2019 was the second hottest year ever recorded globally; only narrowly beaten by 2016. It was also the year that saw devastating Australian bush fires and yet more flooding across the UK. In fact, the decade ended as it – and indeed the 21st century – began with soaring temperatures and catastrophic natural disasters.
It is no wonder then that a growing number of investors are keen to put their money to good use through environmental, social and governance (ESG) investing, which supports businesses and projects focused on promoting a more sustainable planet.
In April 2020, TIME Investments published a survey of UK based financial advisers which revealed that the majority (92%) had seen an increase in demand from their clients for investments that have a positive impact on society and the environment.
At the same time, more investors recognise that leaving a legacy is no longer solely about passing money down to the next generation. Many investors want to do more with their money and invest in the future to help halt or even reverse the damage to our planet.
Fortunately, successful and sustainable investing are not mutually exclusive. The means by which individuals can put their money to good use both socially and environmentally, without sacrificing returns, have increased exponentially over the past decade.
For example, the investment opportunities in the green energy sector are clear. Since 1990 CO2 emissions have fallen by 43% and, over the most recent period during the COVID-19 lockdown, the UK has gone over two months without burning any coal. The UK Government has committed to harnessing 15% of the national energy from renewable sources this year, and to reducing carbon emissions to zero by 2050. To meet this target we will need to generate 250GW of energy from clean sources in the next 30 years; given that we currently produce just 33GW today, increased investment will be vital to achieve this.
Critically, nearly all (98%) of advisers surveyed by TIME have experienced an increase in demand from clients looking to ensure they leave a financial legacy, yet just 32% have made any impact investments. There are many means by which investors who are socially conscious can marry the two and invest in areas that invoke positive change whilst also growing the value of their legacy.
One route to investing sustainably, while simultaneously planning your estate efficiently, is through Business Relief. More than a third (37%) of advisers surveyed believe Business Relief offers the answer to those looking for ESG strategies while providing for the next generation, yet less than a quarter of investors have opted for this route.
Investments that qualify for Business Relief can be passed free of Inheritance Tax (IHT), as long as they have been held for two or more years and on death. Qualifying shares are typically those in an unquoted company or a business listed on the Alternative Investment Market (AIM). Investors keep control of the investment until death, which means they maintain control of and access to their money.
For HM Revenue & Customs the loss of IHT is more than compensated for by the taxes generated by these small and often homegrown businesses. A growing number of renewable energy generating businesses are now part of this group, making it easy for investors planning their estate to also invest sustainably.
The latest Business Relief report from Intelligent Partnership reveals 16 Business Relief managers provide access to renewable energy generation as an investment sector, with some investing the majority of their portfolios in clean energy production.
In allocating significant amounts to renewable projects, Business Relief managers – and their investors – can make a notable difference to the environment. For example, two-thirds of TIME Investments’ Inheritance Tax service, TIME:Advance, is invested across four renewable energy sectors (wind, solar, hydro and biomass) equating to over £400m.
This investment translates into generating enough energy to power 84,500 UK homes per year, offsetting 74,200 tonnes of carbon per year and equivalent to planting over 37.5 million trees. In addition to generating clean energy, TIME’s service targets an annual return of 3% – 4.5% p.a. on the net amount invested after fees and costs.
The win/win is clear: investors can support businesses that generate clean energy during their lifetime and grow a financial legacy for future generations that should be IHT-free on death.
Responsible investment is no longer a niche or fringe consideration and is gradually becoming core to many portfolios. Investors who want to leave a lasting legacy for their loved ones know that they must look beyond short-term rewards and towards strategies that will provide sustainable returns for the long term.
With so much at stake for the next generation, it makes sense to invest in sustainable strategies that protect the planet whilst growing a tax-efficient legacy using Business Relief.
You can learn more about sustainable legacy planning by watching our webinar, please submit your email address below to access the recording.
 TIME Investments, data correct as at 31 March 2020Posted: 01/07/2020 Categories: Inheritance Tax, News, TIME:Advance