FS18 DID Summer 2010 Magazine

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FS18 DID Summer 2010 Magazine Powered By Docstoc
					                                                                            Summer 2010

Tax Axe Edition

                                       Your Tax
                                      Axe guide
  In this issue:
  20 Ways to Save Tax
  Tax Axe Seminars
  Stamp Duty Savings
  EIS cut 3 taxes
  Creative Inheritance Tax ideas
  Some good funds reviewed
  Retiring at 55, 60 or 65?

             Financial news, views and opportunities for doctors and dentists
New Feature
          What our clients do
                                              3          Topical news
                                                             Rise in CGT
                                                             Retiring at 55, 60 or 65?
    33    for fun                                        •   Tax Axe Seminars
                                                         •   NHS Pension Choice Seminars

                                              7          Tax Mitigation
                                                             EIS help you to axe 3 taxes in one
                                                             Longbow, Octopus and Future Films EIS Reviews
                                                         •   Pharma Investing
                                                         •   6.75% annual payments not liable to Tax
                                                         •   Property Stamp Duty Savings
                                                         •   Creative IHT Mitigation

For a general review or help on
                                              22 Investment Analysis
                                                             Dynamic Portfolios
                                                             M&G Global Basics Fund
any subject in this magazine,                            •   Visit to Brazil
please return the enquiry form                           •   Student Property Funds
on the inside back cover - fax                           •   UK Growth Multiplier

                                              31 Pensions
to 020 7990 9812, or post it to
DoctorsInvestDirect, 3 Bunhill Row,
                                                         • Pension Liabilities Reach £1 trillion
London, EC1Y 8YZ. Alternatively call                     •	 Asset Backed Annuities
us on: 020 7847 4038, email us
or visit our website:

     Please note and read the Important General Information on the back page of this magazine. Case studies are featured
  throughout this magazine. Any names and photographs shown in case studies are fictional to protect client confidentiality
                  Please note and read the Important General studies or comments shown in this magazine do
  but the facts are based on real life circumstances. The caseInformation on the back page of this magazine. not constitute
   individual financial advice to readers. Readers should ask for personal advice before acting on any of the case studies and
 comments shown. We are happy to provide such advice. Some investment vehicles reviewed in this magazine are described as
  being unregulated . Where this is applicable investors will not have the protection of the FSCS if the fund vehicle should fail.

1 financialsurgery
Tax Mitigation

                                                                            Tax Mitigation

Welcome to our Tax Axe Edition
                              ur new coalition government is                                 It will be no fun if you are a higher rate taxpayer
                              doing what is has to do to begin                               and have CGT to pay on realised gains
                              bringing the nation’s finances to                              either, because this tax has just undergone a
                      order. It will be tough. It is about to take                           whopping 60% increase to 28%. Yet we are
                      an Axe to Public Spending. Cuts for some                               meant to breathe a sigh of relief as pre-Budget
                      Departments are reckoned to be at least                                it was mooted the CGT rise could have been
                      25%, some possibly up to 40%.                                          to a rate of 40% or even 50%. To me a 60%
                                                                                             rise in rate is plenty bad enough.
                      Talk of axes and deep cuts set me to thinking
                      that we have a duty of care to advise you how                          We also know that the nil rate bands
                      you may legitimately in turn take an Axe to                            applicable under Inheritance Tax are not to rise
Keith Taylor, our     Government Taxation! Here we are guided by                             anytime in the lifetime of our present Coalition
Managing Director,    the following principle that was set down in the                       Government. Many people’s hopes for more
founded DID in 2001   Law Courts as long ago as 1928.                                        benign IHT have been dashed. These rates of
                                                                                             taxation will not be reversed soon.
                      “No man in the country is under the smallest
                      obligation, moral or other, so as to arrange                           But there is no need to be gloomy. Help
                      his legal relations to his business or property                        is at hand in the shape of this special
                      as to enable the Inland Revenue to put                                 Tax Axe Edition of Financial Surgery. We
                      the largest possible shovel in his stores”.                            show you how to sidestep rising taxation
                      Lord Clyde - Ayrshire Pullman Motor Services                           you may otherwise accept as inevitable.
                      v Inland Revenue                                                       Stamp duty is just one good example.
                                                                                             Pages 15 to 16 show you how it may be
                      So now we have axes and shovels. So I intend                           possible to reduce this by almost half.
                      that this issue of Financial Surgery be your
                      toolkit – a special Tax Axe Edition - to help you                      Compelling concepts abound in this edition.
                      to legitimately reduce your taxes.                                     It is the 18th we have published since Easter
                                                                                             2001. As always once you have read those
                      It is no joke to realise that you will otherwise be                    areas that interest you do then come to us for
                      paying an effective marginal rate of tax of 60%                        individual help and guidance.
                      on earnings between £100,000 and £112,950
                      (because of loss of personal allowance). It will                       Keith can be reached on 020 7847 4038,
                      be very painful to be caught on the top rate of                        or 07793 062422 or by emailing
                      tax of 50% on earnings above £150,000.                       

                                                                                                                             financialsurgery 2
               Our new Tax Axe                                                                                                                                                                 DOCTORS
                                                                                                                                                                                           Specia lists in                   DIRECT
                                                                                                                                                                                                           creatin g and preserv
                                                                                                                                                                                                                                 ing wealth

                                                                                                                                                                                                                                                                                        Spring 2010

               Seminar Roadshow
                                                                                                                                                 You are most cordia
                                                                                                                                                                       lly invited to attend
                                                                                                                                                                                                                                                                  TO A TAX
                                                                                                                                                                                              this special
                                                                                                                                                seminar designed
                                                                                                                                                the best from their
                                                                                                                                                                   to help dentists unders
                                                                                                                                                                    tax planning and
                                                                                                                                                                                           tand how to get                                                        PLANNING
                                                                                                                                                Income Tax now
                                                                                                                                                                  bites at up to 50%.
                                                                                                                                               tax levels in the 22nd
                                                                                                                                                                                                       tax mitigation.
                                                                                                                                                                                        Capital Gains Tax
                                                                                                                                                                                                          is likely to rise to
                                                                                                                                                                                                                                                                 JUST FOR
                                                                                                                                                                        June Budget. Manifesto                                 income
                                                                                                                                               have been ditched.                               promises to reform
Topical News

                                                                                                                                                                    It has never been                                 Inheritance Tax
                                                                                                                                               on how you can                          more important to
                                                                                                                                                                 mitigate a rising tax                   hear the latest intelligenc

                                                                                                                                                                                                                                                                 DOCTORS &

                                                                                                                                              Your opportunity to
                                                                                                                                                                   hear from a truly impress
                                                                                                                                              who are leaders in

                                                                                                                                                 Keith taylor
                                                                                                                                                                  their fields as follows
                                                                                                                                                                                             ive panel of speake
                                                                                                                                                                                                                 rs                                              DENTISTS
                                                                                                                                                                          , Managing Directo
                                                                                                                                                                                                 r, Doctorsinvest
                                                                                                                                                                             on 16 Ways to Mitigate
                                                                                                                                                                                                                                                               DATE AND TIME:

               We hit the road with 20 ways to cut tax
                                                                                                                                                                    steve BolD, senior
                                                                                                                                                                                                                                                              Tuesday 15th June 2010
                                                                                                                                                                       current Develop
                                                                                                                                                                                               Partner, Btg
                                                                                                                                                                                                                tax                                           Supper: 6.45pm to 7.30pm
                                                                                                                                                                                            ments in tax Planning
                                                                                                                                                                                                                  .                                           Seminar Start: 7.30pm
                                                                                                                                             siMon conDer
                                                                                                                                                                   , consultant,                                                                              Seminar End: 9.00pm
                                                                                                                                                                                    asclePios Biores
                                                                                                                                                              Pharma investing                            earch liMiteD
                                                                                                                                                                               with potential for
                                                                                                                                                                                                  tax Mitigation
                                                                                                                                                      Julian hicKMa
                                                                                                                                                                           n, Partner, longBo
                                                                                                                                           Why enterprise
                                                                                                                                                                   investment scheme
                                                                                                                                                                                                  W caPital llP                                          BDA Lecture Theatre
                                                                                                                                                                                     s are about to enjoy
                                                                                                                                                                                                          huge popularity                                64 Wimpole Street
                                                                                                                                         “If you come along                                                                                              London
                                                                                                                                         You will not go away to this seminar it will be time well                                                       W1G 8YS
                                                                                                                                                              disappointed” says                   spent.
                                                                                                                                         the cvs of our                          Keith Taylor.
                                                                                                                                                             speakers are as
                                                                                                                                         dentists to attend                    shown overleaf
                                                                                                                                                              this seminar. We                . We have invited
                                                                                                                                                                                have room to accomm                 1,000                                The seminar will be

                                                                                                                                         to reserve your                                               odate up to 100.
                                                                                                                                                            place for this event
                                                                                                                                         and return to us                        complete the accepta                                                   particularly attractive
                                                                                                                                                            in the reply paid
                                                                                                                                                                              envelope provided
                                                                                                                                                                                                        nce slip below                                                          to
                                                                                                                                        7990 9812 or just
                                                                                                                                                             call us on 020 7847                . or fax it to us on
                                                                                                                                                                                                                                                        practice owners and
                                                                                                                                                                                  4038. spaces will

                         e have just delivered a            Any doctor or dentist who comes to one of
                                                                                                                                        first reply first served
                                                                                                                                                                  basis.                             be allocated on
                                                                                                                                                                                                                       a                                high earners.

                                                            our Tax Axe Seminars will not go away
                                                                                                                                                  3 Bunhill Row
                                                                                                                                                                      telephone: 020 7847

                         pilot Tax Axe Seminar at
                                                                                                                                                  London                                     4038
                                                                                                                                                                      fax:        020 7990 9812                     registered 3 Bunhill
                                                                                                                                                  EC1Y 8YZ                                                                               Row
                                                                                                                                                                      email:      kathleen@ta                       office:                                        reg no.:
                                                                                                                                                                      website: www.docto                                                     vat no.:
                                                                                                                                                                                                  EC1Y 8YZ                                       939 4703 90
                                                                                                                                                              is a trading style
                                                                                                                                                                              of TaylorFrost Wealth

                                                            disappointed. It will be an excellent use of
                                                                                                                                                                                                    Management Ltd
                                                                                                                                                                                                                   which is authorised
                                                                                                                                                                                                                                       and regulated by
                                                                                                                                                                                                                                                        the   Financial Services

                         Wimpole Street that is

                                                                                                                RESERVE MY PLACE
                                                            2 hours of your time and need not clash                                                                                DOCTORS

               the first in a string of meetings we
                                                                                                                                        My name and address
                                                                                                                                                                                                         Please tick box applicabl

                                                            with your working day as we deliver the
                                                                                                                                                                                                                Please reserve a
                                                                                                                                                                                                                                 place for me at your
                                                                                                                                                                                                               Seminar to be held                       Tax Planning and

               plan to deliver across the UK. Our
                                                                                                                                                                                                                                    on the evening of                    Mitigation
                                                                                                                                                                                                               Street. i do/do not                    the 15th June at
                                                                                                                                                                                                                                     want supper. (delete              64 Wimpole

                                                            Meeting in an evening from 7 pm to 9 pm.
                                                                                                                                                                                                                                                                      as applicable)
                                                                                                                                                                                                                 I regret I am unable
                                                                                                                                                                                                                                      to attend but would
                                                                                                                                                                                                                 arrange for a personal                    like you to contact
                                                                                                                                                                                                                                        review of my tax                       me to
                                                                                                                                                                                                                                                         planning and mitigation

               Pilot Seminar was well received –
                                                                                                                                                                                                                Call me on:

                                                                                                                                                                                                                Email me at:

                                                                                                                                    PLEASE RETURN IN

                                                            About Our Speakers
                                                                                                                                                     OUR ENVELOPE PROVID

               so much so that 70% of delegates
                                                                                                                                    OR JUST CALL US ON                    ED, OR FAX TO 020
                                                                                                                                                       020 7847 4038 TO                     7990 9812
                                                                                                                                                                        RESERVE YOUR PLACE
                                                                                                                                                                                            FOR THIS MEETIN                                                       G

               attending have since gone on to
               ask for personal help and guidance.                            Keith Taylor, Managing Director, DoctorsInvestDirect
               That is our highest ever follow up                             Keith has many years as a writer and speaker in the field of
               response by delegates attending one                            financial planning for doctors and dentists (articles include
               of our seminars. It has encouraged                             those written for MADRAS Reports, Medeconomics, GP
               us to bring our Tax Axe Seminars                               Magazine, The Dentist, BDA News, Dentistry Monthly, Dental
               to other major towns and cities.                               Practice, BDJ and the Probe, and more going all the way back
               So a Meeting is most likely coming                             to 1986).
               your way.                                                      Throughout all this time he has focused entirely on helping
               They really are too good to miss. In                           dentists and doctors. Since 2001 Keith has led the operation
               the Meeting we set out 20 ways to cut                          of DoctorsInvestDirect. He also publishes this Financial Surgery
               income tax, capital gains tax, stamp                           Magazine that is issued to practitioners half yearly. Keith will set
               duty and inheritance tax. So it really is                      out 16 ways to mitigate taxation.
               not a surprise that interest is so intense
               given higher rates of income tax and                           Steve Bold, Senior Partner, BTG Tax
               CGT now apply.                                                 Steve is Senior Partner at BTG Tax and was formerly a Senior
               We line up 4 speakers who are                                  Inspector of Taxes for HMRC, Senior Manager at a Big Four
               acknowledged authorities in their                              accountancy firm and Managing Director at a specialist media
               respective fields and each has the brief                       and sports practice.
               to deliver a 20 minute presentation                            His areas of expertise include all aspects of direct taxation, both
               that is to be short and punchy. Each                           personal and corporate, tax shelter strategies, tax investigation
               delivered as we know from seminar                              and enquiry work.
               feedback forms. No speaker was rated
               as being less than 8 out of 10. A good                         Simon Conder, Consultant, Asclepios Biosearch Limited
               number of delegates rated the whole
                                                                              Simon was a Registered Securities Representative of the
               event as 10 out of 10.
                                                                              London Stock Exchange for more than 10 years and worked
               We plan a further meeting in London                            exclusively in high net worth asset management. Simon has
               but in September, October and                                  appeared widely on financial television in the UK.
               November our intention is to bring                             Simon will speak on a bioresearch investment opportunity with
               the Tax Planning Seminars to Bristol,                          guidance on the expected taxation treatment.
               Birmingham, Manchester, Liverpool,
               Leeds and Newcastle.
                                                                              Julian Hickman, Partner, Longbow Capital LLP
               Look out for an invite like that above.
                                                                              Julian is a Partner of Longbow Capital LLP. Longbow has an
               Alternatively you can telephone us now
                                                                              excellent reputation and pedigree in the Enterprise Investment
               to register your interest and obtain
                                                                              Scheme sector and has vehicles available with connections to
               advance notice of seminar dates. You
                                                                              the field of healthcare.
               can even reserve your place to attend
                                                                              Julian will show how EIS secures income tax relief, capital gains
               ahead of invites being issued. You then
                                                                              tax relief and inheritance tax relief.
               guarantee your seat.

               3 financialsurgery
Rise in CGT
       he change in the CGT rate will certainly spell
       pain for some higher rate taxpayers so let us
       look at the hard facts of the changes effective
       from 23 June 2010:
•	 A new rate of 28% will apply to gains where an individual’s
   (or trustee’s) total taxable income and gains are above the
   upper limit of the basic rate income tax band. The 18%
   rate of CGT will be retained for those with total income
   and gains below that level.
•	 The Entrepreneurs’ Relief lifetime limit has been increased
   from £2m to £5m. This relief previously functioned by
   reducing qualifying gains by 4/9ths resulting in an effective
   10% CGT rate (i.e. 5/9th’s of 18%). As we now have
   two tiers of CGT, the 4/9th’s calculation is abolished and
                                                                    Stamp Duty
   instead a flat 10% rate applies to all qualifying gains (for     If you, a family member, friend or colleague are about to
   example that arising from sale of a surgery).                    buy a property then you, or they, are in line to pay Stamp
                                                                    Duty Land Tax (SDLT). Such tax is currently paid at the
•	 The CGT Annual Exemption remains unchanged at
                                                                    rate of 3% for those purchasing for a consideration of
   £10,100 and will be index linked.
                                                                    more than £250,000; it’s 4% for those purchasing at a
In our view it remains good sense to continue to arrange            consideration of £500,000+. If so you must read our
your affairs such as to have investments subject to CGT             article on pages 15 to 16 where we set out how UK
rather than income tax. We certainly think many would               residential and commercial property purchasers have
wish to pay 10% CGT (or even 28% CGT) rather than                   the opportunity to reduce their SDLT costs to 1.5% +
potentially 50% income tax!                                         VAT and 2% +VAT respectively. Although the planning
It also then means being able to avoid any tax at all               works slightly differently, we show how substantial tax
if good use is made of the Annual CGT Exemption                     savings are possible for those who are single, a couple,
of £10,100 and remember a couple have double this                   married, or a limited company seeking to buy either
allowance. On page 11 we give a good example of such                residential or commercial property whether leasehold
sophisticated tax planning in practice.                             or freehold.

Retiring at 55, 60 or 65?
        elping you get a good grasp           Equally it shows why those who              are promised members, rather the
        of your likely NHPS benefits          most certainly do not want to retire        pensions will be paid out of existing
        if retiring in the 10 year            with NHSPS benefits before 65 may           members annual contributions and tax
window age 55 to 65 is one of the             consider it beneficial to transfer to the
                                                                                          revenues instead.
areas we are asked about most. In             2008 Section.
                                                                                          It has recently been estimated by
this edition we go into more detail           For more on this just turn the page.
                                                                                          actuaries that if our unfunded public
around the numbers and set out
examples of benefits that could               £1trillion of Public                        sector pensions were funded then
                                                                                          we’d need a fund of about a trillion
be produced for a member of the
NHSPS.                                        Sector Pension                              pounds put aside to pay for the pension

These set out fairly graphically that it is   Liabilities                                 liabilities. It is an unimaginable figure but
                                                                                          the bottom line is that it all augurs a real
not a good idea to transfer into the 2008     Public sector pensions have been in
                                                                                          probability of change in the next few
Section and then retire early (other than     the news again in recent weeks. Some
perhaps as a Tier 2 ill health retirement).                                               years. We think costs of contributing to
                                              public sector pensions are funded just
Especially not as early as age 55 when        like private sector pensions are, but       the NHSPS will increase for members
the reduction in benefit for a voluntary      some public sector pensions like that of    and that the value of the benefits are
retirement is 44% in the 2008 Section,        the NHSPS are not fully funded.             likely to be reduced. On page 31 we
or even at 60 when benefits are reduced       That means there’s no fund of money         comment more – it too is important
by 25%.                                       put aside to pay for the pensions that      reading.

                                                                                                                   financialsurgery 4
               Retirement at
               55, 60 or 65?
Topical News

               I                                                     Table 1: General Points on the NHSPS Choice
                  n our February 2010 edition article of
                  Financial Surgery on implications of
                  the NHSPS Choice we set out some                   •	 If you plan to retire in your early 60s before age 63.5 years the 1995 Section will produce
               guidelines that we repeat here in Table 1. In            more pension and lump sum than the New 2008 Section.
               this edition we go into more detail around            •	 If you plan to retire after reaching age 64.5 years the New 2008 Section is likely to
               the numbers and set out examples of                      produce a better package of NHSPS benefits.
               benefits that could be produced for a                 •	 At ages 63.5 and 64.5 the result may not be not clear cut either way.
                                                                     •	 If you do not expect to remain in the service of the NHS until your retirement then staying
               member of the NHSPS assuming retirement
                                                                        in the 1995 Section is likely to be better because when you do retire benefits can be
               in the 10 years from age 55 to 65.
                                                                        accessed from age 60 without penalty.
               We set out two sets of figures. Table 2               •	 The 2008 Section has much harsher penalty on benefits payable if retiring early. In this
               gives the benefits payable assuming a                    Section retiring early is any date before age 65. Normal benefits are payable without
               doctor or dentist remains in the existing                penalty from age 60 onwards in the 1995 Section
               1995 Section. Table 3 gives a similar set             •	 By way of example, if retiring early at say age 55 the reduction in benefits penalty in the
               of figures but assumes the member has                    1995 Section is around 24% on pension payable whereas in the 2008 Section it is 44%.
               transferred into the 2008 Section.                    •	 If you have been a member of the 1995 Section prior to April 2006 early retirement with
                                                                        benefits is possible from age 50. If moving to the 2008 Section early retirement with
               These set out fairly graphically that it is not a
                                                                        benefits is only possible from age 55 onwards.
               good idea to transfer into the 2008 Section
                                                                     •	 If you work on beyond age 65 in service of the NHS without taking any NHSPS pension
               and then retire early (other than perhaps as a           and lump sum then these benefits are increased when they become payable in your later
               Tier 2 ill health retirement). Especially not as         60’s. There is no such increase in the 1995 Section.
               early as age 55 when the reduction in benefit         •	 If age 60 or older now you do not get a like for like transfer of number of years service
               for a voluntary retirement is 44% in the 2008            from the 1995 Section to the 2008 Section. The value on transfer to 2008 Section will be
               Section, or even at 60 when benefits are                 reduced by a scale that increases the older in age you are.
               reduced by 26%.
               Equally it shows why those who most certainly         Table 2:      Benefits if remaining               Table 3:      Benefits if transferring
               do not want to retire with NHSPS benefits             in the 1995 Section.                              into new 2008 Section
               before 65 may consider it beneficial to transfer           Age at Pension           Lump                      Age at Pension           Lump
               to the 2008 Section. Do not forget that it may           Retirement                  Sum                   Retirement                  Sum
               also be a possible option to take a temporary                 55       31,920 105,840                           55        22,596 105,840
               retirement from work at age 60, commence                      56       34,720 113,274                           56        24,763 113,274
               your NHS pension and lump sum and then                        57       37,632 120,960                           57        27,020 120,960
               return to practice.                                           58       41,118 128,898                           58        29,987 128,898
               We set out in our February 2010 edition that                  59       44,744 137,088                           59        32,446 137,088
               working on beyond age 60 and not opting to                    60       49,000 147,000                           60        36,183 147,000
               take NHSPS benefits means a practitioner                      61       50,400 151,200                           61        39,509 151,200
               gives up forever the pension they could have                  62       51,800 155,400                           62        44,477 155,400
               received from age 60. In the example we gave                  63       53,200 159,600                           63        49,232 159,600
               then we illustrated it meant forgoing £306,968                64       54,600 163,800                           64        54,904 163,800
               of gross pension income. To view this article, go             65       56,000 168,000                           65        60,800 168,000
               to our website          Assumptions made for both Table 2 and 3: The pension and lump sum figures in the above
               and view page 6 of our Winter 2010 edition.           tables assume a GP, or GDP, who qualified at the age of 25 and has average NHS pensionable
               The Pension Choice Option should be a                 career earnings of equivalent to £100,000 a year. Table 3 assumes transfer into the 2008
                                                                     Section before age 60. Comparison is by showing pension reduction or enhancement if
               personal decision made on the basis of
                                                                     maintaining a equivalent lump sum. Figures will be different for those in hospital posts.
               lifestyle, financial position, ability to take such
               a temporary retirement, agreement of partners         Table 4: Reduction Factors
               or employers, PCT or Health Trust and
                                                                     Voluntary early retirement reduction factors 1995 Section
               likelihood of wanting to carry on beyond age          Age            60         59           58         57                    56           55
               65 in practice.                                       Pension       0%          6%          11%        16%                   20%          24%
               We are happy to help doctors and dentists             Lump Sum      0%          4%           7%        10%                   13%          16%
               look more into what can be expected
               at their ideal retirement date as part of             Voluntary early retirement reduction factors 2008 Section
                                                                     Age       65     64    63     62    61     60    59 58    57 56 55
               any Pension Choice Review. For help
                                                                     Pension 0% 6% 12% 17% 22% 26% 31% 34% 38% 41% 44%
               and guidance call us, go to our website
               or complete the enquiry at the back of                Once the reduction factor is applied to the amount of pension, the lump sum can be taken
               this Magazine.                                        by commutation of part of the pension.

               5 financialsurgery
NHS Pension                                                                              1st J
                                                                                               une 2
                                                                                                                    orth H tion Trust

                                                                                                                                   eak t

Choice Seminars
                                                                                                      h                     to sp          ry
                                                                                               r Keit               ming al Adviso pite
                                                                                          Dea                for co          ic             es
                                                                                                  th anks f the Med ospital. D ellent
                                                                                           Many mbers o                orth H had an ex ant
                                                                                                   e              pw
                                                                                           the m ittee at Pa ning we                    cons
                                                                                                  m                e               our
                                                                                            Com winters ev st half of                    the
                                                                                                                    o               tely            t
                                                                                             a cold t with alm t. Fortuna e clemen
                                                                                                      u              n              or
                                                                                              turn o ues prese much m turn out.
                                                                                                      g               in              d               he
                                                                                               collea talk was qually goo ve were t
                                                                                                      nd               e              ga        in the
                                                                                                seco r with an that you
                                                                                                       he               s               to us
                                                                                                 weat sentation available x Shelter

                                                                                                 T he pr g choices me and Ta udget. We
          e stand ready to answer               When it was replaced by another                          min              he             tb              e
                                                                                                  upco ension Sc the recen ur expertis
          invitations to give a Talk on         scheme in the early 80’s Keith helped              N HS P following you for yo vice given
                                                                                                           ing             nk               ad           ou
                                                to produce and edited a “Guide to                  plann like to tha ith us and opefully y
          the NHS Pension Choice.                                                                   w  ould shared w lanning. H k again to
                                                                                                              ou              lp            pea
Each month we take calls asking us to           Purchase of Added Years” published                   that y re financia me and s
                                                                                                              tu              o
                                                by Medical and Dental Retirement                      for fu time to c
deliver such Talks. Our very next such                                                                          d
                                                                                                       will fin n.
presentation will take place at Milton          Advisory Service in conjunction with                    us so             ely
                                                Medical Insurance Agency and spoke                       Yo  urs s apiro               ist &
Keynes at the invitation of the local dental                                                                     M Sh            iolog
                                                                                                          Dr L ltant Card MAC
postgraduate tutor. For those who live          at hundreds of meetings across the                        Co   nsu        of th eP
                                                UK on the subject.                                          Chair
within striking distance of Milton Keynes
the date is Monday 4th October and the          In 1988 when the Government of
time is 3 pm to 5 pm.                           the day introduced legislation for
                                                all members of final salary pension
Deciding whether or not to join the 2008
                                                schemes to opt out and make their
Scheme or remain in your 1995 Scheme is
                                                own pension plan (a really stupid idea                      NHSPS Pension
arguably the single most important decision
you will ever be asked to make regarding your
                                                that directly caused huge pension                         Talk and Tax Shelter
                                                miss-selling) Keith:
NHS Pension Scheme membership.                                                                           update with guidance
If you make a wrong turn on this it could
mean you will suffer a lower pension upon
                                                1    Wrote to every doctor and dentist in the
                                                     UK and set out reasons why practitioners               on forthcoming
                                                     should not leave the NHSPS.
                                                                                                            NHSPS Pension
retirement than would otherwise be the               Wrote numerous articles in medical and
case if you took the right turn. But which is        dental magazines setting out the same
the best route to travel – The 2008 Scheme or        opinion.
the 1995 Scheme?                                     Published a free Guide called “Pensions                       Presentation by
We can help with the answers. If you are a           and the Healthcare Professions”.                                Keith Taylor,
Medical Director, or Chair of a Consultant
Group, or Secretary/Chairman of a LMC or        4    Spoke at numerous PGMCs, BDA Section
                                                     Meetings, and Hospital Seminars to add
                                                                                                                 Managing Director,
LDC, or Secretary/Treasurer of a BDA or BMA          to dissemination of the “Do not leave the
section, or a Postgraduate Tutor you may wish        NHSPS” message.
to arrange for such a Pension Talk to be held   In short, Keith is very experienced in NHSPS                        •	Update	on	the	
in your area.                                   matters - he has been around the block –                          NHS Pension Choice
                                                always acting in the best interests of the                  •	What	it	all	means	in	outline
All you have to do is contact us and ask to
                                                professions.                                                           •	New	NHSPS	v	
arrange for a Pension Talk to be held in your
area. That there is huge interest amongst       We are now accepting invitations to                                    Current NHSPS
doctors and dentists to understand more         carry out a limited number of speaking                            •	Flexible	Retirement
about the Choice option is beyond question.     commitments to deliver “A Pensions Talk”.
                                                                                                              •	Impact	on	Added	Years
                                                Its aim is to help doctors and dentists
This will peak as each practitioner receives                                                                    •	Case	study	examples
                                                understand the NHS Pension Choice
their Choice Pack. Recent Pension Talks we
                                                option in the wider context of their overall                     •	General	Conclusions
have conducted have been extremely well
                                                financial planning.
attended and the feedback very encouraging.
                                                If you lead organising such seminars for                          Plus upon request
Our Managing Director, Keith Taylor, has been
                                                your area and would like Keith to deliver                         •	20	Ways	to	Cut	Tax	
advising practitioners on NHSPS matters since
                                                “A Pensions Talk” please contact us on                              (Abridged Version)
the 70’s.
                                                020 7847 4038. We are happy to give a
                                                                                                             •	Topical	investment	views	
When the first Added Year’s scheme was          referral to organisers who have already
introduced in the mid 70’s it was a bumper      experienced such a Talk upon request. A
                                                                                                             Questions and Answer
basement bargain bundle. Keith was around       possible agenda for a Pension Talk can be
                                                                                                            Session to conclude Talk
then to advise practitioners to buy.            drawn from that shown.

                                                                                                                       financialsurgery 6
                                                             EIS help you to
                                                             axe 3 taxes in one
Tax Mitigation

                         O                                                                                        Case study of Graham
                                  ne outcome from the                     companies including shares listed
                                  new coalition government’s              on the Alternative Investment Market
                                  decision to raise CGT to
                          28% for higher rate taxpayers is that
                                                                          (AIM). The maximum amount that
                                                                          can be invested in a single tax year
                                                                                                                  Johns – sale of Unit
                          it has improved the attractiveness              is £500,000.                            Trusts and OEICS
                          of Enterprise Investment Schemes             •	 Unlimited capital gains arising from    Graham Johns, a dentist aged 75,
                          (EIS). By investing into EIS it is                                                      decided to sell £300,000 of his
                                                                          the disposal of assets (for example
                          possible to defer and even negate                                                       £1million plus portfolio of invested
                                                                          from sale of unit trusts see case
                          CGT on sale of assets and so axe                                                        assets. They consisted of over 15
                                                                          study) can be deferred by investing
                          such a liability. The case study of a                                                   separate holdings being part of his
                                                                          into an EIS provided the EIS
                          real client gives you an example in                                                     assets that have delivered only average
                                                                          investment is made in the period        or mediocre returns. He is advised that
                                                                          starting 12 months before the date      the chargeable gain will lead to a capital
                          The HMRC invites you to invest into EIS         of disposal and ending 3 years after.   gains tax liability of £50,000. He wishes
                          now in the 2010/11 tax year and “carry
                                                                       •	 All capital gains made from monies      to use all reliefs allowed by HMRC to
                          back” your contribution as if it was paid
                                                                          invested into EIS after a minimum       sidestep paying this tax and also wants
                          in the year 2009/10. You then get a                                                     to look at any step that will help to
                          20% income tax refund on your EIS               holding period of 3 years will be
                                                                          exempt from capital gains tax.          mitigate future Inheritance Tax.
                          contribution as a tax rebate against tax
                                                                          There is no income tax on such          Graham with our help invested the
                          already paid for 2009/10. Or you can
                                                                          gains made.                             £300,000 proceeds into a portfolio of
                          invest into EIS and claim some of the tax
                                                                                                                  EIS. This was invested in two portions so
                          relief for the current tax year as well as   •	 Once monies have been invested          that £150,000 is carried back and treated
                          some for the past year. You decide.             within an EIS for over 2 years the      as if paid in 2009/10 with the balance
                          EIS are in fact a Tax Axe that                  assets will qualify for what is known   regarded as invested in 2010/11. The
                          you can use to chop away three                  as Business Property Relief and be      dentist achieves income tax rebates of
                          separate tax liabilities from making            exempt from Inheritance Tax even        £60,000 in total, £30,000 for each tax
                          just one investment. We think the               though the investor still owns the      year. By dint of investing proceeds into
                          EIS investment invitation from the              asset and has not given it away.        EIS the £50,000 CGT liability is no longer
                          HMRC is too good to miss.                                                               a tax bill that has to be paid in January
                                                               Tax relief hedge                                   2012, and is deferred indefinitely. The
                         What are the tax shelter                                                                 assets are to be held in EIS form until
                                                               and good investment                                the death of Graham. On his death the
                         benefits?                                                                                deferred CGT liability is then extinguished
                         EIS were introduced a number of years timing too
                                                                                                                  as no CGT is due. The £300,000 originally
                                                                                                                  invested plus growth on this sum will
                         ago to encourage investors to place           In conclusion Government tax policy has
                                                                                                                  be totally exempt from Inheritance Tax,
                         money into smaller businesses to help         made EIS more attractive. The “carry
                                                                                                                  passing in its entirety to his children as
                         them grow and expand into bigger              back” rule allows you to undertake         beneficiaries. This will in turn save at least
                         companies. The tax shelter incentives to      retrospective tax planning. We also        £120,000 otherwise payable in IHT had
                         investors are as follows:                     think that this is a relatively good       the original assets been retained in unit
                         •	 Income tax relief is available at          time to invest into EIS, given where       trust and OEIC holdings. We invested
                            20% on new EIS subscriptions               we are in the investment cycle. With       in EIS from Longbow, Future Films
                            for ordinary shares in qualifying          recovery likely over the next 5 years,     and Octopus. These EIS we profile
                                                                       any EIS investment made now will be        on the pages to follow.
                                                                       well positioned to benefit and investors
                                                                       get the hedge of the 20% tax relief        No one should invest into EIS without
                                                                       too. Put another way £16,000 invested      taking independent financial advice
                                                                       into a fund on which there is no up        and reading, in full, the Prospectuses
                                                                       front tax relief would have to grow        of relevant EIS share offers. These
                                                                       by 25% to reach a value of £20,000.        set out the risks of an investment
                                                                       With an EIS investment of £20,000          as well as the possible benefits. EIS
                                                                       you achieve this immediately, as after     can be high risk investments but
                                                                       the 20% tax rebate the real cost to the    some EIS on offer do seek to limit
                                                                       investor is only £16,000.                  risk for investors.

                                                                        To find out more about investing into EIS and issues we favour, call us, or
                                                                         visit our website or go to the enquiry form at the back of this Magazine.
                 Ambicare product - see page 8

                         7 financialsurgery
Longbow EIS Review
Q   What is Longbow’s expertise
    and experience in the EIS and
    related sectors?
                                                 launching products. Investors
                                                 should then expect to see cash
                                                 returns around the three year point.

A   Longbow Capital LLP is a leading
    player in the EIS sector, specialising
    in unquoted life science, well
                                                 We expect all of our companies to
                                                 exit through trade sale, rather than    Q   Please explain the link to Boots
                                                                                             Centre for Innovation?
    being and healthcare companies.
    Established in 2004, and owned
                                                 IPO and so look for products that
                                                 have a strategic fit with a number of   A   The Boots Centre for Innovation
                                                                                             was established in 2007 as a not for
    by its partners, Longbow currently           major acquisitive companies.                profit partnership between Alliance
    manages four EIS Funds and the                                                           Boots, Longbow Capital and The
    Longbow SIPP Venture Fund.
    Longbow has invested over £45m
                                             Q   Can you highlight the kind of
                                                 companies you invest into and
                                                                                             Institute of Life Science at Swansea
                                                                                             University. Its aim is to work closely
    across 12 unquoted life science              illustrate with examples setting            with early stage companies to
    companies to date. The Executive             out why these are made?
                                                                                             develop pioneering products that
    Partners have combined experience
    of investing in over 30 unquoted
    technology companies.
                                             A   Two examples of companies we
                                                 invest in are Sky Medical, and
                                                                                             will improve the quality of life for
                                                                                             consumers and can be available
                                                 Ambicare. Both companies have
                                                                                             on the shelves of more than 3,200
                                                 medical and retail applications:
Q   What is the concept behind
    Longbow’s EIS? Why are there
    two EIS offerings?
                                                 Sky Medical. This company has
                                                 developed a technology platform
                                                                                             Boots outlets and more than
                                                                                             135,000 independent pharmacies.
                                                                                             As a founding partner, Longbow
A   We have found we can best meet
    investors’ needs by running two
    EIS funds each year; an Approved
                                                 that dramatically improves blood
                                                 flow volumes and velocity in the
                                                                                             provides guidance and support for
                                                                                             many of these companies as well
                                                 lower body by stimulating the
    EIS fund which runs from January                                                         as gaining access to a wider range
                                                 popliteal nerve in the back of the
    through to the end of the tax year in                                                    of investment opportunities.
                                                 knee to simultaneously cause
    April, and our Arrowhead EIS fund

                                                 an isometric contraction of the             Can an investor place money
    which remains open throughout the
    year. The Approved fund tends to             calf, shin and foot muscles. This           into your EIS in the tax year
    attract those investors who wish to          action causes blood to flow back            2010/11 and be certain of being
    claim income tax relief; Arrowhead           towards the heart at a volume 50-           able to carry tax relief back to
    is aimed more at investors wishing           70% to that of walking, without             the tax year 2009/10?
    to claim IHT and CGT deferral relief,        noticeable muscle or leg twitching
    for which there is no EIS limit.             nor discomfort. Its first product, to
                                                 reduce the incidence of deep vein
                                                                                         A   Our Arrowhead EIS fund allows
                                                                                             investors to make an investment

Q   What will be the investment                                                              now, yet carry that tax relief back
    strategy?                                    thrombosis was recently launched            to 2009/10. They can carry back
                                                 and further applications are in
A   It is to invest into growth situations
    within the healthcare and life
    science sectors, with a particular
                                                 development, including a retail
                                                 product for improving circulation
                                                                                             up to a maximum of £500,000, the
                                                                                             EIS limit for income tax relief in any
                                                                                             one year. Once this annual limit is
    emphasis on products that can                and reducing so called travellers           exceeded, the investor will have
    be distributed through our link              thrombisis.                                 to set the income tax relief against
    to Alliance Boots. We focus on
                                                 Ambicare. This company has                  2010/11, until that too reaches the
    products that are close to market or
                                                 developed a portfolio of ambulatory         cap of £500,000
    have already been launched as this
    reduces risk while maintaining the           (wearable) devices for medical and
    opportunity for significant returns.
    We are targeting multiple returns
                                                 consumer healthcare applications
                                                 based on its own innovative             Q   How much are you looking to
                                                                                             raise into EIS in 2010/11 and do
    on initial investment over a 3 to            LED technologies. The first                 you expect you EIS to be open
    5 year period.                               medical product called Ambulight            right through to the end of the
                                                 PDT, which launched in 2009, is             tax year?

Q   What
    policy be?
              will    its     investment
                                                 a light-emitting sticking plaster
                                                 for the treatment of skin cancer.       A   Our Arrowhead EIS fund is always
                                                                                             open. The 2011 EIS Approved fund
A   Our policy is to balance the
    portfolio with companies of different
    maturities; so there will be exposure
                                                 Trials are currently ongoing for a
                                                 number of other applications in the
                                                                                             will remain open right to the end of
                                                                                             the 2010/11 tax year. We expect to
    to companies with established and            Over-the-Counter pharmacy and               raise between £10-15m in our EIS
    growing sales, as well as those              beauty markets.                             funds this year.

                         To find out more about investing into this EIS call us, visit our website
                                 or go to the enquiry form at the back of this Magazine.

                                                                                                                financialsurgery 8
                 Octopus EIS Review
Tax Mitigation

                          ctopus Ventures, a division
                          of Octopus Investments,
                          manages circa £250 million            True Knowledge has developed an Internet search engine website that answers
                 in VCT and EIS funds. Octopus is               questions. Finding information on the Internet currently involves a process of trial
                                                                and error, hoping that the search engine retrieves the information you’re looking for.
                 a leading player in the UK venture
                                                                True Knowledge has devised technology that resolves this fundamental problem
                 capital industry (recognised by a truly        by operating along a more intuitive system. It intelligently answers questions
                 extensive list of awards and honours)          asked on any topic in plain English. It can be used just like a conventional search
                 and is a generalist investor, preferring       engine, but users can also add knowledge directly to it. There are currently over
                 to back exceptional entrepreneurial            120 million facts in the database, which is being continually expanded. Readers
                 teams rather than specific sectors.            may wish to download the plug-in for Internet Explorer which sits behind a
                                                                Google search and only fires up when True Knowledge is able to answer a
                 Accordingly we lean towards placing            question from the search you entered.
                 clients into Octopus EIS where it is
                 understood that the holdings obtained
                 will fall within the higher risk end of an
                 EIS portfolio. The prospects for success       Zoopla is an award-winning online property information service and community
                 over time are very attractive.                 website, presenting information on house pricing, free valuation estimates, for
                                                                sale listings, and local community information. Zoopla has become the UK’s
                 Octopus looks for businesses which can         leading website for house prices and value data, as it provides the most
                 create, transform or dominate an industry      comprehensive source of residential property market information. It is also the
                 and is focused on the UK. Octopus has          UK’s most active property community, with over a million user contributions
                 over £110 million to invest in the next        to its website in 2008. It recently launched estate agent listings on a pay-for-
                 three years. The Octopus Ventures team         performance basis and expects to become one of the premier UK websites for
                                                                those interested in the property market. We would encourage you to view the
                 also manages the Octopus Venture
                                                                website at
                 Partner, which invests alongside early
                 stage investments. The combined skill
                 and experience of the team, together
                 with the Octopus Venture Partner,
                 offers a strong competitive advantage in       Calastone is the UK’s only independent transaction service for the mutual fund
                 the marketplace.                               industry. It enables buyers and sellers of mutual funds on different platforms
                                                                to communicate orders electronically by providing a universal message
                 The Ventures team works on the basis
                                                                communication and ‘translation’ service. This is being welcomed in an industry
                 of a three to five year investment cycle.      which has not previously been able to invest in the real-time exchange of
                 Throughout this cycle it monitors all          information between participants. Orders are commonly communicated by fax
                 opportunities to ensure the creation of        or telephone with a high level of manual re-keying and manual error correction.
                 investor value at exit. The individuals        Calastone’s ‘translation’ service means that neither the transmitter nor receiver
                 who monitor the companies are                  need purchase additional technology or change their existing systems.
                                                                Furthermore, there is no barrier or cost of entry.
                 usually expert in the particular industry
                 space or have very particular function
                 and skills to help the business grow
                 sales and profits.
                                                                Graze is the first UK Company to deliver healthy and nutritionally balanced
                 Here are examples of past investments          food by post straight to the home or office. The company was founded in April
                 made where an exit is expected to be           2007 and has over 15,000 existing customers who regularly place orders via its
                 taken shortly with a significant gain return   website. Graze’s snack boxes cost only £2.99 and are sent by Royal Mail for
                                                                next day delivery.
                 for investors.
                                           To find out more about investing into this EIS call us, visit our website
                                                   or go to the enquiry form at the back of this Magazine.

                 General Risk Warnings on EIS: No one should invest into an EIS without first reading the prospectus of the Offer being made.
                 The section headed “Risk Warnings” of each prospectus should be examined carefully. Other items to look for are – initial costs
                 of issue; annual management fees; annual running costs and are they capped; performance fees; declared exit strategy for
                 investors; the amounts of capital the Managers of the EIS are investing from their own money into the EIS. Above all, an EIS is
                 not a short-term investment. Early realisation is to be avoided unless there are sound reasons for encashing after at least 3 years
                 has elapsed. They are best viewed as an investment to be held over 5 years and longer.

                 9 financialsurgery
Future Films EIS Review
H                                            Q
      ere we continue our Review              Keith: What is the investment                                       Stephen Margolis
      of EIS we selected for the              strategy?                                                           CEO of Future
      client highlighted on page
7. One of the EIS used was that              AStephen: The investment strategy for
                                              each EIS company is simple - provide
                                              production services to at least 3 film
                                                                                                                  Films Group

from Future Films as we rated it
as being more lower risk within               projects over the anticipated 42
the general high risk EIS universe.           months period of the EIS. To protect
Keith Taylor puts questions to                the EIS from the risk of not receiving
Stephen Margolis, CEO of Future               back its capital or fee, we arrange
Films Group.                                  to take security over the producers’
                                              pre-defined income streams, which

Q   Keith: Can you please give us
    some background in terms of
    the size, scope and experience
                                              are only released on the completion
                                              of the film. These income streams          •	 Portfolio     approach      through
                                              can include: tax credits, pre sales,          investment in multiple projects.
    of Future Films Group?                    state subsidies and producer equity.       •	 Capital protected through pre-
A   Stephen:      The     Future    Films
    Group is a fully integrated film and
    television company, with financing,
                                              Security is taken in advance of the
                                              work being carried out. Future Films
                                              has proven experience in securing
                                                                                            determined income stream against
                                                                                            which the services are provided.
                                                                                         •	 This investment is based on
    production, post-production and           these income streams.                         providing production services

    distribution divisions. In addition,      Keith: In what way can the                    where returns are not dependent
    we have a digital content business.       investment policy be described                on the box office success of
    In total, the group employs more          as being low risk within a general            a project.
    than 80 staff over three locations in     high risk EIS universe?                    •	 The projects that the investment
    central London, and a further office
    in Los Angeles.                          AStephen: We believe that by
                                              taking security over the pre-defined
                                              revenue streams in advance of the
                                                                                            will support will all be carefully
                                                                                            selected,      using    pre-defined
    We have previously raised and                                                           selection criteria to minimise risk
    managed over £2 billion of funds for      production services being carried out         and ensure that the target returns
    film-related projects. The business       provides a “lower risk” approach to           are achieved.
    has managed institutional funds           investment in EIS. Every 18 months         •	 The revenues that will drive the
    on behalf of other VCT’s, providing       (approximately) each EIS company              “target” returns are already
    similar returns to the business model     goes back into cash before being              identified and agreed upon
    outlined here; and we currently have      re-invested – so it is a controlled           prior to the production services
                                              process. The fund received a very             being carried out.
    a commitment in principle from
                                              positive rating from independent
    the European Investment Bank                                                           Keith: Can an investor place
                                              commentator Martin Churchill’s “Tax
    to manage in excess of E25M                                                            money into your EIS in the tax
                                              Efficient Review”, a copy of which is
    on their behalf on a similar basis.                                                    year 2010/11 and be certain of
                                              available upon request.
    My team and I have produced,                                                           being able to carry tax relief
    directed and financed in excess of
                                             QKeith: Can you explain this more,
                                              isn’t investing in films normally a
                                                                                           back to the tax year 2009/10?

    30 films. Between 2005 and 2007                                                        Stephen: We have now received
    Future Films was rated second only        high risk venture?
                                                                                           HMRC pre approval for five
    to the BBC of the top production
    companies in the UK.
                                             AStephen: It can be if you don’t
                                              know what you are doing. However,
                                              the key to our offering is all about
                                                                                           companies. Each company has a
                                                                                           minimum subscription of £250,000
    For more information about us and         understanding the risks involved             - with a maximum of £2 million.
    our management team, please go            and managing them. When you are              Providing the minimum subscription
    to –              reliant on the projects’ commercial          is reached, we aim to issue shares
    and visit our “about us” page.            success for your investment return, it       with regular closings within the
                                                                                           current tax year. So we anticipate
Q   Keith: What is the opportunity
    available to an investor in a
    Future Films EIS?
                                              can be extremely difficult to predict.
                                              That is not the case here. This is
                                              why, I believe, institutions such as
                                                                                           raising £10 million through our EIS
                                                                                           offer in this tax year. The minimum
                                                                                           investment for our EIS is £20,000.
A   Stephen: Our EIS, called Future           the European Investment Bank are
    Production Services, provides a           interested in working with us.               We would be delighted to show

    “lower risk approach” to investment       Keith: What are the capital                  clients of DoctorsInvestDirect
    in the film industry. It provides         returns you expect to achieve                around our “state of the art” post
    “production services” being paid by       for investors and what are the               production facilities and this can
    pre-identified sources of revenue,        key features of this EIS ?                   be arranged upon request.

    so that the fund turns into cash          Stephen: Our base case generates         Our thanks to Stephen for his
    every 18 months as opposed to             a project return of 8% per annum         succinct summary above. To find
    taking creative risk (i.e. backing the    over a 42 month investment term.         out more about investing into this
    subject matter of the film itself) and    However we hope to improve on            EIS call us, visit our website or
    not knowing whether the investors         this return. So key features are:        go to the enquiry form at the back of
    will get their investment back.          •	 Target return of 8% per annum.         this Magazine.

                                                                                                            financialsurgery 10
                 6.75% annual
                 payments not
Tax Mitigation

                 liable to tax
                         arlier on in this Magazine we suggested investors             This shows how it is possible to create annual payments
                         should look to use CGT allowances. Here is more               of 6.75% that are tax-free (and thus worth the equivalent
                         on a way to do just that. The objective of the above          of 11.25% compared to income from a taxable source
                 Plan from Investec is to deliver an annual payment of                 for a 40% taxpayer) by use of the CGT annual allowance.
                 6.75% fixed for each year plus a potential additional                 Many should find this acceptable on the agreed premise
                 annual payment of 0.5% if the FTSE 100 is above the
                                                                                       that the commitment to invest for the 5-year term and its
                 initial level at the end of each income period. To achieve
                                                                                       risk is acceptable.
                 6.75%, from an income product a basic rate tax payer
                 would have to be paid the equivalent to 8.44% p.a. gross
                 and a higher rate tax payer 11.25% p.a. gross.                        The FTSE 100 Bonus Income Plan
                 The annual payments of 6.75% represent a return of capital
                 so, under current law and practice, are not subject to income         risks analysed
                 or capital gains tax. The additional payment linked to the FTSE
                 100 is subject to income tax.                                         The Plan aims to return your capital however if the FTSE
                                                                                       100 index falls by more than 50% during the term and then
                 The Plan invests in securities to deliver the potential for an
                 attractive annual payment, allied to the prospect of full capital     fails to recover to its start level, you could lose some or all of
                 return. This is the aim of the Plan, although if the FTSE 100         your money. Capital will be reduced by 1% for every 1% fall
                 index should fall more than 50% during the 5 year term and            in the index.
                 then fails to recover to its initial start level, your capital will   The Plan Manager is Investec Bank plc. If they go
                 be reduced by 1% for every 1% fall in the index at maturity.          bankrupt or similar, it is highly unlikely that you would
                 Investors have to consider how likely it is that the FTSE 100         be covered by the Financial Services Compensation
                 index might fall to below [2550] (50% of its level as at the date
                                                                                       Scheme, and you could lose some or all of your money.
                 of writing) during the next 5 years. Accordingly we classify this
                 Plan as being a medium risk investment.                               Investment Term is 5 years. Investment Start Date is on
                                                                                       7th September 2010 - maturity proceeds payable on 15

                 Direct investment tax free by using                                   September 2015.
                                                                                       The FTSE 100 Bonus Income Plan 9 is intended to be held for
                 Capital Gains Tax annual allowance                                    5 years. You might get back less than the amount invested if
                                                                                       you terminate it before the end of the term.
                 Under current tax rules, at maturity 33.75% of the sum invested
                 is potentially subject to Capital Gains Tax (CGT) for those who       Any gains at the plan maturity date may be subject to Capital
                 invest direct into the Plan. Those who invest via an ISA or ISA       Gains Tax (CGT). Currently there is a CGT annual allowance
                 transfer plans have no such CGT issue. However for direct             of £10,100 that means that an investor would only pay tax
                 investors even this liability to CGT may be avoided altogether        on total gains made above this amount. This means that if an
                 by investors using a portion of any CGT annual allowance              investor did not utilise any part of their CGT annual allowance
                 available at maturity against the taxable 33.75% portion.             on other investments in the tax year that the plan matures, he
                 Let’s assume that a husband and wife each placed £12,500 into         or she should be able to invest £29,925.92 into the Plan before
                 the Plan, and that this capital is returned at maturity. 33.75% of    any CGT liability would arise. The tax treatment of the Plan
                 £12,500 is £4,219, which represents each investor’s gain from         could change at any time. Please ask us for help if you are not
                 the investment. The premise is that provided they each have           sure about your tax position.
                 £4,219 of that year’s CGT allowance available to use to offset
                                                                                       The full risk factors are set out in the brochure.
                 the taxable portion there will be no CGT payable. If there is
                 no CGT allowance available (because they have used it up on           No investment should be made into this Plan without
                 other gains made in the year), the CGT charge will be 18% of          first reading the brochure in full and ideally then
                 £4,219. This tax rate is lower than the basic rate of income tax.     being advised as to its suitability on a personal basis. To
                 Note that if either husband or wife is a higher rate taxpayer,        obtain a brochure call us, return the enquiry form or visit
                 under current tax rules this gain will be taxed at 28%.               our website.

                  For more on investing in this Plan and to obtain a prospectus call us, return the enquiry form or visit our website.

                 11 financialsurgery
Tax Planning - very
much alive and kicking
Steve Bold is National Tax Partner at BTG Tax LLP a specialist tax advisory boutique with
offices in Manchester, Birmingham, London and Dungannon.

        ver the last 10 years the                              Although HMRC have adopted this                need to ensure that any transaction that
        UK tax planning industry                               aggressive     approach      of   greater      may be planned is commercial and that
        has enjoyed unparalleled                               significance, however, is that, unlike         any tax saving is an incidental to the main
success as a result of the increased                           countries such as the USA and                  aim that should be to make a profit.
amount of income and gains that UK                             Australia, they have still not persuaded       This business first/tax saving second
taxpayers have had to shelter and                              the government of the day to introduce         approach has been adopted by a
the    imagination      of  technical                          a General Anti Avoidance Regulation            number of tax planning boutiques and
specialists in thinking up new and                             - something that would have been               is, in the writers’ opinion, the only way to
improved ways of saving tax. Film                              the death knell for tax planning. The          approach tax planning.
sale and leaseback partnerships,                               Chancellor has however indicated that
research        and      development                           there will be a consultation process
partnerships, GAAP schemes and                                 started on this very subject.
good old fashioned technically                                 So it appears that we will continue to
based tax planning arrangements                                see HMRC take action to defeat new
have allowed the British taxpayer                              tax planning ideas coupled with the
opportunities to avoid or defer at                             emergence of what have been referred
least one of the Henry Ford’s two                              to as tax amnesties such as the Offshore
certainties in life taxes.                                     Disclosure Facility and the Liechtenstein
HMRC have responded by taking                                  Disclosure Facility. Both amnesties
affirmative action to reduce the tax loss                      are designed to encourage voluntary
arising from the ingenuity of the tax                          compliance in exchange for reduced
planners and it appears that the new                           penalties on the unpaid tax due on
coalition government, in common with its                       undeclared income or gains.                    There are a large number of statutory
Labour predecessors, have committed                            Readers will be aware of the HMRC              relief’s that are available to hedge
to continue this theme.                                        Health Plan that offered the medical           against any commercial failure and reliefs
Many of the arrangements, targeted                             profession the opportunity to come             such as capital allowances, research
by HMRC, will now be brought to the                            clean on any fees earned that may have         and development tax credits. Film tax
attention of HMRC under the Disclosure of                      not been taxed.                                credits still offer low risk unaggressive
Anti Avoidance Regulations. Each                                                                              opportunities to reduce profits and tax.
                                                               This is the first in what will be a
new measure further reduces the UK                             concerted effort by HMRC to close the          BTG Tax working alongside Keith Taylor
taxpayer’s ability to shelter his/her tax in                   tax compliance gap amongst particular          and colleagues at DID have access to
a legitimate manner.                                           business sectors.                              a number of tax planning ideas for you
HMRC have also adopted a strategy                                                                             that adopt a commercial approach
of commercial disruption to put                                So is tax planning a thing                     including       the    government      led
individuals     and    company’s      off                                                                     Enterprise Investment and Corporate
undertakening anything that could be                           of the past?                                   Venturing Schemes and Venture
regarded as aggressive tax planning.                           The short answer is no but what is clear       Capital Trusts together with a number
Indeed in a very few circumstances                             is that the days of tax planners producing     of bespoke planning ideas that may
they have introduced retrospective                             highly complex artificial schemes are          interest UK taxpayers. One such
legislation to close loopholes that they                       now over. HMRC are moving towards              business opportunity that may be
had already tried to close. In short                           a purposive approach to tackling tax           of particular interest to the dental
they have started emulating the Dutch                          avoidance. Purposive in the sense that if      profession involves the development
football team in the recent World Cup                          the sole or main benefit of a strategy is to   and marketing of a new type of material
Final and are playing dirty.                                   avoid or substantially reduce the amount       for fillings; there are also high risk tax
                                                               of tax due then HMRC may ignore the            hedged investment opportunities into
                                                               statutory outcome and deny any tax             pharmaceutical development.
                                                               saving that may be generated.                  To conclude, any reports you may
                                                               The result of this purposive approach          have read about tax planning being
                                                               is that tax planning will become more          dead are premature but good advice
                                                               expensive and tax planners will now            is much to be valued.

                                                                    To access such specialist tax planning expertise simply call us or
                                                                          go to the enquiry form at the back of this Magazine.
                     Image sourced from

                                                                                                                                     financialsurgery 12
Tax Mitigation

                 I                                                              Q
                    n our February edition of Financial Surgery we                  Kathleen: Who are the people involved and what
                    trailed the opportunity to invest into companies that           briefly are their backgrounds?

                    carry out drug research and development. We know                Soren: The senior management and research of team of
                 that there is an interest and appetite to embrace such             BBR is as follows:
                 opportunities by higher earning doctors and dentists.              Myself as Chief Executive Officer: Having a Business
                 So to further educate our readership as to the potential           Administration Degree with 10 years in sales and
                 opportunity we now set the scene in more depth.                    marketing. Experience includes that within international
                 Essentially there is the opportunity to invest for a good          Fast Moving Consumer Goods and, most importantly, 10
                 capital return upon successful drug trials with a lot              years with the Pharma industry including Beecham (now
                 of the normal risk mitigated as we will see below. At              SmithKlineBeecham) and F. Hoffmann-La Roche.
                 the same time if an investment is unsuccessful then                Chief Scientific Officer: Mr. Mikael Thomsen, MSc,
                 there is a useful income tax mitigation that can result.           Ph.D., has more than 15 years of experience with FDA,
                                                                                    Novartis and Novo Nordisk, and several European
                                                                                    Biotech’s. Of these he has co-founded Prosidion Ltd
                 Here Kathleen Frost puts                                           and Sound Biotech. In all these companies, he has
                                                                                    managed departments responsible for all the activities
                 questions to Soren Senderup,                                       that involve taking a compound from late Discovery to
                                                                                    Phase II/Proof of Concept in Man. Mikael is a strong
                 CEO of Bridge BioResearch PLC.                                     advocate for accelerated drug development.

                 Q   Kathleen: Who is Bridge BioResearch?                           Scientific Managers are: Ms Jenny Fredriksson,
                                                                                    Molecular Biologist, PhD from Lund University, Sweden
                                                                                    and Ms. Yoanna Choleva, Molecular biologist from the
                 A   Soren: Bridge BioResearch PLC (now referred to as
                     BBR) is a drug development company established in
                     2004. The company researches, identifies and acquires
                                                                                    Danish Technical University.
                                                                                    In addition the full Scientific Advisory Board is comprised
                                                                                    of internationally recognised opinion leaders within the
                     drug molecules for further development in the medical
                                                                                    metabolic disorders sector.
                     treatment of metabolic disorders with a particular focus
                     on obesity and Type 2 Diabetes. All this only happens
                     after BBR carries out extensive patent and scientific      Q   Kathleen: What is the investment concept?

                     due diligence.                                                 Soren: BBR’s niche is that of a drug development
                                                                                    company focussed on the development of drugs rather
                                                                                    than the manufacture and marketing of drugs. Once BBR
                                                                                    acquires a molecule it implements its highly structured
                                                                                    development process, to take the molecule through a
                                                                                    number of testing phases ending with phase 2a Proof
                                                                                    of Concept in Man. If the phase 2a Proof of Concept
                                                                                    yields positive results and mitigates the effects of type
                                                                                    2 diabetes, then BBR would immediately seek to sell all
                                                                                    the intellectual and commercial rights to the molecule to
                                                                                    a bigger Pharma company.
                                                                                    So the concept for investors is being able to take a stake
                                                                                    to help finance the above but only by entering at the
                                                                                    Phase 2a stage alone.
                                                                                    The BBR development process is fully scalable and
                                                                                    adheres to the strict UK drug regulatory guidelines. In
                                                                                    addition since BBR outsources its testing to certified
                                                                                    facilities and university laboratories it can negotiate not
                                                                                    only attractive commercial terms for drug testing, but also
                                                                                    select the most relevant testing facilities. This enables the
                                                                                    company´s staff to process a number of molecules at
                                                                                    different stages in parallel.

                 13 financialsurgery
Q   Kathleen:     How  much    money
    will have typically already been
    spent on developing the drug
    trial research?

A    Soren: Although each drug is naturally
     different BBR would expect each stage
     of the development process to require the
     following amounts of capital:
    •	 Discovery £500,000 to £1 million
    •	 Proof of concept £500,000 to £1 million
    •	 Pilot production £500,000 to £1 million
    •	 Optimization £1 million
                                                           • OSI Prosidion acquired all rights to a            Sale of ARAKIS to SoSeI.
                                                             glucokinase activator “PSN010” which              Arakis had 3 products in
    •	 Preclinical £1.5 million
                                                             was sold to Eli Lilly
    •	 Phase 1 £1.5 million                                                                                    development, the
                                                           •	 Similarly   Zealand     Pharmaceuticals
    The total amount invested per drug is            sold GLP-1 and GLP-            most valuable for COPD
    therefore between £5 and £7 million.                      2 projects, of where the GLP-1 project           with a partnership to
    However, this needs to be referenced                      (ZP-10) now is in Phase III with Sanofi-
    against the costs of failed projects since
                                                                                                               Novartis. Arakis
                                                              Aventis (
    at the discovery stage only circa 1 out                •	 Others include sale of “Arakis” to Sosei         was sold for GBP 106.5
    of 5,000 tested molecules will eventually                 ( for £105 million cash            Million in cash and shares
    reach the market, such is the level of                    and shares and sale of “Conforma” to             in the public Japanese
    failure in the initial development phases.                Biogen IDEC ( for
    However, once a molecule has reached                      $150 million cash plus future share of
                                                                                                               company Sosei.
    and passed the phase 1 stage and reaches                  revenue.
    the 2a stage, the average success rate
    increases to 40%.
                                                       Q   Kathleen: What is the likely time cycle
                                                           for it to become known whether the
                                                                                                               Sale of CONFORMA to
                                                                                                               BIOGEN IDEC. Product
Q   Kathleen: Why is the 2a drug trial                     drug trial is a success or failure?
                                                                                                               HSP 90 inhibitor for
    testing in humans a good point to be
    entering into such an investment?                  A   Soren: Naturally this is different for each
                                                           drug but as an average we expect the
                                                           testing cycle to be 12 months or less.
                                                                                                               cancer in phase II.

A   Soren: There are a number of factors that
    make investment at phase 2a attractive.
                                                                                                               Another cancer product

    The first is the relatively short testing period
    which is typically less than 12 months
                                                       Q   Kathleen: What is the consequence
                                                           for the investor is the drug trial should
                                                           fail? Does this mean a tax relief can be
                                                                                                               in development. Biogen
                                                                                                               Acquired Conforma for
    from project initiation until conclusion. The                                                              USD 150 Million in cash
                                                           claimed by an investor under current
    second is the significant risk reduction               HMRC practice?                                      and up to USD 100 Million
    generated by the development process
    which reduces the average failure rate to
    60% and increases the average success
                                                       A   Soren: If the results of the testing of
                                                           the drug molecule at phase 2a are
                                                           negative then the expected value of
                                                                                                               upon the achievement
                                                                                                               of future milestones.In
    rate to 40%. The third is that the stage                                                                   connection with the deal
                                                           the company will be what is termed of
    2a investor has avoided the costs of the               negligible value. Once the directors have           another product – without
    earlier testing.                                       sought independent accountancy advice,              interest for Biogen –
                                                           shareholders are expected to be able
                                                                                                               was spun out in new
Q   Kathleen: What will happen if the drug
    has a successful 2a testing?
                                                           to offset any loss against either capital
                                                           gains made elsewhere, or depending on               company - Cabrellis. The

A   Soren: If the phase 2a testing yields
    positive results then BBR will seek to sell
                                                           personal individual circumstances, against
                                                           income tax on earnings. The rate of tax will
                                                           depend on when the gains are made and
                                                                                                               new company Cabrellis
                                                                                                               Pharmaceuticals Corp. was
    on all rights to the molecule to a medium/
                                                           income received but post the Emergency              acquired by Pharmion.
    large Pharma company. It is the latter who
    will fund the further development of the               Budget Capital Gains Tax is now levied at
    molecule. Typically the sale would involve             up to 28% and of course income tax as
    the negotiation of a capital sum comprised             high as 50%.                                    For more information and
    of the assessed current value of the drug                                                                 individual guidance
    plus a share of the future income potential
    of the fully developed drug. Representative
                                                       Q   Kathleen: For how long will this
                                                           opportunity to invest in drug
                                                           trials be available through Bridge
                                                                                                               call us or go to the
                                                                                                           enquiry form at the back
    deals for sales of rights to molecules at              Bioresearch?                                         of this Magazine.
    similar stage and for comparable diseases
    can exceed £100 million.                           A   Soren: BBR expect to offer at least two
                                                           new investment opportunities this year.
                                                           Depending on demand and investor take
Q   Kathleen: Can you tell us of examples
    of biotech companies being purchased
                                                           up there should be a reasonable offer
                                                           investment window available for potential
                                                                                                             This investment is not
                                                                                                              regulated. Investors
    following such trials?
                                                           investors to examine the Offer Document
                                                                                                           do not have the protection
A   Soren: The following are examples
    of development molecules and drugs
                                                           and decide if it is for them. We believe
                                                           doctors and dentists who are more familiar
                                                                                                             of the FSCS if the fund
                                                                                                                   should fail.
    that have been sold to larger Pharma                   with all the above will find the investment
    companies.                                             opportunity to be attractive.

                                                                                                               financialsurgery 14
                      Property Stamp
                      Duty Mitigation
Tax Mitigation

                 Our provider
                                                   re you aware that if buying a                    Stamp Duty Land Tax (SDLT) is currently
                                                   property, either residential or                  paid at the rate of 3% for UK taxpayers
                 can offer UK                      commercial that you can reduce                   purchasing land or property in the UK for a
                 residential and            the Stamp Duty Land Tax payable by                      consideration of more than £250,000, and
                                            about 50%?                                              4% for those purchasing in the UK for a
                 commercial                                                                         consideration of £500,000+.
                                            Historically, Stamp Duty Tax Planning has
                 purchasers the             been the preserve of a small clique of highly           Our provider can offer UK residential and
                                            specialised firms and the wealthy few who they
                 opportunity to                                                                     commercial purchasers the opportunity to
                                            advised. However, in the last few years more
                                                                                                    effectively reduce their SDLT costs to 1.5% +
                 effectively reduce         and more tax consultants have been working
                                                                                                    VAT and 2% +VAT respectively.
                                            closely with some of the country’s leading
                 their SDLT costs
                                            Barristers and Queen’s Counsel to design a              Although the planning works slightly differently,
                 to 1.5% + VAT              range of stamp duty tax planning products               the provider can offer substantial tax savings
                                            aimed at a wider marketplace. Of course, the            to clients who are single, a couple, married,
                 and 2% +VAT
                                            nature of the products themselves means that            or a limited company seeking to buy either
                 respectively               they are still not advertised in the traditional        residential or commercial property whether
                                            sense, but rather tend to be communicated               leasehold or freehold.
                                            directly to clients via specialist financial advisers
                                            like ourselves.
                                                                                                    Key Points
                                            Like any form of specialised tax planning, in
                                                                                                    •	 No fee is payable if the sale does not
                                            order to be effective it must be based on the
                                            very best advice. The provider with whom
                                            we work consult with some of the leading tax            •	 There are no up-front fees. All fees are
                                            counsel in the UK on a regular basis, and have             paid on successful completion of the case
                                            the benefit of their positive opinions backing             and certification received from Stamp
                                            each and every form of SDLT planning that                  Office at HMRC.
                                            they operate. The benefit of retaining counsel
                                            in this way is that any changes in the legislation,     •	 If you have already instructed a solicitor
                                            no matter how innocuous, are considered in                 they can still be used once they have

                       ble                  the wider context of the planning arrangement              signed    a   non      disclosure   agreement.
                  Possi s                   as and when they occur, and amendments                     Alternatively our provider has a large panel
                   savin                    can be made as necessary. In this way the                  of independent firms of solicitors who can
                                                                                                       offer competitively priced conveyancing
                                            planning is kept properly robust and up to date
                                            at all times, minimizing the risk to the client            services, in addition to administering the
                                            being a top priority.                                      tax planning itself.

                      15 financialsurgery
•	 Available on property purchases from            If this occurs, it will be on a technical point,    ...planning is kept
   £250,000 upwards. Our provider has              and our provider will deal with the enquiry
   specialist tax plans available for Couples,     on your behalf in liaison with your solicitor.      properly robust and
   Married Couples, Single Name and                In the extremely unlikely event that HMRC
   Company purchases of Residential                successfully challenged the planning and            up to date at all times,
   and Commercial property, plus the               required full payment of SDLT, our provider         minimising the risk to
   ability to produce bespoke plans for            would automatically refund client fees in full as
   complex cases.                                  set out in the first page of the LOI.               the client...
•	 No active involvement is required from the      So if you are interested in learning more
   vendor, and the planning will not add any       about SDLT savings, please call us, or                This arrangement is not
   significant time to the purchase process.       go to the enquiry form at the back of                  regulated. Participants
                                                   this Magazine and make your interest                 do not have the protection
•	 Where Tax Counsel has advised,                                                                            of the FSCS if the
                                                   known. Either way help and guidance
   HMRC have been notified of such tax                                                                   arrangement should fail.
                                                   will follow.
   planning and our provider has a notification
   reference number.
•	 The client(s) categorically and completely
   own the property on completion.
•	 Making use of such planning does not
   create any deterioration in the Mortgage
   Lenders’ position.
•	 Note the scheme cannot be used
   retrospectively and cannot be implemented
   if exchange has already occurred.

Process of introduction
•	 Upon your enquiry, we will arrange to
   forward a Letter of Instruction (LOI) for you
   to complete and return along with a non
   disclosure agreement (NDA). The latter
   only if you have chosen to use your own
   conveyancing solicitor.
•	 Once the appropriate forms are received
   signed and completed, they will be returned
   to our provider for processing. They will
   then contact you directly to progress
   the case.

The planning itself is legitimate both in theory
and practice. Our provider has made disclosure
wherever necessary to HMRC in keeping with
their obligations under DOTAS (Disclosure Of
Tax Avoidance Schemes) but HMRC may still
elect to investigate any case within the 9 month
enquiry window following completion.

Examples of potential savings under the planning
Dr Jones is purchasing a residential property for £750,000.00. Dr Jones’ SDLT requirement on this at 4% would be £30,000.
With help from our provider, Dr Jones’ actual costs are reduced to the fees only, being £15,000 + VAT (£17,625), making
Mr Jones a net saving of £12,375.

Dr Smith is purchasing a residential property for £350,000. Dr Smith’s SDLT requirement on this at 3% would be £10,500.
With help from our provider, his actual costs are reduced to the fees only, being £5,250 + VAT (£6,168.75), making Dr Smith
a net saving of £4,331.25.

                                                                                                         financialsurgery 16
                 VCT Tax Axe
Tax Mitigation

                       enture Capital Trusts (VCTs) are also very                    Generalist VCTs spread investments between AIM listed
                       attractive Tax Axes. They cut taxes in no less than           companies and unlisted companies. These VCTs look to profit
                       four ways. Upon investment into VCTs an investor              when the companies in which they invest are either floated
                 can cut back income tax bills and go on to generate tax             or sold.
                 free dividends. Upon exit from VCTs, gains are exempt               Specialist VCTs invest mainly in sectors with a more defined
                 from income tax and CGT.                                            investment focus than the Generalists, such as unquoted
                 VCT tax shelters are investment funds designed to provide           environmental companies. As such they can have a higher
                 growth finance to small companies. They are generally               risk profile than AIM and Generalist VCTs, but likewise do offer
                 suitable for investors who are willing to hold some of their        potentially greater returns. That said some Specialist VCTs are
                 investments in higher risk vehicles. They combine the               available that look to lower risk within the VCT universe.
                 potential for attractive returns with generous tax reliefs.         On the page opposite we review a VCT that was recently
                 Some VCTs seek to limit risk such as that from Investec             available from Investec during a limited time window in March
                 reviewed opposite.                                                  this year but due to investor demand is being re-opened in
                 The UK Government first introduced VCTs in 1995 to                  September.
                 encourage individuals to invest in smaller UK companies. The
                 Government seeks to achieve this by offering investors in VCTs
                 a series of attractive tax benefits with over £3bn being raised     VCT Case Studies
                 since their inception. With income tax now having climbed up        Dr Brown an Orthodontist invested £200,000 into a
                 to a top rate of 50p, and CGT at 18% or up to a top rate of
                                                                                     number of VCTs in 2009/10. His investment was spread
                 28%, VCTs are very worthwhile considering now.
                                                                                     across 5 different VCTs to diversify risk.
                 •	 VCTs give up to 30% income tax relief on the initial
                                                                                     He had not hitherto appreciated the tax shelter benefits
                    investment, provided that the shares are held for a
                                                                                     of VCTs and had largely built up investments into
                    minimum of 5 years. So for example £10,000 invested
                                                                                     property and some ISA holdings. He was reluctant
                    means £3,000 back as an income tax rebate.
                                                                                     to commit more to the property sector last year so
                 •	 Dividends from VCTs are tax-free.                                the idea of winning a £60,000 income tax rebate for
                 •	 There is no capital gains tax or income tax to pay on            2009/10 through VCTs was of great appeal. He and his
                    sale of VCT shares by the investor.                              wife subsequently placed £20,400 into ISAs and the
                 •	 There is no tax on capital gains payable by the VCT              remaining £39,600 has been put into yet more VCTs for
                    when it disposes of an investment and the VCT may                the 2010/11 year creating a further income tax rebate
                    then pass the proceeds to investors as part of a tax-free        of £11,880.
                    dividend.                                                        Using HMRC tax rebates to invest into yet more tax
                 •	 The initial income tax relief on investment in a VCT             shelters to create further tax cutting structures is a
                    can be returned to you through an adjustment to                  winning strategy. In this case from the original £200,000
                    your tax code or by a cheque from HMRC if you                    the total income tax rebate is ultimately £71,880. It is an
                    are employed; if you are self employed the relief is             example of sophisticated Tax Axe planning.
                    obtained by offsetting against income tax due from
                                                                                     VCTs are generally classified as high-risk investments.
                                                                                     Past performance is no guide to future performance.
                 All VCTs are listed on the main market of the London Stock          Prices, values or income may fall and you may get
                 Exchange. A VCT will typically raise between £10 million            back less than you invested. There may be a restricted
                 and £25 million from thousands of individual investors.             market for VCT shares and it may be difficult to deal in
                 The minimum investment is usually around £3,000 and the             them or obtain reliable information on their value. The
                 maximum investment that will qualify for tax relief in a single     levels and bases of relief from taxation may change.
                 tax year is £200,000. The VCT will typically invest the money       The tax reliefs referred to above are those available
                 raised in a diversified portfolio of between 20-40 companies.       under the current legislation and may be clawed back
                 Ensuring that VCT fund managers have sufficient expertise,          in full where you initially invest in a VCT with provisional
                 deal flow and operational/risk management systems are of            approval and the VCT does not subsequently obtain
                 critical importance. This is why we favour established VCT          full approval status. Any investment is subject to the
                 providers with a track record and proven experience in their        terms and conditions contained in the VCT prospectus.
                 field. We also welcome innovation in offerings that help to limit   Investors should read the prospectus and in particular
                 risk for investors.                                                 take note of the risk warnings set out within it.

                 17 financialsurgery
Investec Calculas VCT
      his VCT, first available from           limited to 15% of the assets of the           Royal Albert Hall. Calculus capital
      Investec in March 2010,                 VCT at the time of investment.                invested £400,000 in Quintus in
      secured good support in a
                                             QWho are the approved Issuers                  May 2006 and sold its investment in
very limited time frame because it            for the Structured Products                   Quintus for cash to IMG (the world’s
offered a way to both access proven           Portfolio?                                    leading sports marketing business)
investment discipline in venture
                                             A•	Barclays • Lloyds TSB Bank plc •            within 1 year achieving an Internal
capital together with investment              BBVA • Morgan Stanley • Citigroup             Rate of Return of 46%.
in structured products, so as to
potentially enhance and protect
investments against stock market
                                              • Nomura • HSBC Bank plc • RBS
                                              • Investec Structured Products            Q   What is the Targeted Interim
fluctuations. The VCT is to be
reopened to investors in September
                                              • Santander Global Banking and
                                              Markets (Abbey National Treasury
                                              Services plc)
                                                                                        A   It is intended that Shareholders will
                                                                                            receive an Interim return of 70p
                                                                                            per share (made up of 26.25p in
2010 with the same structure. Here
are some questions answered about
the offer as it is different in concept
                                             QWho manages the Venture
                                              Capital Investments Portfolio?
                                                                                            dividends and 43.75p as a special
                                                                                            dividend or a cash tender offer) on
to many other VCTs.
                                             AThe specialist manager, Calculus
                                              Capital, is responsible for managing
                                                                                            or before 14 December 2015. This,
                                                                                            however, is not guaranteed and is

Q   What is the Investment
                                              the venture capital investments.
                                              Calculus Capital was established
                                                                                            subject to the performance of the
                                                                                            investments made by both managers.

A   The strategy involved investing a
    minimum of 75% of the monies
    raised by the VCT in a portfolio of
                                              in 1999. The core investment
                                              team has been making tax efficient
                                              investments in unquoted companies
                                                                                            After that date all Structured
                                                                                            Products will have matured and the
                                                                                            remaining portfolio will be invested
    structured products within 60 days.       since 1997. In 2000, Calculus Capital         in Venture Capital Investments and
    Over time there will be a phased          launched the first EIS fund approved          managed by Calculus with a view to
    reduction in this structured products     by the HMRC. Prior to the launch of           maximising long term tax free returns
    portfolio and a corresponding             the Investec Structured Products              for investors.
    build up in the portfolio of venture      Calculus VCT Calculus Capital had         Associated Risks
    capital (or qualifying) investments       structured, launched and closed for       In addition to the generic risks with VCTs
    to achieve and maintain the 70%           subscription eight EIS funds and          already mentioned there are additional
    minimum threshold of venture capital      two VCT issues, their latest EIS fund     risks associated with the Structured
    investment at or before the end of        had received the top rating by Tax        Products part of this VCT. There is no
    year 3 required for VCT qualification.    Efficient Review in 2009.                 guarantee that any Structured Product
    The overall combined portfolios           The Qualifying Investments Manager        in which the Company invests will meet
    have been designed to achieve an          investment objective is to invest in:     its objective and the amount invested
    objective of an expected annual          •	 More established businesses with        could be lost in full.
    dividend of 5.25p per Share for the         long-term positive trends and           The above VCT may have appealed
    first 5 years and an expected return        where there is a higher degree of       to VCT investors looking for ways
    of 43.75p per Share after 5.5 years         predictability.
                                                                                        to invest in a tax efficient structure
    by way of either a special dividend      •	 Successful       and      motivated
                                                                                        that utilises structured products to
    or a cash tender offer for Shares. In       management teams capable of
                                                                                        help mitigate downside risk. In our
    addition, investors will also retain a      delivering returns to shareholders.
                                                                                        February 2010 Financial Surgery we
    portfolio of qualifying investments      •	 Companies        with     significant
                                                                                        reviewed a number of other VCTs
    beyond this point.                          recurring revenues, adequate cash
                                                                                        and will do so again in our January
                                                flow from operations to service
Q   Tell us more about the Structured
    Products Portfolio?                         their operating requirements and
                                                strong balance sheets.
                                                                                        2011 edition.
                                                                                        To find out more about the VCTs that
A   The structured products portfolio
    is managed by Investec Structured
    Products, recognised as a leading
                                             •	 Companies with a defensible
                                                market position.
                                                                                        are available or to be guided on their
                                                                                        risks and benefits call us or return
                                             •	 Companies which can benefit not         the enquiry form at the back of this
    provider of structured products in the
                                                only from the capital provided by       Magazine.
    UK market. They were awarded the
    Best Structured Products Provider           Calculus Capital but also from          This document is not a Prospectus
    2009 and 2010 by Professional               the many years of operating and         and investors should not subscribe
    Adviser and Best Structured                 financial experience of the Calculus    except on the basis of information
    Products Provider 2009 by the               team.                                   in the Prospectus for the Investec
    Financial Times. The portfolio offers    •	 Companies capable of meeting a          Structured Products Calculus VCT.
    simple defined returns and a pre-           target Internal Rate of Return of       This will be available from Investec
    determined selection of risk profiles       15% a year.                             Structured Products, 2 Gresham
    and      diversified   counterparties.
    Investments have been diversified
    across approved and named
                                             Please give an example of past
                                              Qualifying Investments made by
                                                                                        Street, London, EC2V 7QP.Investec
                                                                                        Structured Products is a trading
                                                                                        name of Investec Bank plc which
    structured product issuers and
    range from 6 months to 5.5 years
    in term. The maximum exposure to
                                             AQuintus Holdings is a sports media
                                              company which runs events including
                                              the BlackRock Masters Tennis, the
                                                                                        is authorised and regulated by
                                                                                        the Financial Services Authority.
                                                                                        Registered address: 2 Gresham
    any one structured product issuer is      climax of which takes place at the        Street, London, EC2V 7QP

                                                                                                              financialsurgery 18
                 Creative IHT Mitigation
                                                                                                           Issues of ownership
Tax Mitigation

                                                                                                           and control
                                                                                                           •	 Many do not wish to use gift or trust
                                                                                                              based solutions because they are
                                                                                                              ultimately reluctant to give up control
                                                                                                              of their assets.
                                                                                                           •	 Others take no action because of
                                                                                                              uncertainty over their life expectancy.
                                                                                                              In short solutions that require making
                                                                                                              gifts and then having to be certain
                                                                                                              to live at least 7 more years are not
                                                                                                              certain for those of senior years.
                                                                                                           •	 A need to retain ownership of capital
                                                                                                              in case it might be needed provide
                                                                                                              for long term care later in life can be
                                                                                                              another barrier to action.
                                                                                                           •	 Others can have low confidence in
                                                                                                              potential beneficiaries (perhaps they
                                                                                                              are fearful a divorce could occur
                                                                                                              or that the money gifted will be
                                                                                                              frittered away).
                                                                                                           For all those worried about the above
                                                                                                           objections investing into assets with
                                                                                                           BPR is a complete answer as the
                                                                                                           investor always retains both control
                                                                                                           and ownership of their assets.

                           e know that many of our           In our Tax Shelter Guide we have              Yet IHT exemption kicks in after just
                           readers were looking for          included an article “10 Steps to IHT          2 years.
                           some easing in the area           Mitigation”. For a copy call us, go to our    But there can be other objections to
                 of Inheritance Tax following the            website, or turn to the enquiry form at       putting in place IHT mitigation strategies.
                 General Election. Pre-Election it had       the back of this Magazine. Within these       This may be grouped under the heading
                 been set out that a Conservative            10 Steps we briefly suggest exploring as      of health Issues.
                 Government would look to increase           Step 8 the existence of what is known
                 the IHT Nil Rate Band to £1 million         as Business Property Relief. In these
                 an individual, meaning £2 million for       two pages we amplify through a series         Health
                 a married couple.                           of case studies just how effective using      Often people who have substantial
                 We now know that any such ideas             solutions involving such relief can be.       estates can really panic about IHT
                 have been put well and truly on the                                                       right at the point when they enter into
                                                             This area of mitigation relates to
                 backburner with absolutely no possibility                                                 residential care. Equally there are those
                                                             investing into certain kinds of assets that
                 of this coming forward in the lifetime of                                                 who seek to obtain what are known as
                                                             give investors the benefit of Business        discounted gift plans or life assurance
                 our coalition government. It has gone by
                                                             Property Relief (BPR). Crucially this         in trust but cannot get medically
                 the wayside as the price of compromise
                                                             strategy means the assets are then            underwritten for such vehicles. Equally
                 with the LibDems to form a workable
                                                             exempt from IHT once held for 2 years,        there are some with less than seven
                 set of policies. Only if Conservatives
                 win power on their own account in say       but the investor does not give away or        years life expectancy who think they
                 5 years time or later may IHT be eased      lose ownership of the capital or any          have simply left it too late to put in place
                 and only then if the absolute focus on      income it generates.                          IHT planning.
                 reducing Public Debt has been largely       Let us look first at common objections        This group should take heart from
                 accomplished.                               that arise with forms of IHT mitigation       the fact that BPR based solutions
                 So our advice to readers is not to live     that frequently cause indecision              are not restricted in access by dint
                 in hope of more benign changes and          or failure to put proactive steps in          of age – there is no age limit - and
                 instead plan to deal with mitigating IHT    place to halt or reduce IHT as the tax of     there is no medical underwriting of
                 as it currently exists.                     a last resort.                                any kind.
                 19 financialsurgery
Powers of Attorney                            Case study example – sale of dental practice
Other situations arise where Attorneys
become responsible for the financial          A practice owner of senior years sells his dental practice and building for £825,000.
affairs of a relative - a mother, father,     He is advised that the chargeable gain will lead to a capital gains tax liability of
sister or brother - often because             £75,000. He wishes to use all reliefs allowed by HMRC to sidestep paying this tax
they have lost capacity to look after         and also wants to look at any step that will help to mitigate future Inheritance Tax.
themselves. This happens under a              The practitioner invests the chargeable gain portion of the £825,000 proceeds
Power of Attorney (POA). It is not            into a portfolio of EIS. This is an amount of £426,000, invested in two portions so
unusual for the Attorneys to become
                                              that £200,000 is carried back and treated as if paid in 2009/10 with the balance
responsible for a large estate but find
                                              regarded as invested in 2010/11. The dentist achieves income tax rebates of
there is no IHT mitigation in place. Such
                                              £85,200 in total. The £75,000 CGT liability is no longer a tax bill that has to be paid
a POA does not allow the Attorney to
                                              in January 2011, and is deferred indefinitely. The EIS qualify as BPR assets and
use gift or trust based IHT planning
                                              are held until death of our practitioner. On his death the deferred CGT liability is
solutions as a Court of Protection
that oversees POAs will deem that it          then extinguished as no CGT is due. The £426,000 originally invested has grown
cannot be in the client’s best interests      in value to £600,000 and is totally exempt from Inheritance Tax, given BPR status,
to relinquish control of assets, even if      passing in its entirety to his children as beneficiaries.
these are ample.
                                              They can make use of BPR. Mr Wood            By use of this strategy the original
However Attorneys can act to
                                              invests £100,000 into the Octopus            40% IHT saving made on death of
minimise IHT without breaching
                                              ITS. This is a portfolio of BPR qualifying   Mr Wood is effectively doubled on
Court of Protection guidelines.
                                                                                           death of Mrs Wood. Put another
As we have said above with BPR                assets. Sadly he dies three years later
                                                                                           way £80,000 of IHT is secured by
assets the investor maintains full            and the investment with Octopus then
                                                                                           creative and perfectly legal use
control of both the capital and               passes into Trust. Mrs Wood applies to       of the BPR assets. The flowchart
growth throughout their lifetime and
                                              the Trust for a loan of £100,000, which      amplifies the principle.
BPR based solutions are also IHT
                                              is granted by the trustees, so creating      To get a good grounding on possible
efficient after two years. So the CoP
is not concerned and such assets              an IOU on her estate. Mrs Wood then          steps open to take to mitigate IHT
can be used in POA cases.                     dies four years later having used the        we strongly recommend considering
                                              monies to meet her living costs and          the above along with our published

Business Sales                                enjoying world travel.                       10 Steps to IHT Mitigation.
                                                                                           The case studies and comments
Another problem area arises when a            The      £100,000         Octopus     ITS
business is sold say upon retirement.                                                      made do not constitute individual
                                              investment is 100% exempt from
Let us assume this is a dental practice.                                                   financial advice to readers. Face to
                                              IHT. The IOU to the Trust on Mrs
If worth £1 million prior to retirement the                                                face expert guidance is essential.
                                              Wood’s estate is repayable and               To obtain such help call us, visit our
asset automatically qualifies for BPR
and does not sit inside the dentist’s         removes a further £100,000 from her          website or go to the enquiry at the
estate for IHT purposes. However on           taxable estate, saving 40% IHT.              back of this Magazine.
sale the monies come into the estate of
the practitioner and it is liable to IHT at
40% when he or she dies.
                                              Additional savings for married couples
By placing the proceeds into a BPR
asset within 3 years of sale there is no       Client                          Trust                          Spouse
IHT liability. (See the case study that                                                                       •		 Trust provides
                                               •		 Investment into             •		 Investment
gives an even more sophisticated                                                                                  surviving spouse
                                                    Business Property             passes into
example of tax mitigation on the
                                                    Relief Solution               Discretionary                   with access and
same business sale theme)
                                                                                  Trust on first                  potential Business
                                                                                  death                           Property Relief
More sophisticated uses                                                                                           exemption
Now let us turn to how investing in
assets that qualify for BPR can be used
in a sophisticated way to gear up on their
IHT exemption. Let us take the case of
Mr and Mrs Wood. He is 80 and she is
78. They have been married for many           40% IHT Saving on BPR qualifying asset PLUS 40% IHT saving on ‘IOU’
years and they are keen to maximise the       to the trust
amount they can leave to their children.

                                                                                                                  financialsurgery 20
                 Want to save on tax?
Tax Mitigation

                 Ask for our tax shelter guide

                 To obtain your FREE copy call us on 020 7847 4038,
                 or return the enquiry form or go to our website
                 23 financialsurgery
Dynamic Portfolios

                                                                                                                                                              Investment Analysis
  sn’t risk something to be avoided?             risk for different categories of investor.              They are responsible for the day to day
  In the investment world, risk is               They attempt to follow a basic principle                asset mix, ensuring it stays in line with the
  inseparable from return and it’s               – managing the allocation of money                      stated risk objectives for each portfolio.
something that needs to be both                  between different asset types to match                  This is achieved by both getting the
embraced and understood to enable                the investor’s specific risk profile.                   longer term asset mix right and then
you to manage it to your benefit.                                                                        making shorter term tactical asset
                                                 Prudential’s Dynamic Portfolios have
Investment risk can be defined as                been developed to do just that. There                   allocation decisions to take advantage
“deviation from an expected outcome”,            are five funds with each “fund of funds”                of current market conditions. This
this being either positive or negative.          investing in a range of independently                   approach seeks to manage risk and also
Alongside this definition, investors are                                                                 secure investment growth.
                                                 managed investment funds. Each fund
usually familiar with the idea of a sliding                                                              OBSR make sure that the selection of
                                                 has a different risk profile, from Defensive
scale of risk with low risk investments,                                                                 underlying funds meets the asset mix
                                                 to Adventurous, and each has a different
such as cash at one extreme and single
                                                 mix of assets to target different goals                 set by PMG and they also ensure that
shareholdings at the other. To achieve
                                                 and needs. See the table below. They                    there are no contradictory investment
higher returns in the long term, investor’s
                                                 are actively managed to ensure that the                 styles or holdings contained within the
need to accept more short term risk
                                                 level of risk does not fluctuate wildly and             underlying funds.
(volatility). How much risk they can take
                                                 that an investor continues to get ‘what                 OBSR are an independent research
is down to their individual risk tolerance.
                                                 they signed up for’ through the range of                consultancy that specialises in providing
This is one of the key issues. With cash         market conditions.                                      investment research to some of the
deposits continuing to offer poor returns,
                                                 Active management is key and involves                   largest financial services firms in the UK.
in real terms (after the impact of inflation),
                                                 the dual skills of Prudential’s Portfolio               They are the only investment research
investors are increasingly having to
                                                 Management Group (PMG) and the                          business in the UK that focuses on
look further up the risk ladder to find
investments that can hopefully deliver           independent expertise of Old Broad                      forward-looking qualitative research with
the levels of return that they want.             Street Research (OBSR).                                 supportive quantitative information.
Of course it is not as simple as trusting        The funds are continually monitored to                  So, to conclude it is our view that
all your cash to a single investment.            ensure that they meet their objectives.                 if you want an investment which
Putting all your eggs in one basket is           Importantly,    any     investment      will            aims to allow you to have higher
never a good idea! It is better to spread        automatically be adjusted to reflect any                confidence and comfort by dint of
an investment between several different          changes made to the underlying funds                    its active risk management, then
assets such as equities, property, bonds         within the portfolio. No action is required             risk profile orientated funds such as
and cash in order to reduce risk (the            by the investor at any time.                            Prudential’s Dynamic Portfolio range
principle of diversification).                   PMG are the in-house investment                         are well worth consideration. They
This can be achieved through a multi             strategists for Prudential in the UK. They              have the potential to be an excellent
asset fund but getting this mix right could      manage £125bn (December 2009).                          core holding.
be regarded as the most important factor             The value of your investment can go down as well as up and you may
in achieving your goals. Research has                not get back the amount originally invested. Past performance is not
shown that asset allocation accounts for                           necessarily a guide to future performance.
a substantial proportion of a multi-asset
portfolio’s total return.
This is not, however, a one off decision
                                                 Dynamic Portfolios by Asset Type
taken at outset. Doing so could mean                 Adventurous
unexpected or extreme fluctuations not
being actively responded to. Fixed asset                Balanced
allocation models can struggle to cope
in turbulent times, leaving the investor         Cautious Growth
with an unsuitable portfolio which may
not meet their objectives.                              Cautious

A more evolved solution, one that has
risk management at its heart, may be
more suitable.                                                     0%     10%       20%      30%   40%      50%      60%      70%       80%   90%      100%
Funds driven by a risk profile are               n Cash n FRN n UK Govt Bonds n Int’l Govt Bonds n IG Corporate Bonds n HY Corpoate Bonds n Property
actively managed, multi-asset portfolios         n UK Equity n Eur Equity n US Equity n Japan Equity n Asian Equity n Emerging Equity
designed to maintain a suitable level of         Source and date – PMG, as at 30 June 2010

                  For more on the above call us or go to the enquiry form at the back of this Magazine.

                                                                                                                                    financialsurgery 22
                                           M&G Global Basics Fund –
                                           a fund for the evolving world
Investment Analysis

                                                      e hold the firm view that clients should now be                                                      that occur. Graham invests in well-known, well-managed
                                                      adding more weight in their investment portfolios                                                    western companies who understand the demand from
                                                      to recognise gathering and strengthening global                                                      this region of the world and are well positioned to take
                                           trends. For those looking to add holdings to tap into the                                                       advantage. He has a long-term bottom-up approach to
                                           long term returns driven by the increased demand from                                                           these companies and this strategy has seen the Fund
                                           evolving emerging consumers, we think a good starting                                                           consistently score well.
                                           place is the M&G Global Basics Fund managed by Graham
                                           French and the highly respected M&G global team.                                                                Outlook
                                           Why should this be so? Well firstly he is one of a select few who                                               •	 Graham and his team remain upbeat on global demand
                                           has managed the same fund for more than 5 years – in this case                                                     and long-term economic trends in spite of short term
                                           since its inception in November 2000. Secondly, his performance                                                    problems such as the worldwide credit crunch.
                                           has been second to none over this time and his success can be                                                   •	 They believe in the long term demand for commodities
                                           measured by the fund’s size - now standing at some £4.5billion (as                                                 but all investments will be based on realistic valuations
                                           at 31.05.10). Finally, because the fund’s broad investment mandate                                                 and only in strong companies able to benefit from the
                                           means that he can move along the economic development curve                                                        demand.
                                           as he sees fit, not restricting him to one specific sector and                                                  •	 They believe a long term, bottom-up, valuation driven
                                           allowing him to retain bottom up stock selection whilst playing                                                    approach will yield positive returns.
                                           these investment themes.                                                                                        •	 The Fund will continue to evolve away from traditional
                                           Over the medium to longer term the demand from emerging                                                            areas towards those of greatest long-term potential
                                           countries like India and China will be a powerful and lasting                                                   So, what has been the performance of the Fund?
                                           phenomenon. What has been seen in the US over the last 50                                                       Here please look at the two charts. For more on
                                           years will be mirrored in China and India but at a much larger order                                            investing in this sector in general, and the Global
                                           of magnitude given the 2.5 billion and growing population.                                                      Basics Fund in particular, call us, return the enquiry
                                           As such emerging countries move through the demand cycle of                                                     form or visit our website.
                                           the global basics curve so opportunities for investment managers                                                The potential from emerging consumers is potentially vast.
                                           like Graham are ever changing. A large reason for the performance                                               •	 China has over 150 cities with a population over 1m -
                                           of the Fund over the last 8 years has been a heavy weighting to                                                    compared to Europe with 36 and the US with 9
                                           commodities, but as these companies get fully valued, Graham                                                    •	 In 1985 over 7m flew by air travel, in 2007 this was
                                           has the scope to move along the curve into the next ‘ripple’ of                                                    185m and in 2011 it is forecast to be 270m
                                           demand and therefore continue to perform throughout the cycles                                                  The impact of this growth as 2.5bn people join the modern
                                                                                                                                                           world will be highly significant - consider the following as
                      The 10th year of the M&G Global Basics Fund                                                                                          just one example: -
                                                                                                                                                           •	 Governments are demanding clean, efficient cars
                                     400        FTSE World                                                                                        £4.7bn   •	 Environmentally friendly hydrogen fuel cells require large
                                     350        FTSE World Financials
                                                                                                                                                              amounts of platinum.
                                     300        S&P 500
                                                                                          M&G Global Basics                                                •	 Examples of two companies benefiting are:
                      Index to 100

                                                MSCI Emerging Markets
                                                FTSE World Europe                                                                                             – Johnson Matthey, the world’s biggest distributor of
                                     200                                                                             Emerging Markets
                                                M&G Global Basics                                                                                               platinum
                                                                                                                                                              – Lonmin, a South Africa-based platinum producer.
                                      50                                                                                                                   Johnson Matthey and Lonmin shares are both currently
                                                £50m at launch
                                       0                                                                                                                   held in the Fund. When you consider that at present the
                                                                                                                                                           US has 477 cars per 1000 people, the UK 373 and yet
                                       Noc 00

                                                 Nov 01

                                                            Nov 02

                                                                        Nov 03

                                                                                 Nov 04

                                                                                            Nov 05

                                                                                                            Nov 06

                                                                                                                            Nov 07

                                                                                                                                        Nov 08

                                                                                                                                                 Nov 09

                                                                                                                                                           China has just 3 and India just 5 you can understand why
                      Source: M&G, Datastream, as at 17 November 2000* (This is the date that the fund                                                     this growth will enormous.
                      changed its name and objective) to 30 April 2010, Bid to Bid, UK Basic Rate, Based In                                                The value of your investment can go down as well as
                      Pound Sterling, Calculation Indexed.                                                                                                 up and you may not get back the amount originally
                                                                                                                                                           invested. Past performance is not necessarily a
                      Performance                                                                                                                          guide to future performance.
                                                                                 6 mths              1 yr        3 yrs 5 yrs Since
                                                                                   %                  %          % (pa) % (pa) launch                                              Graham French
                                                                                                                               % (pa)*                                             •	 Graham French joined M&G in
                      M&G Global Basics Fund                    9.0      37.0     3.0    13.7 12.3                                                                                    1989 and is a director of M&G
                      FTSE Global Basics Composite Index**      8.8      27.4     4.1    10.6    6.1
                                                                                                                                                                                      Investment Management Ltd
                      IMA Global Growth sector average          7.1      24.8 -1.9        6.2    0.9
                      Quartile                                   2         1       1       1      1                                                                                •	 He has been manager of
                      Source: Morningstar to 31 May 2010, sterling share A class, bid to bid, net income                                                                              the M&G Global Basics
                      reinvested. *(17/11/2000 )This is the date that the fund changed its name and                                                                                   Fund since launch in
                      objective). **The fund’s benchmark comprises all subsectors of the FTSE World Index                                                                             November 2000
                      except media, IT, telecommunications, financials and healthcare.

                                           23 financialsurgery
                                                                                            M&G Global Basics Fund
                                                                                            Pursuing growth opportunities across
                                                                                            the globe
                                                                                            The M&G Global Basics Fund invests in established
                                                                                            global companies which are well positioned to benefit
                                                                                            from the growing demand from developing countries,
                                                                                            such as China and India, for their goods or services.
                                                                                            The fund is led by Citywire A rated Graham French,
                                                                                            a fund manager who excels at identifying and
                                                                                            exploiting investment themes that will be long-term
                                                                                            drivers of growth.
                                                                                            If you would like to connect with the opportunities in
                                                                                            rising economies, then the M&G Global Basics Fund
                                                                                            could be a route well worth exploring.
                                                                                            Prices may fluctuate and you may not get back
                                                                                            your original investment. Overseas shares may be
                                                                                            affected by currency exchange rates.

                                                                                            Discover more by contacting
                                                                                            DoctorsInvestDirect on
                                                                                            020 7847 4038.

                                                                                                                                                  financialsurgery 26
Rating as at 31.05.10. This rating should not be taken as a recommendation. This Financial Promotion is issued by M&G Securities Limited which is authorised and regulated by the
Financial Services Authority and provides investment products. The registered office is Laurence Pountney Hill, London EC4R 0HH. Registered in England No. 90776. JUN 10 / 29294
                               Visit to
Investment Analysis

                                  n our February 2010 edition of                factories in order to get to work. This is    there are currently 20 million people
                                  Financial Surgery we set out a                not conducive to the Brazilian way of life    who fall into this category wishing to buy
                                  strong commendation on the                    (very family orientated - perhaps more        homes which is known as Class C.
                               case for investing in a Brazilian                so than in the UK). They prefer to live       EBI have a relationship with the two
                               Property Fund we had researched                  very close to where they work in order        federal banks Banco Centrail de Brazil
                               from Ignition. It offers investors a             to maximise time available to spend           and Caixa Economica Federal who
                               potential for return of over 54% over            with their families young and old. Unlike     are responsible for approving land,
                               3 years. We have since introduced a              the UK the generations live together.         construction and infrastructure, including
                               good deal of clients’ monies into the            The factories are also very proud of the      roads, sewage and water before a
                                                                                number of staff they employ advertising       project is given approval.
                               Fund but only after our due diligence
                                                                                the fact on large billboards prominently
                               included Kathleen Frost our CEO                                                                Conrad set out how the Government
                                                                                displayed at their entrances. From the
                               conducting a trip to Brazil in March.                                                          has been collecting 8% FGTS from all
                                                                                ones I saw these ranged from 250 to
                               This was to go further into satisfying                                                         employee wages for the last 60 years (this
                                                                                5000 and the factories are numerous.
                               ourselves that the opportunity was               The visits showed that there is a clear       is equivalent to a form of NI or Pension in
                               as good as it looked on paper. Here              need and demand for the housing to be         the UK). This is the pot of money that is
                               is Kathleen’s abbreviated diary of               built for these workers and their families.   being used to back the housing schemes
                               her visit.                                                                                     and is why the banks can offer cheaper

                               Days 1 and 2                                     Day 3                                         mortgages to the Brazilian people. The
                                                                                                                              people can use part of their FGTS Fund
                                                                                A visit was made to the developer’s EBI       as a 10% deposit for a house.
                               Straight in to the purpose of the trip! Visits   offices at Rua Doutor, Manoel Dantas,         There will be a metro and new road links
                               were made to various plots of land which         NO422 Petropolis, Natal RN. The               being put in place over the next 2/3
                               have been purchased by Eurobrazil (EBI           offices are in the very smart old financial   years. The amount of new development
                               - the developers appointed to act for the        district of Natal and their operation is      work taking place all around Natal
                               Ignition Fund), as well as land which EBI        very professional. Eurobrazil as the          including new roads and infrastructure
                               are proposing to purchase for the Fund           administrators and developers in Natal        was very evident during my visit. The
                               and also to some existing developments           have been in business for 5 years. A          plans of house types and property
                               built by EBI. The land visited was               formal presentation was given by their        layouts discussed and reviewed during
                               situated around Natal alongside existing         team: Conrad Moonen, Angelique                the presentation were supported by the
                               established neighbourhoods and located           Janssen, Débora Kênia de Moura,               property and land visited previously.
                               close to factories that employ large             Waldemar Carlos Martins Spira, Marcelo
                               numbers of staff. At present the lack of
                                                                                Rodrigues Alves and Ana Claudia Batista
                                                                                de Castro.                                    Day 4
                               nearby affordable housing is requiring                                                         A visit was then made to Caixa
                               employees to be transported over a               Conrad (who is Dutch) and Angelique
                                                                                are the equal owners of the business;         Economica Federal Bank and we met
                               long distance by buses laid on by the                                                          Lawrence Silveira Santiago Genente
                                                                                Conrad is responsible for sales and
                                                                                marketing. He has been in property            who is responsible for approving all
                                                                                most of his professional life and spent a     mortgages to Class C individuals as
                                                                                number of years in Spain before moving        above. Lawrence went through the
                                                                                to Brazil 7 years ago with his wife           mortgage scheme.
                                                                                Angelique and family. Angelique is an         He explained that he approves all
                                                                                engineer and project manager.                 mortgages for the Bank and also
                                                                                EBI ensure that land they wish to purchase    confirmed that there is a guaranteed
                                                                                has all the correct deeds and is suitable     offer to the developers (EDI) by the Bank
                                                                                for the Fund and the scheme prior to          that they will offer up to 90% mortgages
                                                                                purchase. All proposed purchases are          to local individual purchasers once the
                                                                                assessed based on the federal banks’          project is approved.
                                                                                guidelines and requirements. Each of          He confirmed that there are 5 divisions
                                                                                the plots visited were shown in detail via    in total required to approve an affordable
                                                                                a presentation by the team and reason         housing backed Government scheme,
                                                                                for purchase was explained.                   the Federal Bank being one of them.
                      Kathleen and Conrad meet the Regional                     EBI are concentrating on affordable           He confirmed that unemployment
                      Minister of Tourism, Fernando Fernandes                   housing rather than social housing as         is currently at historically low levels

                               25 financialsurgery
within Brazil and consumer spending          South America (55.7% owned by the             The current Ignition Brazil Fund
is very high. It is estimated that 36%       Government) has recently discovered           Offer Period is expected to remain
of household income will be paid on          a large oil reserve off the cost of Natal     open until the end of September.
mortgage costs which is substantially        which is expected to help fund and            For more information call us or
lower than Europe.                           support the massive investment being          return the Enquiry Form at the back
He also stated the indebtedness of           made into the Natal Region.                   of this Magazine.
Brazilian people is very low compared
to the UK.
                                             Conclusion                                    This Ignition Fund and that of
                                                                                           QUADRIS below is not regulated.
Minister of Tourism                          This visit really gave an insight
                                             into    how     dynamic,       cultured,
                                                                                           Investors will not have the
Today I meet the Regional Minister of                                                      protection of the FSCS.
                                             entrepreneurial and exciting is the
Tourism, Fernando Fernandes, at his          Natal region in Brazil. It also gave me
offices in Natal! He was happy to talk
                                             a feel for the Brazilian people, who
us though the plans for Natal leading up
                                             are warm, friendly, very professional
to the World Cup in 2014. This included
showing us the design, infrastructure        and very keen to help build their
and photographs of work that will be         country for their families. The due
put in place for then. He showed me          diligence I carried out in Brazil,
that there is a new airport currently        helped to support the paper due
being developed in Natal which given         diligence previously carried out in
the relative proximity to Europe, America    London and confirms that there is a
and Africa is expected to become the         very good opportunity for our clients
main goods hub into Brazil and the rest      to invest into the Ignition Brazil
of South America.                            Property Fund at present, with the
He also set out how Petrobras the            potential to achieve a good return
Brazilian oil company and largest in         on investments made.                          Kathleen Frost, our CEO.

QUADRIS Environmental Fund
“The QUADRIS Fund manages over 60,000 hectares of land in Brazil. As well as being operated for profit, it has a
community aspect in that they provide schools and healthcare for their employees and create long-term futures
for their workers.”

       nother Fund that invests into         The assets consist of more than 30,000            Year          Sterling   US Dollar
       an asset class in Brazil that we      hectares of sustainable teak plantations,                    Performance Performance
       like is the QUADRIS Fund. It          within an overall management area                             (Launched   (Launched
too is good for diversification of risk      in excess of 60,000 hectares of land                            1/9/04)     1/6/01)
within investment portfolios. The            across 28 separate plantations.                    2010        +1.52%*     +1.43%*
concept of the Fund is in sustainable        The natural Brazilian tropical climate             2009         +8.51%      +8.63%
commercial hardwood forestry. The            creates the perfect ecosystem for the
fund is now over £100m in size, and                                                             2008        +37.57%      +8.00%
                                             trees to grow. The wet and dry seasons
is beginning to attract the attention        create a perfect blend of weather                  2007        +14.81%     +11.06%
of some of the largest institutions –        conditions that reduce the requirement             2006         +6.03%      +8.06%
a sure sign that it has won respect          for additional plant nutrients creating a          2005        +19.61%      +8.10%
of investment professionals.                 further ethical/environmental positive.            2004         +0.32%     +10.25%
The Fund targets a return of                 Teak is a high quality hard wood which is          2003                    +16.10%
approximately 8%-10% per annum over          generally weather resistant and resistant          2002                    +11.03%
a medium term investment horizon, and        to most forms of fungal attack. It has
has achieved its goals during some of                                                           2001                    +12.13%
                                             a high structural strength and density
the toughest market conditions seen          that is resistant to the effect of forest     *To 31st March 2010
for decades (see table). The Fund            fires at the age of around 4-5 years          did not take into account the likes of
invests in sustainable Teak Plantations      and above. Some of the biggest uses           China and other BRIC nations and their
(Forestry). QUADRIS’ aim is to provide a     for hardwood are in the construction          massive consumptions of the worlds’
positively green, transparent alternative    market, specifically housing in India,        natural resources over the coming years.
investment, which reflects investors’        Asia, and South America. Teak also has        Unlike most commodities timber supply
desire to achieve sustainable returns        a historical track record as it has been      is not a problem that can be addressed
from a lower risk asset. This will be done   grown successfully in this region since       in 10 years time, as the minimum term
in a sustainable, socially responsible       the beginning of the 1970s.                   to grow Teak to ‘Sawn-Grade 4’ status
and environmentally sound way.               The United Nations Food & Agriculture         is 20 years – it cannot be planted and
Investments made into the Fund benefit       Organisation carried out some research        harvested in a short timescales.
from the underlying value in the complete    around timber supply and demand in            While not without its risks we think
plantation coverage rather than specific     2003. They predicted by 2020 that             the Fund is well worth considering
plots. These generate returns from           shortfall in world supply of timber could     as part of a diversified portfolio of
plantations that are geographically          be equal to a growth area of half a billion   assets. To find out more call us or
spread with forestry assets within them      cubic meters (an area around twice the        go to the enquiry form at the back
at different stages of the growth cycle.     size of Belgium). These demand figures        of this Magazine.

                                                                                                                financialsurgery 26
                      Student Property Funds
Investment Analysis

                                                                                                                  About the Mansion Student
                                                                                                                  Accommodation Fund
                                                                                                                  The Fund targets an Internal Rate of Return of
                                                                                                                  circa 10% - 12% per annum over a medium
                                                                                                                  term investment horizon, however in the early
                                                                                                                  years is targeting a return in the region of ‘mid-
                                                                                                                  teens’ per annum, because of the ‘discount’
                                                                                                                  impact of early property purchases.
                                                                                                                  The Fund invests in purpose built ‘student
                                                                                                                  accommodation’ targeted at University Students
                                                                                                                  predominantly outside of their 1st Year. The
                                                                                                                  Fund has been established to give investors
                                                                                                                  the opportunity to invest in a portfolio of
                                                                                                                  student accommodation for tenancy, with the
                                                                                                                  potential for income generation and capital
                                                                                                                  growth, without having to acquire and manage
                                                                                                                  property directly. The Fund acquires established
                                                                                                                  University buildings and refurbishes the site for

                             here is a continued imbalance               specifications such as sinks in all      development, to be run as a privately operated
                             between demand and supply                   bedrooms, fire doors, and minimum        ‘apartment style’ halls of residence, similar to
                             of student accommodation in                 square feet per room.                    what most students experience in their first year.
                      most major university towns which             •	   Universities often commit to provide     The Properties: The purpose built developments
                      continues to be a driver to this sector            accommodation for all their first year   are set in their own grounds with secure car
                      delivering strong rental growth. It                students, but outside London, can        parking facilities, CCTV security and a key-
                      provides an investment opportunity                 only accommodate up to 85% of            fob entry system. The individual apartments
                      with good potential for a sustainable              their intake. In addition, most second   are renovated to a very high standard with
                      return. The student housing market                                                          laminate flooring, leather sofa’s, plasma TV’s
                                                                         and third year students are housed
                      is estimated to be worth £6.6 billion                                                       on the wall and full bedroom furnishings. Each
                                                                         in privately owned accommodation.        unit fully adheres to Government requirements
                      currently and is forecast to grow to          •	   There is an under supply of student      for ‘approved’ Student Accommodation. Each
                      over £20 billion in the next six years,            accommodation across the whole of        individual apartment consists of between 2 and
                      as student numbers continue to                     the UK, rental yields are strong and     5 bedrooms, all with their own wash facilities,
                      grow, rents rise and more students                 growing year on year, occupancy          together with an open plan kitchen and dining/
                      choose to live in purpose built                    levels are circa 99% - 100% and bad      lounge areas. The majority of apartments have
                      accommodation.                                     debt is not an issue.                    WIFI and are linked in to the local University
                      This sector has also performed strongly       •	   The economics are simple in that         intranet. The renovations are of dilapidated
                      over recent years, with annualised total           student numbers are rising whilst        University buildings that are central to Campus
                      returns of 10.2% over five years and               accommodation available for post         giving Student’s less travel expenses and closer
                      12.2% over three years, a stronger                                                          proximity to University facilities such as library,
                                                                         1st year students is falling from
                      performance than that from the retail,                                                      union and the like.
                                                                         private landlords. Rental increases
                      industrial and residential property sector.                                                 Liquidity: The fund has no exit penalties and
                                                                         have consistently outperformed RPI.      66 days notice for any redemptions required.
                      When examining the following this trend       •	   Student accommodation thus offers
                      looks set to continue:                                                                      Initially the fund will meet redemptions with new
                                                                         investors the opportunity to invest in   investments. Further to this 10% of the fund is
                      •	 Student numbers are expected to                 real assets in an asset class which      held in cash to facilitate any larger redemptions.
                          increase by over 28% by 2014 yet               has elements of being non correlative,
                          universities have limited resources                                                     If the 10% cash position is ever fully utilised the
                                                                         counter cyclical, with lower risk and    liquidity position is enhanced further in that the
                          for investment in accommodation.
                                                                         lower volatility compared to other       entire student ‘block’ is not required to be sold.
                      •	 Overseas student numbers are
                                                                         asset classes like equities.             This would mean a buyer with circa £5m - £10m
                          increasing and they typically look for                                                  would need to be found in normal circumstances.
                          high specification property that can      One fund we like - the Mansion
                                                                                                                  Instead individual apartments around the UK (at
                          be occupied 52 weeks a year.              Student Accommodation Fund -
                                                                                                                  circa £200,000 each) can be sold to individual
                      •	 Changes in legislation has forced          invests directly into properties of           ‘High Net Worth’ investors. The liquidity position
                          some landlords to quit this market;       residence, offering the investor a            is one of the strongest that any property fund
                          specifically the introduction of ‘The     chance to participate in one of the           can deliver as small ‘sales’ can be put to the
                          House in Multiple Occupation’             strongest asset classes available             market without causing the ‘fire-sale’ panic that
                          regulations which requires many of        today to bring more diversification           a complete building sale could trigger.
                          the traditional student houses have       of risk into portfolios. See the table        Purchasing the Fund and Distributor Status:
                          to be renovated to include certain        for more on the Fund.                         The fund can be purchased direct, via SIPP’s/
                                                                                                                  SSAS, or Offshore bonds. The fund applies the
                            For guidance on investing into this Fund and the sector generally                     rental yield received to ‘pay-down’ the loans on
                         either call us, or return the enquiry form at the back of this Magazine.                 the properties as opposed to distributing yield as
                                                                                                                  income. This allows the fund ‘distributor status’
                         This investment and that opposite are not regulated. Investors do not                    and allows gains on the fund to be charged to
                                have the protection of the FSCS if the funds should fail.                         CGT when bought direct.

                      27 financialsurgery
Funding For
Education Costs
         ith    the    season     of            One of the particular Funds from within                                 the original owner to enjoy some of the
         examination results soon               the life settlement asset class we use                                  benefits during their lifetime.
         upon us and preparations               is the Meteor Senior Life Settlement                                    The Meteor Fund focuses on buying
underway for children going off to              Fund. A full analysis of this Fund we
                                                                                                                        policies at the shorter end of life
new schools after the summer it is              set out in our summer 2009 edition
                                                                                                                        expectancy. This means that policy
timely to talk about a good way to              of our Magazine. It continues to show
fund for future education costs. We                                                                                     maturities (death claims) happen on a
                                                steady capital appreciation. Partial
find that grandparents in particular                                                                                    regular basis. In fact, the Master Fund
                                                instalments of capital (and gain) can
are often keen to make lump sum                 be taken annually from an investor’s                                    has in excess of 120 maturities totalling
gifts to help fund the education of             Fund to meet education costs within                                     over $150m and on average they have
their grandchildren.                            CGT allowances so to mitigate the tax                                   occurred at roughly half of the original
Such help is appreciated by parents.            payable and possibly entirely avoid any                                 anticipated life expectancy. This factor
Let us look at the costs of funding the         CGT being payable. The judicious use                                    together with new investments provides
education of a child presently aged 2,          of CGT allowances in conjunction with                                   liquidity into the Fund.
through the period from age 11 to 18.           such funds is a powerful combination to                                 The Master Fund of which the Meteor
Assuming the child attends a typical fee        consider for education costs planning. It                               Fund is a part was launched in November
paying school, fees might currently be          really can mean investors do not have to                                2005 and has grown by 47.96% since
£10,560 per annum. Just to give a guide         pay any tax if looking to use such funds                                launch as at 31st May 2010. After
as to costs, the total cost over the period     to generate education funding each year
                                                                                                                        the initial two 2 months where set up
would be somewhere in the region of             by way of partial withdrawals at regular
                                                                                                                        costs were incurred, it has only ever
£112,000. However, school fee inflation         (say quarterly) intervals.
tends to outstrip RPI. Therefore if you                                                                                 demonstrated upwards unit price
                                                A life settlement is the sale of an                                     movement for each of the 56 months
were to assume RPI at 1.5% per annum            unneeded or unwanted life insurance
it might be wise to allow for extra inflation                                                                           of its existence. The Meteor fund was
                                                policy to a fund like that of Meteor for
of 5% per annum, giving a total cost                                                                                    launched in February 2008 as a Cell
                                                a cash settlement. The new owner (in
more like £167,000 over the period.                                                                                     of the Master Fund and has produced
                                                this case the Meteor Fund) pays any
How to fund and pay fees can be                                                                                         over 25% since launch equivalent to
                                                ongoing premiums and collects future
problematic, these can either be funded                                                                                 an annualised return of 10.1%. Over
                                                benefits. The process for sellers is
from income or by way of a capital              straightforward with no medical exams;                                  the same period since February 2008
investment. Clearly for the comfort             offers received are greater than the cash                               the FTSE 100 has fallen by 13.94% (All
that fees can be secured for the whole          surrender value, with the main benefit                                  figures to 31 May 2010).
of the period the latter option is most         being there are no restrictions on how                                  For guidance on such forward
desirable.                                      the seller utilises the proceeds.                                       funding on education costs and
One asset class we use as the underlying        Most life settlements are United States                                 investing with Meteor call us or go
investment for forward funding of               issued, whole-of-life assurance policies                                to the Enquiry Form at the back of
education is the life settlement asset          sold before the maturity date to allow                                  our Magazine.
class. This asset class lends itself to
such funding as it is uncorrelated to            130
the movement of equities, property or            120
corporate bonds. Accordingly we value
this asset class for its diversification         110
of risk virtues and are commending               100
                                                                                                          Meteor Senior Life Settlements Fund
it to clients as a vehicle for education
                                                                                                          FTSE 100 Index
funding.                                          90
                                                                                                          MSCI World Index
So to return to our example, with                 80
fees over the period totalling
£167,000 the benefit of investing
early can be significant. Assuming                60
a return on the asset class of 7%,
the capital cost can reduce from                  50
                                                    Jan 08

                                                             Mar 08

                                                                      May 08

                                                                               Jul 08

                                                                                        Sep 08

                                                                                                 Nov 08

                                                                                                           Jan 09

                                                                                                                     Mar 09

                                                                                                                              May 09

                                                                                                                                       Jul 09

                                                                                                                                                Sep 09

                                                                                                                                                         Nov 09

                                                                                                                                                                  Jan 10

                                                                                                                                                                           Mar 10

                                                                                                                                                                                    May 10

£167,000 to around £71,000 giving
a saving over the period of circa
£96,000. So if a grandparent can
help fund the investment of £71,000                The value of your investment can go down as well as up and you may
at the child age 2 stage significant               not get back the amount originally invested. Past performance is not
savings can be made.                                             necessarily a guide to future performance.

                                                                                                                                                             financialsurgery 28
                      UK Growth Multiplier
Investment Analysis

                      protection against loss                                                                          value even if the FTSE 100 index
                                                                                                                       growth is modest over the next
                                                                                                                       6 years.
                                                                                                                   Our approval of this Plan’s potential is
                                                                                                                   based on the premise that we consider
                                                                                                                   that the FTSE 100 index is unlikely to
                                                                                                                   fall to below 3,141 (60% of its level as
                                                                                                                   at the time of writing, 15th July 2010).
                                                                                                                   We classify this Plan as being a safer

                          n 2002 and 2003 our advice to              a value of £17,495 in 2003. At maturity in    medium risk investment but it is not
                          many clients was it could be a             May 2008 they had a value of £27,992.         without risk (see table).
                          good move to protect monies                Dr Rix originally invested £23,172, to        No one should invest without first
                      held in some ISAs. The position then           lower investment risk in his portfolio.       reading fully and understanding the
                      was that many had seen sharp falls             This grew in value such that the maturity
                                                                                                                   brochure describing the UK Growth
                      in stock market values and therefore           proceeds were £37,089. Had markets
                                                                                                                   Multiplier Plan – its risks as well as
                      losses in their equity ISAs. There was         fallen, the FTSE could have halved in
                                                                                                                   its benefits. To learn more about
                      a worry that stock markets could               value and they would have suffered no
                                                                     loss on their opening values.                 this Plan do ask us to help you. Go
                      fall lower still but equally many had
                      a desire to avoid realising losses                                                           to the enquiry form to register your
                                                                     The new UK Growth Multiplier Plan from        interest or simply call us or visit our
                      if share prices should recover. In             Gilliat is one from a long line of similar
                      many ways today’s stock markets                                                              website.
                                                                     limited issue offerings now available. But
                      leave investors in a similar position.         unlike the above that capped investor         Plan Name: UK Growth Multiplier
                      The FTSE 100 has seen a sharp fall             returns at 80% growth of the initial          Plan      Arranger:    Gilliat Financial
                      starting in 2008 down to 3400 and a            sum invested, this Plan caps returns at       Solutions, with Plan assets provided by
                      recovery by the end of 2009 of up to           100% of capital. In other words it has        Morgan Stanley an institution with an A
                      5500. In recent weeks it has fallen            the potential to deliver a return that is     rating from Fitch and Standard & Poors,
                      below 5,000 again. As we write this it         double the sum invested. It is designed       and an A2 rating from Moody’s.
                      has just moved a little above 5,000 but        to address concerns about modest
                                                                                                                   Summary of key benefits:
                      commentators abound about risk of a            equity growth and the risk of falling
                      double dip recession in 2011.                  share prices in one simple investment.        •	 4 times any rise in the FTSE 100 index
                                                                                                                        subject to a maximum investment
                      As a part of an overall portfolio in such      The UK Growth Multiplier Plan benefits             growth of 100% with a 60% capital
                      times it can make real sense and add           are to deliver 4 times any rise in the
                                                                                                                        protection barrier.
                      good value by considering a particular         FTSE 100 index subject to a maximum
                                                                                                                   Investment Term: 6 years 3 weeks and
                      breed of structured products like the          investment growth of 100%. It protects
                                                                                                                   only suitable for those who are prepared
                      one we analyse here. A similar defensive       against falls with a 60% capital protection
                      vehicle strategy in 2003 went on to            barrier. What this means is that there is     to lock in their capital for this term.
                      out perform the FTSE 100 index over            full repayment of the investor’s original     Risk: Capital returns are variable. An
                      the ensuing 5 years because the two            capital unless the closing value of the       investor’s capital is returned in full unless
                      times gearing inherent in the 2003 Plan        FTSE100 on the final date of the plan         the Index falls by more than 40% after its
                      gave investors an 80% return over the          has fallen by up to or more than 40%          start date and fails to recover to its start
                      period, better than that of FTSE 100           from the closing value of the FTSE100         level when the Plan matures. Assuming
                      itself over the same term! At the same         on the start date.                            at start date the FTSE 100 Index is at
                      time investors were shielded against           Consider also that the Plan offers:           5,000 it would be below 3,000 at the
                      loss if the market suffered significant        •	 Tax free returns from a 2010/11            maturity date for an investor’s capital to
                      downturn. In fact the returns were                  ISA, or                                  be at risk. There is a risk of loss if the
                      also better than that of most actively         •	 Tax free returns by non-ISA                closing value of the FTSE100 on the final
                      managed equity funds over the same                  route where you use annual CGT           day of the investment term is up to, or
                      term. This was a truly exceptional result           allowances in the maturing year          more than 40% lower than the closing
                      from an investment that also protected              2017/18, according to current            value of the FTSE100 on the start date
                      against stock market falls.                         legislation.                             of the plan.
                      To illustrate let us take an example or          •	 A home for ISA transfers, giving
                                                                                                                   Security of Plan assets: Plan assets
                      our clients Dr and Mrs Rix who opened               potential to protect gains in current
                                                                          values of funds held whilst giving       are Notes issued by Morgan Stanley
                      holdings by way of PEP and ISA transfer
                      at that time. Mrs Rix originally transferred        every chance of further growth in        with a credit rating as above.
                                                                                                                   The Returns are at risk (and investor
                          The value of your investment can go down as well as up and you may                       is at risk of loss) in the event of
                          not get back the amount originally invested. Past performance is not                     Morgan Stanley defaulting on their
                                        necessarily a guide to future performance.                                 financial obligations.

                      29 financialsurgery
Looking ahead
to retirement?
Ask for our retirement guide

To obtain your FREE copy call us on 020 7847 4038,
or return the enquiry form or go to our website
                                       financialsurgery 34
           Pension Liabilities
                                                                                                         How big is a £trillion?
                                                                                                         Extract from – author
                                                                                                         Steve Bee
                                                                                                         “Follow this train of thought: About ten

           Reach £1trillion
                                                                                                         seconds ago you started reading this. A
                                                                                                         billion seconds ago it was 1978. A trillion
                                                                                                         seconds ago it was about 29,000 B.C.
                                                                                                         A trillion pounds is a lot of money, but an
                                                                                                         amount that is truly difficult to imagine.

                                                                                                         Say you were lucky enough to be put
                                                                                                         in a massive vault somewhere in the
                                                                                                         bowels of the Royal Mint and that room
                                                                                                         was full of five pound notes (they’re
                                                                                                         the little blue ones that cabbies always
                                                                                                         moan about if you haven’t got one). And
                                                                                                         just say you were told that you would
                                                                                                         get to keep each and every note that
                                                                                                         you signed your name on; sort of some
                                                                                                         financial version of Supermarket Sweep

           P                                              FORCED ANNUITY AT
                  ublic sector pensions have                                                             or something. How long would it take
                  been in the news again in                                                              you to get yourself a trillion pounds?
                  recent weeks. Some public               AGE 75 ENDED                                   Well, say you could sign one fiver a
                                                                                                         second. That would mean that you’d
           sector pensions are funded just
                                                          Our new coalition government has               gain yourself £300 every minute by
           like private sector pensions are, but
                                                          announced that they are to look at the         signing 60 of them. After an hour you’d
           some public sector pensions like
                                                          whole concept of legislation forcing           have a pile of £18,000 all signed up and
           that of the NHSPS are unfunded or
                                                          people into annuities at age 75, or            if you could keep going at that rate for
           not fully funded. That means there’s                                                          24 hours without a break you’d amass
                                                          requiring a move from what is known as
           no fund of money put aside to pay                                                             a cool £432,000. Not a bad day’s work.
                                                          USP drawdown into ASP drawdown.
           for the pensions that are promised                                                            If you could keep up that punishing
           members, rather the pensions will              An immediate step with effect from             pace and go without sleep for a whole
           be paid out of existing members                22nd June 2010 is that it is no longer         week you would be a multi-millionaire
                                                          compulsory to buy an annuity with              with £3,024,000 in your pile of signed
           annual contributions and future tax
                                                                                                         fivers. Keep that up for a whole year
           revenues instead.                              your pension fund at 75, the interim
                                                                                                         and you’d have over £157 million in your
           It has recently been estimated by              arrangement being this age limit is            pile (my calculator hit the wall with that
           actuaries that if all the unfunded public      to be put back to age 77 while a new           one, so it’s all estimates from here on
           sector pensions including that of the          consultation process is completed.             in - so give me some leeway please).
                                                                                                         To get a billion pounds (which these
           NHSPS were funded then we’d need a
           fund of about a trillion pounds put aside      PENSION                                        days is generally accepted as being
                                                                                                         a thousand million pounds) I reckon
           to pay for the pension liabilities. It is an
           unimaginable figure.
                                                          CONTRIBUTION LIMITS                            would take you about six years. To get
                                                                                                         to a trillion pounds (which is a thousand
                                                          The hideously complex rules around             billion pounds) would therefore take you
           The lobby for real cutbacks in benefits
                                                          contribution limits for high earners is also   something in the region of 6,000 years
           and increases in contributions is
                                                          to be reformed with the caveat the new         to accomplish.
           building. At the beginning of July the
                                                          government does not want the overall           I suppose, to put that another way, you’d
           Public Sector Pensions Commission
                                                          tax take to change from its present level.     have had to have started the process of
           (PSPC) said that the true value of                                                            signing fivers about 1,500 years before
                                                          The pensions industry is being asked
           public sector pensions was twice as                                                           the Great Pyramid of Cheops was built
                                                          to come up with proposals to address
           much as stated. It said that unfunded                                                         to have any realistic chance of having
                                                          the caveat whilst bringing simplicity          signed a trillion pounds worth by now.
           pension schemes assumed a combined
                                                          and equity to the present position. It         That’s a long time to stay alive let alone
           employee and employer rate of 20% but
                                                          had otherwise threatened to be both            stay awake! Not only that, but signing
           was actually more like 48% of salary. So
                                                          extremely costly to administer as well as      one a second would have been pretty
           the point was that in effect the Treasury                                                     difficult with a dip quill and ink from
                                                          overly penal on higher earners.
           meets the 28% funding gap.                                                                    4000BC right up to 1938 when the biro
                                                          Both of these new developments                 was invented, so I’d imagine the whole
           We are already seeing index linking of
                                                          are welcome and we will be                     process of putting a trillion pounds
           pension benefits in retirement move
                                                          commenting in more detail on their             together by signing five pound notes
           to CPI rather than RPI. It all makes it
                                                          implications in our February 2011 edition      would be quite a palaver all in all.
           rather inevitable that member costs of
                                                          of Financial Surgery.                          It’s a big number a trillion. We need
           contributing to the NHSPS will increase
                                                                                                         to understand it though if we want to
           again for doctors and dentists, and            For individual guidance on your                get an idea of what we’re in for from
           that the value of the benefits could be        Pension Wealth Management just                 our future taxes to pay for all these
           reduced. Change is on the horizon.             call us or go to the enquiry form.             pension promises.”

           31 financialsurgery
                                                 Asset Backed
          ost people retiring now and            year, ether by a fixed amount, or in      If the declared return is higher than 6%,
          in the future are likely to            line with increases in inflation (RPI).   your income will increase. Equally, any
          be healthier than previous          Fortunately, there has recently been         less and it will decrease.
generations because of improving              a surge of new products that aim to          For example, if, in a year, Prudential
medical science and lifestyles. This          offer alternative solutions for people       declared 7% the income would increase
means many people will be able                retiring. Each has their own unique          by 1%. If Prudential declared 5% the
to enjoy a longer retirement, with            features and benefits, but all aim           income would reduce by 1%. This
perhaps greater freedom to spend              to provide greater flexibility and the       means there is an element of investment
time doing whatever they like. After          potential to have an income that can         risk. Prudential limits this risk by
all they say that 60 is the new 40!           grow and offset inflation.                   guaranteeing that the income will
Unfortunately, there is a potential           You may hear these referred to as asset      never fall below the minimum income
downside to this increased longevity.         backed annuities and one of the most         level. This is known as the secure
With the average man aged 65 now              popular of these products is Prudential’s    income level, the secure income level
expected to live 18 years in retirement       Income Choice Annuity. Under an asset        will automatically increase by half the
(and the average women of same age 20         backed annuity, you can opt to take a        amount Prudential increases your
years) it means that pension providers        similar starting income as a conventional    income by. This means the secure
are paying out pensions for longer. This      level annuity but with the potential for     income can only go up, never down!
has led to falling annuity rates that are     growth to offset inflation.                  In addition it will ‘smooth’ investment
now at the lowest for a generation.           •	 It also gives the option to take an       returns over 5 years to ensure
An annuity is the most common method              even greater income. (see the table      investment returns are not as volatile as
of securing an income from pension                below)                                   they might otherwise be.
funds built up at retirement payable          •	 It has flexibility to change the amount   In conclusion, purchasing an
for the rest of your life. There are many         of income you take, or switch to a       annuity is an irrevocable decision
different types of annuity that an investor       conventional annuity                     and something that should be
could purchase. The most popular is the       •	 It offers a guaranteed income for life    done after careful consideration
conventional annuity, which guarantees            below which income cannot fall.          and with financial advice. For many
to pay an income for life.                                                                 the concern that their income in
There are two variants on this type of an     How it works                                 retirement will be impacted by
annuity, escalating and level.                The Income Choice Annuity invests in         inflation means it is now a good
•	 A level annuity offers a flat income       Prudential’s £61bn Life Fund. At outset      option to consider asset backed
   for life which can never change,           you select the level of income you           annuities such as Prudential’s
   but will be eroded by inflation. The       wish to take – this can be anywhere          Income Choice Annuity. If you
   longer someone lives the greater           between a specified maximum level            are considering your options for
   downside there is from inflation. A        and a minimum level. Whatever level          retirement, we can help with advice
   level income of £1000 will be worth        of income is selected Prudential will tell   on all aspects of retirement provision.
   less than half in real terms what          you what investment return they need         For expert help and guidance call us
   it was at outset, based on a 4%            to declare on the fund to maintain the       or go to the enquiry form at the back
   inflation rate after 20 years. The risk    income at this level. The table below        of this Magazine. You can also ask
   of buying a conventional annuity was       shows the maximum income for a joint         for our Retirement Guide.
   once described as similar to that of       life annuity on a £100,000 pension fund      The table below represents the
   taking a job at age 40 knowing that        for a male aged 60 is £6,790.44. This        starting incomes available for a male
   you would never get a pay rise until       requires an ongoing investment return        joint life annuity, with 50% spouse
   you retired. You wouldn’t accept           to be declared of 6% for that income to      income aged 3 years younger, paid
   that before retiring so why settle for     remain level.                                monthly in advance.
   it after?
                                                £100,000.00 Annuity Purchase
•	 An escalating annuity does offer the         Age    Guaranteed Income choice Guaranteed          Income choice Income Choice
   potential to protect against inflation,                Level      return to match    RPI              Min           Max
   but these typically have a starting                                level annuity                    Income        Income
   income sometimes as much as                   60     £5,100.36         3.61%      £2,692.80        £3,469.56       £6,790
   a third lower than a conventional
                                                 65     £5,614.56         3.61%      £3,248.16        £4,024.08       £7,282
   annuity. This initial drop in starting
                                                 70     £6,300.12         3.53%      £3,975.48        £4,785.12       £7,988
   income makes them unpopular
   even though they increase each                75     £7,327.08         3.46%      £4,985.16        £5,880.60       £9,049

                                                                                                                 financialsurgery 32
          What clients
          do for fun!

                                                                             Kent. Over the next 3 years, I raced Formula Fords, mainly at
                                                                             Brands Hatch. With a more up to date car, I managed a couple
                                                                             of podium finishes, until it all went wrong with a high speed
                                                                             accident which virtually destroyed the car and put a large dent
                                                                             in my bank balance.
                                                                             After a few years gap, I returned to racing, again in Formula
                                                                             Ford, but this time in the Historic category. Racing with the
                                                                             Historic Sports Car Club, I had virtually no success but a lot
                                                                             of fun. I got to race at most of the circuits in the UK, although
                                                                             work commitments meant that I was never able to do more
                                                                             than a handful of races each year. After 3 or 4 years, I sold the
                                                                             car and took another break from racing.
                                                                             For the last 4 seasons, I have raced a 1965 MGB in the Equipe
                                                                             GTS series, racing mainly against 1960’s British sports cars,
                                                                             including Triumph TR4, TVR Grantura/1800s, Elva Courier and
                                                                             the like. The cars are all in correct period racing specification.
                                                                             The standard of preparation is excellent. The driving standards

                                                                             required are strictly enforced. We race at well-known circuits at
                 ere is the first of a new series of articles where          home and also in Europe.
                 instead of us setting out our views on financial
                 themes, we get you to do all the work! To end               I have gradually worked my way nearer to the front of the
          on a lighter note from now on we invite your articles              field. In 2009, I was the overall winner of the series (we don’t
          on what you do to relax and for fun. First up then is a            have a championship as such, but we do have a leading point
          contribution from Jeremy Stock a client and Consultant             scorer each year). After quite a few years of trying, I finally won
          Anaesthetist from Hastings. As you will see his way of             my first race at Le Mans (no, unfortunately not the 24 hour
          relaxing is fairly exciting to say the least...                    race but who cares). As I had family support from father, wife,
                                                                             brother and one son, it was one of the best weekends of my
                                                                             life. I suppose if I had any sense, I would have stopped right
          What do clients of Doctors Invest                                  then. Needless to say, I haven’t. In 2010 I am continuing to
          Direct do in their spare time?                                     race and have recently returned from a successful weekend
                                                                             at Zandvoort in Holland. I hope to move on to race in some of
          I race motor cars.                                                 the more prestigious historic sportscar events, including the 6
          My interest in racing cars started at a very young age. I can      hour race at Spa.
          remember quite clearly attending my first British Grand Prix       Is it expensive? It can be, but there are many levels of racing
          at Aintree in 1959 at the age of 5. As children, we travelled      and it can be done on a budget. Can anyone do it? Yes, anyone
          all over the UK to watch races at the major circuits, including    can have a go. I know someone who bought himself a racing
          Goodwood, Brands Hatch, Silverstone and Aintree.                   car for his 50th birthday and went on to race successfully.
          When I qualified as a doctor and embarked on a career as           There is a cost to getting started these days – a compulsory
          an anaesthetist, I quickly took the opportunity to work as a       course plus license and the necessary helmet, race-suit etc.
          medical officer at both car and motorbike race meetings. I         Nowadays, many people who like fast cars do track days – a
          became a member of the medical team covering the British           club will hire a circuit for a day and you pay to thrash round
          and European Grand Prix meetings at Silverstone and Brands         in your road car (or track day special). This is no doubt a
          Hatch in the 1980’s. During this time, I fulfilled a long-held     lot of fun, but it isn’t racing. I like competition. So for me,
          ambition of driving a racing car, when I attended the Ian Taylor   I would rather race something older and slower than drive
          Race School at Thruxton circuit in Hampshire. However, I had       round in a supercar.
          no expectation of actually participating or taking things any      Jeremy Stock
          further.                                                           9 June 2010
          When I moved to East Sussex in 1990, I met some racers
                                                                             To come in future editions – delights of deep sea diving
          and was quickly persuaded to ‘have a go’. In no time, I had
          purchased an elderly Jamun Formula Ford 1600 single-seater!        and triathlon trials.
          With a lot of support, I entered my first race at Lydden Hill in   Photographs courtesy of Flying Tigers Studio,

          33 financialsurgery
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