It has a target return of 4.0% per annum, not guaranteed.

3. Balanced Growth portfolio. The Balanced Growth portfolio invests 25% in asset-backed lending via Henslow Trading, 45% in property lending via Lyell Trading, and 30% in renewable assets via Sedgwick Trading. It seeks a return of 4.5% per annum, not guaranteed.

4. Growth portfolio. The Growth portfolio invests 20% in asset-backed lending via Henslow Trading, 60% in property lending via Lyell Trading, and 20% in renewable assets via Sedgwick Trading. It seeks a return of 5.0% or higher per annum, not guaranteed.

Target return

The target return depends on the chosen model portfolio and ranges from 3.0% to 5.0% per annum after fees and charges over the holding period – not guaranteed.

To help achieve this, the annual management fee is deferred and only payable if investors achieve the stated target return per annum before annual management fees. Please note, the ongoing service fee of 0.5% is not deferred.

As the table shows, a 2.5% return per annum (after fees) compares favourably to higher returns once the IHT relief is considered. Remember, tax rules can change, and benefits depend on circumstances. Eligibility for IHT relief is only assessed at the point of death.

Impact of IHT on investment returns 

The table below shows illustrative returns for a £100,000 investment over 5, 10 and 15 years, with and without IHT relief.

Current assets overview

Each of the four Adapt IHT portfolios invests a proportion of its assets into each of the three trading businesses, except for Ethical, which only invests in Sedgwick Trading and Henslow Trading. Across the three trading businesses, investors get exposure to up to 65 energy assets, such as solar parks, and onshore wind farms, and 51 asset-backed and property development loans (September 2022). 

The three trading businesses have relatively concentrated portfolios, with the top 5 investments in each accounting for 49.3% (Henslow Trading), 37.3% (Lyell Trading) and 57.4% Sedgewick Trading of the net assets within each business (as at September 2022). 

The asset allocation of each Adapt IHT Portfolio is shown below (September 2022).

Sector breakdown by portfolio (%)

Examples of assets by type

Henslow Trading asset backed loan – previous example

Henslow Trading has provided an asset-backed loan of c.£2m to a developer of a former hotel in Woolacombe. The site is in a prime location with stunning beach views. It is being refurbished into 55 residential units, a restaurant and a swimming pool which will also feature a 24-hour concierge service. The loan to value was 34%, and Henslow Trading has first charge security over the property.

Sedgwick Trading solar park – previous example

In late 2015, Sedgwick commissioned the construction of a 3.035MW ground-mounted solar photovoltaic (PV) installation in Palmersford, Dorset. The operation and maintenance of the plant is contracted to Anesco Ltd, one of the country’s leading energy efficiency companies, with a track record of designing and building more than 100 solar farms in the UK.

The site was grid connected and producing electricity by the end of December 2015. It will earn government-backed feed in tariffs that are locked in for 20 years and linked to RPI, as well as payments for exported electricity.

Lyell Trading property development loan – previous example 

Lyell Trading has provided a property development loan of c. £3.9m for up to 30 months to build 18 luxury residential apartments in Hereford. The site previously housed a restaurant that closed in the 1990s, with an opportunity presented by the derelict space situated near the River Wye. All new apartments benefit from onsite parking, balconies with views of the river, and landscaped gardens along the riverside. 

The loan was made at 75% loan to value on a first-charge basis, backing an established property developer. 

Example of a default

Whilst there has not been any loss of capital to date, there have been situations where borrowers have defaulted and the Blackfinch property team has had to intervene to protect investors’ capital.

In 2016 a loan for £1,302,150 was advanced for the construction of a large residential unit in the outskirts of Bristol and was valued at £2,000,000. A further capital injection of £29,100 was made in 2017 taking the total loan to £1,331,250.

In 2018 the developer got into difficulty and had not fully finished the property. To protect investors’ money, the development was put into administration. The Blackfinch property team coordinated finishing the property, called in cost overrun guarantees, regularised the planning and ensured all certification and warranties were in place to allow a sale to recover all capital. It was decided to finish the property to a smaller size than the original plan as this would improve the chances of full capital recovery. 

The sale completed in June 2019 for £1,385,000, fully recovering all capital and some interest. Further Personal Guarantees of £72,000 were successfully called in, so the total recovery was £1,457,000 which represents 109.45% of loan capital deployed. Past performance is not a guide to the future.

Performance 

The performance track record of the Blackfinch Adapt IHT Portfolios is shown below. 

Since inception in December 2013 to September 2022, the IHT portfolios have delivered annualised returns of 3.0% (Ethical), 3.8% (Balanced), 4.3% (Balanced Growth), and 4.7% (Growth). Past performance is not a guide to the future.

Access to your investment 

Investors have the option to withdraw some or all of their capital by selling their shares in the underlying businesses. This usually takes two to four weeks. However, there’s no guarantee that investors can access their investment within this timescale. The minimum amount for partial withdrawals is £3,000. Investors can also make regular withdrawal on a quarterly, half-yearly or annual basis. 

In certain exceptional circumstances, such as a change of tax rules, share sales can take significantly longer and the timing of share sales and return of your remaining capital cannot be guaranteed. You should not invest in the Blackfinch Adapt IHT service unless you are able to accept that – in exceptional circumstances – it could take a year or longer to access your investment following a withdrawal request.

Risks – important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.

The IHT service contains assets which are high risk and should only form part of a balanced portfolio, you should not invest money you cannot afford to lose. The service invests in illiquid assets which may be hard to sell or value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

Tax rules can change, and benefits depend on circumstances. Eligibility for BPR is assessed at the date of death and will depend on the companies in the portfolio remaining qualifying. Broadly speaking, you will need to have held a BPR qualifying stock for at least two years and still hold it on death to qualify. 

In recent months, there have been widely reported rumours that the government might change or abolish IHT. It is currently unknown if and when any decision might be announced.  

168 investors have passed away since the service launched, in every one of these cases, their investments have qualified for business property relief where the investor died after two years. Please remember, there is no guarantee this will continue to be the case. Tax rules can change and benefits depend on circumstances. 

Charges 

A summary of the main charges and savings is shown below. The investment may have additional charges and expenses: please see the provider documents for more details. If you would like a full breakdown or a personal illustration, please let us know. Please note, as the underlying investee companies have few employees in managerial positions, management functions are typically performed by Blackfinch Investments, hence the annual investee company management charge.

Our view

The Blackfinch Adapt IHT portfolio service provides investors with a choice of four investment portfolios, each with a specific investment objective and target return. This includes an ethical option for investors who wish to consider wider Environmental, Social and Governance factors. Investors will receive shares in up to three distinct underlying trading businesses operating across renewable energy, property lending and asset-backed finance. 

The service has a competitive charging structure, and it has delivered a strong performance track record when compared with other IHT offers since its inception. Past performance is not a guide to the future. In addition, the investment teams appear well resourced. 

For experienced investors concerned about the potential impact of inheritance tax on their estate, this service could be worthy of consideration. The service may also provide additional diversification to a large estate planning portfolio or be of interest to those looking for a service that can potentially offer BPR replacement relief. Investors should form their own view. 

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.