Octopus Investments and Fern Trading: Navigating Inheritance Tax Shelters Amid Fee Controversies

Octopus Investments, a prominent player in the inheritance tax (IHT) relief market, is facing scrutiny over fees charged by Fern Trading Limited, a private company central to its IHT service. Despite substantial losses, Octopus has collected significant management fees, raising questions about valuation practices and potential conflicts of interest.

Fern Trading: A Core Component of Octopus’s IHT Strategy

Fern Trading Limited, established in 2010, operates as a portfolio company within the Octopus Inheritance Tax Service. It is wholly owned by investors in the service and managed by Octopus Investments [1]. The company has grown to encompass a diverse trading group with over 320 companies, valued at approximately £3.47 billion as of June 2024 [3]. Fern’s business activities span sectors including renewable energy, broadband fibre, housebuilding, and lending, all strategically chosen to qualify for Business Relief, a key component of IHT planning.

Fee Structure and Rising Losses

Despite reporting a pre-tax loss of £185 million in the year to June 2024, Octopus Investments extracted £103 million in fees from Fern Trading [2]. This followed £90.5 million in fees the previous year, despite losses of £149 million. Since its inception, Octopus has earned approximately £790 million in fees from Fern [2]. In the year to June 2025, losses widened to £420 million, yet fees remained high at £103.6 million [2].

Octopus charges a management fee of 2.5% on the business’s value up to £3 billion, decreasing to 2.25% on amounts exceeding that threshold [2].

Valuation Concerns and Regulatory Scrutiny

The valuation of Fern Trading, currently at £3.47 billion, is significantly higher than its net asset value (NAV) of £2.16 billion [2]. This premium valuation, coupled with the substantial fees charged despite ongoing losses, has drawn criticism. One independent financial advisor questioned the connection between fees and asset performance, suggesting shareholders are “paying Octopus to destroy value” [2].

These practices are occurring as the Financial Conduct Authority (FCA) issues warnings regarding valuation issues and conflicts of interest in private markets, emphasizing the need for strong governance frameworks [2].

Impact of Broadband Fibre Investments

A significant contributor to Fern Trading’s losses is its broadband fibre division, including AllPoints Fibre and Vorboss. The company took a £125 million impairment charge against this division, with underlying earnings falling £135 million into the red, adding to previous losses [2]. Fern anticipates continued operating losses in the fibre sector as it builds its customer base.

Octopus’s Response

Octopus Investments maintains that Fern Trading continues to invest in new business areas that require significant upfront expenditure but are expected to generate long-term revenues. The company attributes the recent losses to these investments, particularly in the fibre portfolio, and one-off impairments [2]. Octopus states that it identifies and transparently reflects challenging market conditions and writedowns through a robust valuation committee process, including independent review.