Renewable energy is created from replenishing resources such as the sun and wind - and the sector has become increasingly popular among investors, bolstered by a supportive regulatory and tax environment.  

The UK Government has strengthened investment into renewable energy as it has looked to reduce the emission of greenhouse gases throughout the country. Notably, the Government has committed to a legally binding net zero target if 2050, which will require substantial growth in cleaner energy.

For example, as part of its push to achieve net zero, the Government has set a range of specific targets and projects such as installing 600,000 electric heat pumps annually by 2028 to replace gas boilers, as well as establishing 300,000 publicly accessible charging stations for electric vehicles by 2030.

This policy agenda has created a supportive environment for investment in renewables, and it could also provide investors with opportunities to mitigate inheritance tax (IHT). In this article, we provide further detail on the investment opportunity presented by renewables and how this is providing opportunities for Business Relief (BR) products.

How does the renewable energy sector work in the UK?

Renewables provide around a third of the UK’s energy, predominantly created through wind, solar and biomass. The key methods of generating renewable energy in the UK are:

- wind: turbines convert power from the wind into electricity.

- solar: electricity is generated from the sun’s rays through panels on rooftops or on the ground; and

- biomass: energy is generated from burning wood and other organic matter such as household waste.

In particular, the UK is a world leader in wind energy, with nearly 9,000 turbines onshore and 2,760 offshore, according to figures from industry group RenewableUK. They create enough energy to power the equivalent of more than 25.7 million homes.

The solar energy market is also growing fast. Figures from Solar UK show around one million solar panel systems are installed on homes around the UK and a growing number of businesses are installing solar panels on the roofs of their buildings.

What opportunities can renewable energy offer investors?

Some of the funding driving the renewable energy market comes from specialist private investors, such as Armstrong Capital - which manages the solar strategy of the ProVen Estate Planning Service (PEPS).

Because the sector benefits from government support and incentives, investors may receive stable dividend yields that can provide steady income streams.

For example, the trading companies backed by the solar strategy of PEPS receive income from the Government’s historical feed-in-tariffs (now closed to new projects). Feed-in-tariffs are long-term contractual agreements put in place by the Government - lasting up to 25 years - to pay renewable energy producers a guaranteed, above-market rate for electricity they generate.

In turn, these revenue streams can facilitate the payment of regular dividends to investors in PEPS looking for income (although these cannot be guaranteed). In fact, PEPS is one of the few IHT services that offers an income option to its investors.

What are the opportunities within Business Relief?

Money invested in companies that qualify for BR will become zero-rated for IHT once the investment has been held for two years. The investment must also be held until death, at which time it should pass on free from inheritance tax.

Shares in companies that qualify for BR can, therefore, be passed on free from IHT if they've been held for at least two years and the individual is still an investor in them at the time of death.

The companies that quality for BR are defined by legislation, and estate planning services – such as PEPS – target investments in BR-qualifying companies. Trading companies focused on the solar sector often fit the criteria set by the government for BR.

Through PEPS, we offer investors the opportunity to invest in trading companies focused on the UK solar energy sector that are expected to be BR-qualifying.

For investors, this offers the chance to tap into the growth of the solar industry, and – crucially – mitigating IHT liabilities.

If you would like to find out more about PEPS and how it works, please read this article on our website. Alternatively, you can get in touch with Beringea, the investment manager, at 0207845 7820 or by emailing info@beringea.co.uk.

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Beringea, as manager of the ProVen VCTs and PEPS, is one of the UK’s leading providers of tax-efficient investment opportunities - managing more than £330m on behalf of around 10,000 investors. Find out more about the ProVen Estate Planning Service (PEPS) here.

This article is for UK residents interested in finding out more about Business Relief and lending strategies. UK tax rules and regulations are subject to change, and such changes may be retrospective. Your ability to obtain tax reliefs will depend on your personal circumstances. It is not our intention to offer legal, tax or investment advice, and we always recommend that investors seek professional advice that can take account of their personal circumstances before making any investment or estate planning decisions. An investment in the ProVen Estate Planning Service should be considered high risk and past performance is not a good indicator of future results.

Important notice: issued by Beringea LLP of Charter House, 55 Drury Lane, London, England WC2B 5SQ, registered in England & Wales number OC342919 and authorised and regulated by the Financial Conduct Authority, number 496358.