The Octopus Inheritance Tax Scheme Is Unraveling — and Retirees Are Paying the Price

The idea of a retired couple who are cautious savers and read the fine print being informed that they are unable to access their own funds is subtly unsettling. It was due to a complicated business deal that no one seemed to anticipate, not fraud or a bank failure. Thousands of investors in the Octopus Inheritance Tax Service are currently in this predicament. Additionally, it gets more difficult to reassure them that everything is okay the longer the pause lasts.

The Octopus Inheritance Tax Service, or OITS as it is known in financial circles, was a product that sat comfortably at the nexus of two very British anxieties: the desire to take sensible action and the fear of a 40 percent inheritance tax bill. By offering to lower inheritance tax obligations through eligible business relief investments, the program drew in about 18,000 investors. It appeared to be a sensible, if specialized, solution for ten years. Then, withdrawal requests were put on hold on July 9 of this year.

Advisers were informed it would take about a week. Six to eight weeks after that. The justification put forth was that a possible deal involving a portion of the OITS portfolio was in progress; this transaction was complicated enough that, according to Octopus, accurately pricing the fund had become truly challenging.

In short, it wouldn’t be fair to investors to buy or sell at a price that doesn’t reflect true value, according to Kristy Barr, head of retail investments at Octopus Investments. It’s a sensible stance. However, it hasn’t done much to ease the anxiety of those who are waiting and seeing their investments lose value.

The Telegraph’s revelations in the preceding weeks have given the story more texture, but it’s not the cozy kind. According to reports, the scheme used investor funds to support failing care facilities and hospitals. It is currently up for debate whether investors were sufficiently informed about the nature of those particular holdings. The underlying assets might have always been riskier than the product’s reputation indicated. Another possibility is that a false sense of stability was produced by years of low-key operations.

The advisory community’s reaction has been instructive. Long before the suspension was made public, St. James’s Place, one of the biggest wealth managers in Britain, discreetly removed OITS from its investment panel last year. In October, Fairstone Group discontinued it. Openwork Collaboration in May. None of the three companies have provided an explanation to the public. Even in the absence of a press release, that kind of silent, well-planned product withdrawal says a lot.

For its part, Octopus hasn’t stopped talking. After the suspension was made public, the company reportedly offered direct phone calls to impacted investors, held adviser webinars, and updated its website. They seem to be attempting to handle this cautiously rather than recklessly. However, some investors are currently finding it difficult to overlook the distinction between transparency as standard practice and transparency after scrutiny.

Whether programs like OITS, which are business relief vehicles that essentially allow wealthier estates to avoid inheritance tax through qualifying investments, merit the kind of scrutiny they are finally receiving, is the larger question that hangs over all of this. The underlying tax break has already been referred to by The Times as “ludicrous.” It’s unclear if that viewpoint will gain political traction.

There are currently 18,000 investors waiting. Some are more urgent than others. Furthermore, the wealth managers who sold them this product have mostly remained silent.