Using AIM shares to mitigate inheritance tax

12 Apr 2021

Robert Travis

Investment Director

Some AIM shares qualify for business relief, meaning they become exempt from inheritance tax once they’ve been held for two years. 

Business relief (BR), formerly Business Property Relief, was first introduced in the 1976 Finance Act. The aim was to ensure that on the death of an owner, a family-business could continue trading without any part of it having to be sold to pay Inheritance Tax (IHT).

How do AIM shares qualify for business relief?

Following the 1976 Finance Act, governments have looked to encourage external investment into early-stage, high-growth businesses by extending BR to shares in a qualifying company listed on the Alternative Investment Market (AIM).

Under current tax rules, unlimited exemption from IHT is available on shares qualifying for BR held at the point of death, provided that the investor has held them for at least two years.

What is the Investec AIM Portfolio IHT Plan?

This plan is a fully regulated investment product that invests in a diversified portfolio of AIM shares. Its objective is to reduce the IHT liability on assets passed on to the next generation whilst also aiming to deliver outstanding long-term investment performance.

The advantage it has over alternative estate planning strategies, such as gifting into trusts, is that the investor retains control of the assets, and can, therefore, withdraw them at any time.

ISAs can also be set up or transferred into Investec IM IHT Portfolio Plan, which means investors can benefit from exemptions from IHT, income tax, capital gains tax (CGT) and stamp duty on the purchase of AIM shares.

What is the plan’s track record?

The plan was established in 2002 and is managed by a dedicated and highly experienced team, paying particular attention to the ability of the underlying businesses to withstand turbulence in their markets.  IT has a long-term proven track record and, in the 10 years to 31 December 2020, produced an average return of 212.2%, net of all costs.*

What are the risks involved?

It is important to note that, despite stock-specific risk being mitigated by investing in a broad portfolio of AIM stocks, this plan should be regarded as a high-risk, long-term investment.

The rate of IHT, the amount of the nil-rate band and the available exemptions could change which could have a resulting impact on the tax relief achieved.

Clients should receive appropriate advice and ensure that they fully understand the risks involved before investing. Advice about the risks and suitability of this plan can be obtained from myself or your local Investec representative.
 
 
* Source: Factset as at 31st December 2020 and Investec Wealth & Investment Limited
Note: Average total return on all active client portfolios calculated on the net initial investment after all IW&I initial and ongoing charges

Investors should be aware that the value of portfolios can fall as well as rise and therefore there is a possibility of loss of the capital invested. Past performance should not be seen as an indication of future performance.

About the author

To contact or read more about Robert Travis visit his biography here.

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