Octopus Investments has waived the fees on one of its tax-incentivised investment scheme tranches after its underlying media holdings dropped in value.
The company will not reintroduce the 2 per cent plus VAT fees until it can return its investors’ money in full.
The group said some of the media-related businesses in tranche 2 of its enterprise investment scheme (EIS) had seen their valuations fall, meaning the value of the holdings were down to 73p for every pound initially invested.
HM Revenue & Customs says an EIS is designed to help smaller higher-risk trading companies raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies. Shares must be held directly and for three years to receive a 20 per cent tax relief.
Octopus said the fall in value of media investments has affected 170 customers out of the 50,000 it serves and the investments represent £18m out of £500m it invests in companies that qualify for tax relief.
The companies the EIS tranche had invested in included film sales agencies, movie development companies, and some businesses that sold music scores for films.
It said there was no single trigger that had led to some of the valuations falling but rather some had suffered underperformance.
John Thorpe, Octopus’s business line manager for EIS, said the situation was “clearly disappointing”, adding that the company would be “sharing the pain”.
“Even though investors only put 80p in the pound in after the tax relief, we have made a commitment that if we are not able to return at least 100p, we don’t take our annual management charge,” he said.
He added that Octopus’s investment team no longer invested in media companies in its other EIS tranches, instead focusing on other areas, such as renewable energy.
