Taking AIM at Inheritance tax

15 February 2018

We have said before that inheritance tax is usually an emotional topic. Indeed, many feel that, having paid tax through the standard tax systems over the years, that it is unfair that, when you die, your estate is subject to additional tax, especially at the current tax rate of 40%, on the amount above the nil rate inheritance tax band (currently £325,000). Obviously, there are additional allowances, if you qualify and the value of your home is sufficient, through the residence nil rate band and we have detailed this position further on our website here: http://www.chaptersfinancial.com/private-clients/inheritance-tax-planning

But what else can you do, especially if you have used up other allowances, such as the annual gift allowance and made gifts from surplus income, where available?

If you are prepared to consider some higher investment risk investment, one option that you could look at is investment into Alternative Investment Market (AIM) shares. As noted on the London Stock Exchange website:

AIM is the London Stock Exchange's international market for smaller growing companies. A wide range of businesses including early stage, venture capital backed as well as more established companies join AIM seeking access to growth capital.

(Source: www.londonstockexchange.com)

You can guess therefore that this opportunity is not for everyone and needs to be considered in line with clients' other assets, their individual circumstances and their attitude to investment risk.

The tax advantage for qualifying shares is that after two years, the investment falls outside the investor's estate for inheritance tax purposes (rather than after seven years as an example if made as a gift) through Business Property Relief (BPR). The investments can also be held within an ISA wrapper (which is normally subject to IHT, but tax free otherwise), and could be achieved, if appropriate, by the transfer of an existing ISA plan within its current tax wrapper into an AIM ISA share portfolio. Financial advice would need to be sought to see if this opportunity is appropriate in each individual circumstance. A useful guide can be found here: https://www.londonstockexchange.com/companies-and-advisors/aim/publications/a-guide-to-aim-tax-benefits.pdf

It is important to note that HMRC determines eligibility for BPR at the point at which probate is sought, and therefore it may not be possible to know for certain at the outset whether an AIM investment will fall outside the estate for inheritance tax purposes. Clearly, this increases the risks of AIM investment.

Chapters Financial is not responsible for the content of external website information.

I think it is possible to get side-tracked into thinking ISAs can carry on tax free after death. They can now be passed to a spouse or civil partner on death and carry on enjoying the tax advantages after an ISA rule amendment published in late March 2015. However, thereafter, anyone else receiving the fund will need to be aware that it forms part of the estate for inheritance tax purposes.

There are many variants / offers of these AIM investment options and these need to be considered carefully. Various criteria are also applied by some providers as to the minimum amount invested, (often around £100,000) and investment charges can also be higher than for more 'mainstream' investments.

If you would like to know more about this opportunity as part of your financial planning, then please contact the team at Chapters Financial. No individual advice is provided during the course of this blog.

Keith Churchouse FPFS


CFP Chartered FCSI

Chartered Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899