1. TAX EFFICIENT INVESTING Simplybiz Investment Forums Round One 2015 Mike Slater For the use of professional advisers only and not to be relied on by retail clients

2. IMPORTANT INFORMATION The following presentation is for investment professionals only and should not be relied upon by retail clients. Please do not forward this document wholesale to anyone who is not a professional adviser. If you take excerpts for use with clients, please ensure you’ve taken responsibility for the document under the financial promotions rules and identified yourself as the issuer. Information is current as at 12 December 2014 and is sourced to Octopus Investments Limited unless otherwise stated. The information you’re about to see is not a recommendation. The decision to invest (or not) should not be based on this document alone. This advertisement is not a prospectus and investors should only subscribe for VCT shares on the basis of information in the prospectus available from Octopusinvestments.com. Do your research, talk to our experts and make an informed decision. Octopus accepts no liability for any direct, indirect or consequential losses arising from decisions to act or not act based solely on this document. By investing in these products capital is at risk and investors may not get back the full amount invested. All statements and opinions are current at the date of publication and may not be applicable thereafter. They are based on our analysis of data that we believe to be objective and reliable. However, we accept no liability in respect to its completeness and accuracy (except where incompleteness or inaccuracy is caused by gross negligence or fraud). We try to avoid conjecture – neither past performance nor forecasts are a reliable indicator of future results. Rates of tax, tax benefits and allowances are based on current legislation and HMRC practice and depend on personal circumstances. These can change and are not guaranteed. Tax reliefs depend on investee companies maintaining their qualifying status. Our products invest into small unquoted and/or AIM listed companies, which are likely to have higher volatility and liquidity risk than shares quoted on the London Stock Exchange Official List. Featured investments are for illustrative purpose only and should not be considered an investment recommendation. Nothing in this document should be regarded as constituting legal, taxation, investment or other advice. Prospective investors are advised to consult their own professional advisers before contemplating any investment. Octopus Investments Limited is authorised and regulated by the Financial Conduct Authority. 33 Holborn, London EC1N 2HT | T: 0800 316 2067 www.octopusinvestments.com

3. 3 An understanding of how tax-efficient investments can be used to complement pensions and retirement planning, as well as the structure of these investments and tax reliefs available. An understanding of some key tax planning ideas for the older client market. The means of identifying clients who may benefit from tax planning solutions and where these solutions could potentially fit among other planning considerations. Tax planning ideas and strategies to discuss with solicitors and accountants. LEARNING OBJECTIVES

4. 4 People living longer Over 85s fastest growing market segment Clients could be in retirement for over 30 years Need to preserve capital and provide an income Investment and Tax decisions key drivers Advisers working with third parties RETIREMENT PLANNING

5. 5 Pension changes Strengthening of anti tax-avoidance schemes Statutory reliefs and incentives not targeted by General Anti-Avoidance Rules (GAAR) – Pensions – ISA – Business property relief – Venture Capital Trusts – Enterprise Investment Schemes RECENT CHANGES IN LEGISLATION

6. 6 WHY IS THIS IMPORTANT? Clients have a genuine need for advice in a complex area Additional tax-efficient investments could complement retirement planning Planning that your clients will really value If you don’t tell your clients will somebody else? “THE CHANGES MARK A FURTHER MERGING OF RETIREMENT PLANNING AND INVESTMENT PLANNING.” Tony Wickenden, Managing Director, Technical Connection

7. 7 Investment/Accumulation period – Diversification – Tax Relief on Investments – Investor Access – Tax on Income – Tax on Capital gains – Inheritance tax Withdrawal/Decumulation period – Tax on Income – Tax on Capital gain – Inheritance Tax on death – Recovery Charge on Death IINVESTMENT DECISIONS WHEN PLANNING FOR RETIREMENT TAX

8. 8 Registered Pension NISA UK Collectives Offshore Reporting Fund Offshore Non-Reporting Fund UK Investment Bond Offshore Investment Bond Retirement Fund? PensionsISACollectives Insurance Property (buy to let) Cash VCTEISOther

9. 9 For illustration purpose only. Minimum investment relates to Octopus products The investment will be subject to an initial fee and ongoing fees, including administration fee and an annual management charge. Tax relief is on investments up to £200,000 (VCT) and £1,000,000 (EIS) in a tax year and assuming shares are held for five and three years respectively. HOW DO EIS AND VCTs COMPARE? INCOME TAX RELIEF MINIMUM TERM MAXIMUM INVESTMENT MINIMUM INVESTMENT DIVIDENDS GROWTH CGT DEFERRAL IHT EXEMPTION (BPR) LOSS RELIEF Up to 30% 3 YEARS* £1m (plus £1m carry back) £25,000 TAXED TAX EXEMPT YES – NO MAXIMUM AFTER 2 YEARS YES EIS Up to 30% 5 YEARS £200,000 £5,000 TAX EXEMPT VCT *Minimum holding period is 3 years but given the nature of unquoted stocks, investors should expect to hold for around 4 years.

10. 10 VCTS AND EIS CAN COMPLEMENT PENSIONS Should not be read as advice. Any decision in respect of suitability should be based on a holistic review of investor objectives, needs and risk profile. *Some taxpayers losing their personal allowance can achieve a higher marginal rate relief. †Maximum annual investment on which income tax relief is available. ≠From 6/4/15 IHT-free under age 75 and taxable at marginal rate at age 75 and over ‡ If held for two years and at time of death ¹Minimum holding period is 3 years but given the nature of unquoted stocks, usually around 4 years PENSIONSVCTsEIS Income tax relief20-45%*30% Tax-free incomen/aVia dividendsn/a Tax-free exit25% tax-free cash100% tax-free cash Capital gains tax (CGT) on gains None Investment limits£40,000 p/a£200,000 p/a † £1m p/a + £1m previous year † Tax upon deathPositive change from 6 April 2015 ≠ Estate may pay tax at 40%100% IHT relief ‡ Lifetime allowance£1.25 millionUnlimited Minimum holding periodBenefits from age 55Five yearsThree years¹

11. CASE STUDIES: PART ONE TAX PLANNING IDEAS

12. 12 The following client tax scenarios are designed to assist you in developing your own client strategy where appropriate. Among other things, you will need to consider the eligibility and timings of tax reclaims and tax liabilities depicted, and also the impact of charges (i.e. initial fee and ongoing fees, including administration fee and an annual management charge), as relevant to the products(s) represented and/or any specific product you have chosen. VCTs and EIS are high risk investments and have a higher risk profile than typical pension investments, they are therefore only suitable for certain investors who can tolerate the risks associated with smaller company investment. For most clients tax-efficient investments such as VCTs or EIS will make up no more than a small proportion of their overall portfolio. For more details, please see the relevant product literature. Our examples are for illustration purposes only and assume no loss or gain on the investments, although fluctuations will apply in practice. The tax situation should be assumed as is stated. For the calculations used we have assumed that the Lifetime Allowance is fixed at £1.25million. The effects of inflation have not been taken into account. Unless stated calculations are based upon the investor being a higher rate tax payer. A NOTE ON THE FOLLOWING SCENARIOS

13. 13 1. PHASING CGT USING EIS For illustrative purposes only and assumes no gains or losses on investments. you will need to consider the eligibility and timings of tax reclaims and tax liabilities depicted, and also the impact of charges (i.e. initial fee and ongoing fees, including administration fee and an annual management charge), as relevant to the product(s) represented and/or any specific product you have chosen. Buy-to-let property currently valued at £144,000 Purchased for £100,000 Higher rate tax payer After annual allowance left with £33,000 taxable gain which would result in a CGT issue (£9,240) Buy-to-let property

14. 14 1. PHASING CGT USING EIS 1 Minimum holding period is 3 years but given the nature of unquoted stocks, 4 years has been used for this illustration. For illustrative purposes only and assumes no gains or losses on investments or increase in CGT allowance. You will need to consider the eligibility and timings of tax reclaims and tax liabilities depicted, and also the impact of charges (i.e. initial fee and ongoing fees, including administration fee and an annual management charge), as relevant to the product(s) represented and/or any specific product you have chosen. £33,000 EIS investment Date of investment Hold for qualification period £22,000 Remains in EIS investment +4 Years 1 £11, 000 Annual CGT allowance £11,000 Remains in EIS investment +5 Years £11,000 Annual CGT allowance +6 Years £11,000 Annual CGT allowance, nothing remains in the EIS

15. 15 2. SURRENDERING A BOND, TAX EFFICIENTLY (EIS AND IHT SOLUTION) For illustrative purposes only and assumes no gains or losses on investments. You will need to consider the eligibility and timings of tax reclaims and tax liabilities depicted, and the impact of charges (i.e. initial fee and ongoing fees, including administration fee and an annual management charge), as relevant to the product(s) represented and/or any specific product you have chosen. Client is a higher rate taxpayer Investment bond worth £200,000 (including chargeable gain of £75,000 ) Could create an £80,000 IHT liability for beneficiaries (based on 40% of value) Would like to sell but income tax an issue (£75,000 chargeable gain on investment) Combined nil rate band of £650,000 is exhausted by other assets. Onshore Bond £200,000

16. 16 3. SURRENDERING A BOND, TAX EFFICIENTLY (EIS AND IHT SOLUTION) For illustrative purposes only. Assumes no gains or losses on investments. You will need to consider the eligibility and timings of tax reclaims and tax liabilities depicted, and the impact of charges (i.e. initial fee and ongoing fees, including administration fee and an annual management charge), as relevant to the product(s) represented and/or any specific product you have chosen. ++ = (includes £75,000 gain liable to income tax) £15,000 income tax (at 20%) Home £625,000 Cash £25,000 Investment Bond £200,000 redemption value Estate £850,000 Invest £50,000 in Octopus EIS Surrender Bond Invest remaining £150,000 in an IHT friendly investment e.g. Octopus ITS 30% EIS income tax relief on £50,000 This offsets 20% income tax bill on £75,000 gain from bond saving £15,000 Investment is also IHT-exempt after two years, providing it’s held at death, saving £20,000 30% EIS income tax relief on £50,000 This offsets 20% income tax bill on £75,000 gain from bond saving £15,000 Investment is also IHT-exempt after two years, providing it’s held at death, saving £20,000 IHT-exempt after two years, providing it’s held at death, saving £60,000

17. 17 3. POWER OF ATTORNEY CASES POWER OF ATTORNEY Delegates to attorney to act on behalf of donor Can include investment powers RESTRICTIONS Gifting restrictions apply Placing a policy under trust for a third party constitutes a gift Court of protection approval required for deprivation POWER OF ATTORNEY Delegates to attorney to act on behalf of donor Can include investment powers RESTRICTIONS Gifting restrictions apply Placing a policy under trust for a third party constitutes a gift Court of protection approval required for deprivation POTENTIAL SOLUTION Attorney invests on behalf of donor in BPR solution IHT exempt after two years No gifting required Regular and ad hoc withdrawals available for donor Access maintained Strategies that target capital preservation are available POTENTIAL SOLUTION Attorney invests on behalf of donor in BPR solution IHT exempt after two years No gifting required Regular and ad hoc withdrawals available for donor Access maintained Strategies that target capital preservation are available 17 For illustrative purposes only. Access subject to availability of liquidity.

18. 18 4. REDUCING IHT ON ISAs Scenario ISA portfolio worth £150,000 Client has property worth £650,000 Problem ISA wealth subject to 40% inheritance tax reducing value to beneficiaries by £60k Potential solution Octopus AIM Inheritance Tax ISA 100% IHT-free after 2 years Accepts transfers Regular withdrawals available Usual ISA benefits e.g. no CGT on gains or income tax to pay on dividends. For illustrative purposes only. Access is subject to liquidity. ISAs transferred to a spouse on death now retain tax benefits. But ISAs are subject to inheritance tax on death of survivor.

19. CASE STUDIES PART TWO: PENSIONS

20. 20 TAX RELIEF COMPARISON For illustration purposes only. Tax-free growth and dividends No income tax relief on investment ISA Up to 30% income tax relief* Tax-free growth and dividends Pension Up to 45% tax relief on contributions 25% tax- free but rest is taxed Up to 30% income tax relief* Tax-free growth EISVCT *Tax relief is on investments up to £200,000 (VCT) and £1,000,000 (EIS) in a tax year and shares must be held for minimum qualifying periods.

21. 21 THE EFFECT OF TAX TREATMENT Pension/SIPPISAVCT/EIS Effective cost*£60k Tax relief on way in£40k**n/a£25k Investment value£100k£60k£85k After 100% growth£200k£120k£170k Exit value after tax†£140k£120k£170k This example is designed to illustrate tax treatment of different investment products only. These investments are likely to have very different risk profiles. You will need to consider the eligibility and timings of tax reclaims and tax liabilities depicted, and also the impact of charges as relevant to the product(s) represented. All capital is placed at risk, including that shown as tax relief on the way in. For comparison purposes 100% growth is assumed. Performance can never be guaranteed and tax rules are subject to change. VCTs are not suitable for everyone. Figures have been rounded. *Effective cost is the total capital invested minus any tax reliefs on initial investment amount. **20% reclaimed through self assessment †Assumes client is higher rate taxpayer and has not reached the lifetime allowance

22. 22 6. MAXIMISING RELIEFS Client invests £156,666 in VCT/EIS £32,000 Net Pension contribution £8,000 basic rate tax relief £15,000 ISA £10,000 additional rate reclaim £47,000 Income tax relief For illustrative purposes only. Assumes no gains or losses on investments. You will need to consider the eligibility and timings of tax reclaims and tax liabilities depicted, and the impact of charges (i.e. initial fee and ongoing fees, including administration fee and an annual management charge), as relevant to the product(s) represented and/or any specific product you have chosen. Client is additional rate taxpayer £156,666 investment has maximum funded Pension (£40k) & ISA (£15k) Total investment = £211,666 (plus £10,000 reclaim) VCT/EIS have 5 yr/3yr* respective minimum holding period Opportunity to repeat at this point in another VCT/EIS *Minimum holding period is 3 years but given the nature of unquoted stocks, usually around 4 years

23. 23 HOW EARLY SHOULD CLIENTS CONSIDER THE LTA? ClientPension potAnnual contribution Hit LTA at? Value of pension fund at 65 Age 30 Wants to retire at 65 £125,000£10,000 (net cost £6,000) 61£1.6 million pension (£350,000 excess) Age 40 Wants to retire at 65 £350,000£15,000 (net cost £9,000) 58£1.9 million pension (£650,000 excess) Age 50 Wants to retire at 65 £450,000£24,000 (net cost £14,400) 63£1.5 million pension (£250,000 excess) For illustrative purposes only. Assumes annual pension growth of 5% and that clients are higher rate taxpayers.

24. 24 CLIENTS TO CONSIDER This could affect any client but especially… ClientWhy? Clients who want to save/invest >£40k per year Tax charges apply on annual contributions above £40k Those who have applied for transitional protection Ability to accrue further benefits is limited

25. CASE STUDIES: DECUMULATION

26. 26 6. FLEXI-ACCESS DRAWDOWN USING VCT OR EIS New legislation allows any amount to be withdrawn from pension. BUT only Pension Commencement Lump Sum (PCLS) is tax-free Clients could consider: Investing into VCT to target tax free dividends and offset income tax on way out of pension Investing into EIS to offset income tax on way out of pension and BPR after 2 years Recycling funds from pension to BPR over number of years (tax efficiently) to provide IHT exemption after 2 years and full access For illustrative purposes only. Assumes no gains or losses on investments. you will need to consider the eligibility and timings of tax reclaims and tax liabilities depicted, and the impact of charges (i.e. initial fee and ongoing fees, including administration fee and an annual management charge), as relevant to the product(s) represented and/or any specific product you have chosen.

27. 27 9A. FLEXI-ACCESS DRAWDOWN USING VCT OR EIS (BASIC RATE TAXPAYER) Client: Basic rate taxpayer, looking to boost income above the rate of inflation Pension fund: £200,000 Income: £20,500 For illustrative purposes only. Assumes no gains or losses on investments. you will need to consider the eligibility and timings of tax reclaims and tax liabilities depicted, and the impact of charges (i.e. initial fee and ongoing fees, including administration fee and an annual management charge), as relevant to the product(s) represented and/or any specific product you have chosen. VCTs could provide tax-free dividend of 5% (c. £850 p/a). Access to capital after 5 years. EIS are IHT-free after 2 years. Minimum holding period is 3 years but given the nature of unquoted stocks, usually around 4 years. Crystallises £20,000 £5,000 tax-free cash £15,000 of taxable income @ 20% = £12,000 net Invest £17,000 into VCT/EIS £5,100 tax relief Net cost of withdrawing £20,000 = -£2,100 i.e. rebate received Dividends cannot be guaranteed. Access subject to liquidity.

28. 28 9B. FLEXI-ACCESS DRAWDOWN USING VCT OR EIS (HIGHER RATE TAXPAYER) Client: Higher rate tax payer, looking to prepare for tax-efficient retirement Pension fund: £500,000 For illustrative purposes only. Assumes no gains or losses on investments. you will need to consider the eligibility and timings of tax reclaims and tax liabilities depicted, and the impact of charges (i.e. initial fee and ongoing fees, including administration fee and an annual management charge), as relevant to the product(s) represented and/or any specific product you have chosen. VCTs could provide tax-free dividend of 5% (c. £1,750 pa). Access to capital after 5 years. EIS are IHT-free after 2 years. Minimum holding period is 3 years but given the nature of unquoted stocks, usually around 4 years. Dividends cannot be guaranteed. Access subject to liquidity. Crystallises £50,000 £12,500 tax-free cash £37,500 of taxable income @ 40% = £22,500 net Invest £35,000 into VCT/EIS £10,500 tax relief Net cost of withdrawing £50,000 = £4,500 i.e. 9%

29. 29 ABOUT OCTOPUS 2000 Est. OVER 3,000 ADVISERS HAVE RECOMMENDED US TO 50,000 INVESTORS More than 300 employees including 80 investment professionals supported over 450 smaller businesses OVER £4.7BN AUM Largest provider of VCTs in the UK* *Source: Octopus, Association of Investment Companies. October 2014. †Source: Tax Efficient Review 2014 Largest provider of EIS in the UK†

30. 30 HOW DO WE WORK WITH ADVISERS? ONE We share a planning idea or concept TWO Bring that idea to life by applying it to a live situation in your client bank THREE We can provide close support up to and including at your client meeting Business Development Managers in the field, supported by office based counterpart Generic case studies including pensions-focused Product literature Planning ideas ‘Reasons Why’ pro formas Webinars Attend client meetings

31. 31 An understanding of how tax-efficient investments can be used to complement pensions and retirement planning, as well as the structure of these investments and tax reliefs available. An understanding of some key tax planning ideas for the older client market. The means of identifying clients who may benefit from tax planning solutions and where these solutions could potentially fit among other planning considerations. Tax planning ideas and strategies to discuss with solicitors and accountants. LEARNING OBJECTIVES

32. OCTOPUS IS HERE TO HELP. If you have any questions or need any help after today’s event, please call us on 0800 316 2067 More information is available at www.octopusinvestments.com