Innovation in the fund management market has provided many ways for retail investors to gain exposure to infrastructure. Until recently, renewable energy producing infrastructure assets such as Solar Farms and Anaerobic Digestion plants qualified under the tax efficient venture capital trust and enterprise investment scheme regimes.
Significant sums were raised from private investors to help kick-start emerging renewable energy technologies before legislative change meant the assets no longer qualified.
Private investors looking for inheritance tax relief can still access the asset class through a range of vehicles that many also qualify for business property relief (a relief that reduces inheritance tax).
| What qualifies for business property relief? |
According to HM Revenue & Customs, you can get 100 per cent Business Relief on: ■ a business or interest in a business ■ shares in an unlisted company You can get 50 per cent Business Relief on: ■ shares controlling more than 50 per cent of the voting rights in a listed company ■ land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled ■ land, buildings or machinery used in the business and held in a trust that it has the right to benefit from You can only get relief if the deceased owned the business or asset for at least 2 years before they died. |
Investors looking for yield can secure attractive index-linked returns from renewables infrastructure investment companies like Foresight Solar Fund Limited, which, when held in an Isa or a self-invested personal pensions, can deliver dividend income tax-free and attract no capital gains liability.
Opportunities
But where within this interesting sector are the best opportunities for retail investors over the next few years?
A transformational change is underway in global energy markets due to increased renewable energy generation, the phasing out of certain fossil fueled generation and a move towards more distributed and flexible energy generation and smart grids.
In December 2015 at the Paris Climate Conference, 195 countries adopted the first ever universal, legally binding global climate deal which set out a plan to limit global warming to less than 2°C above pre-industrial era temperature levels.
According to the Paris Agreement: “Scientists believe that a greater increase in temperature would be very dangerous. The agreement even establishes, for the first time, that we should be aiming for 1.5°C, to protect island states, which are the most threatened by the rise in sea levels.”
The agreement also required all countries to review the ways in which they aim to reduce their greenhouse gas emissions every five years from 2020. They will not be able to lower their targets and are encouraged to raise them.
Factors such as this agreement have been disrupting the traditional centralised utility-led power markets and presenting a number of interesting investment opportunities both to institutional and retail investors.
The UK still has a long way to go in reducing its reliance on landfill for residual waste disposal and the sector will require investment capitalBoth small scale flexible gas based generation and the nascent storage market look like they will play an increasing role moving forward as the most logical way to balance the intermittency of renewables.
