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Octopus suspends withdrawals from its IHT scheme Fern Trading.

ended 10. August 2026

The recent suspension of withdrawals from the Fern Trading, the Octopus Inheritance Tax Service (OITS) is a timely reminder that Business Relief (BR) schemes, while highly effective for inheritance tax planning, are very high risk investments. BR portfolios typically invest in qualifying trading businesses, in this case in unquoted private companies, allowing investors to obtain up to 100% relief from inheritance tax after holding the investment for at least two years. However, the tax benefit should never overshadow the underlying investment risk, as investors are exposed to the performance and valuation of the businesses in which they invest. 

One of the most important risks is liquidity. Many BR investments investing in unquoted companies where there is no readily available market to sell the shares. Usually providers aim to facilitate withdrawals, by purchasing back the shares, hwoever access to capital cannot be guaranteed. Octopus recently paused applications and withdrawals from OITS for up to six to eight weeks because a transaction involving part of the underlying portfolio made it difficult to establish a fair valuation. This demonstrates that, in certain circumstances, investors or their executors may be unable to access funds when required.

In Fern case, it seems that valuing their renewable and fibre broadband businesses have become a problem.  The business has relied on a contious flux of new capital which has now got down to a trickle due to share performance in the last 24 months  (-16%, based on the latest net asset value(NAV) before the suspension). By comparison, the Global stock market (represented by the MSCI All countries World Index) went up 44% in the last 2 years. As in this period, £1 became £1.44 versus £0.84, there is alos the argument that investing in Global equities is a better strategy over the long term, even if 40% IHT would have to be paid.

For the clients and their financial adviser agents, the key lesson is that BR investments should be viewed as a very high risk investment, which should be avoided. These type of recommendation may be even the result of self-interested financial advisers charging 1% - 3% initial facilitated by the provider, when the right advice being a trust or a gifting strategy which may have even lead to loss of Assets under Management (AUM) and loss of fees for the financial adviser involved. Unlike many trusts or gifting strategies, BR investments carry investment risk as other diverisified Global equity investments, but also valuation risk, concentrationrisk and liquidity risk. 

I also expect the Financial Conduct Authority (FCA) to look into how these investments are recommended, because there could be cases of breaching the customer duty rules, which request the financial adviser to put the client interest above its own. A solution for Fern to offer liquidy will be be quoted in the future on the Alternative Investment Market (AIM) to allow experienced investors in AIM shares to value the company independently and allow existing investors to obtain liquidity at a discount. 

2 responses from the Newspage community

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Editor
Nouran Moustafa
Practice Principal & IFA at Roxton Wealth
The Fern suspension is a useful reminder that tax efficiency should never be allowed to disguise investment risk. Octopus says withdrawals were paused because a potential transaction could materially affect Fern’s value, making a fair share price difficult to establish. That is understandable from a valuation perspective, but it exposes the liquidity risk clients accept when investing in unquoted businesses.

Business Relief can be valuable, but it is not a free tax solution. Clients take investment, valuation and liquidity risk, and those risks must be weighed against alternatives such as gifting, trusts or simply retaining a diversified portfolio and accepting a potential IHT liability.

For advisers, this is a suitability issue: the tax saving cannot be the whole recommendation. Tax relief should support good planning, not override it.
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Editor
Harvey Dhillon
Founder & CEO at Zmartly
A pause stops the fund. It does not stop the tax clock.

Whether these are worth buying, or whether an adviser broke FCA rules, is not my call. I am not FCA authorised. The deadline is my patch.

Inheritance tax is due six months after the end of the month someone dies. Die in January and it is due by 31 July. After that HMRC charges 7.75 per cent a year, so £100,000 of tax adds about £646 a month. Part of it usually has to be paid before probate, so executors can owe money before they can sell anything. A few weeks would be short against six months. The danger is a longer pause, or one just before the tax is due.

Business Relief normally needs the shares held two years before death. Die inside two years and there is no relief, so the estate is usually taxed at 40 per cent above the £325,000 tax-free band. Relief usually saves 40 pence in the pound. If a fund trails what else you could buy by more than that, the tax saved falls short. Ask what your executors would pay the bill with.