AIM shares: what are the benefits?

Inheritance Tax receipts from April 2023 to February 2024 were £6.8bn - £0.4bn higher than in the same period a year earlier, latest official figures show. Further, the Office for Budget Responsibility (OBR) recently forecast that by the tax year 2028/29 IHT receipts will increase by 37% to around £9.7bn.

While there are many IHT mitigating strategies Financial Advisers have in their toolbox there are few as simple, transparent, or flexible as investing in a portfolio of shares listed on the Alternative Investment Market (AIM), that qualify for Business Relief.

A quick overview of AIM

AIM is a sub-market of the London Stock Exchange (LSE). The market was established to support smaller, dynamic, high-growth companies. Since its early days almost 30 years ago, it has transformed and matured.

Today, many of AIM’s largest constituents would be part of the FTSE250 if listed on the main market; however, investing in AIM remains an opportunity for clients to take part in the success of exciting, innovative, British businesses.

Investing in a portfolio of AIM shares also provides other benefits

1. Inheritance tax relief

Without taking the appropriate advice and measures, individuals who have amassed wealth over their lifetime may be at risk of not being able to pass on as much as they hoped to loved ones.

Financial advisers may consider Business Relief solutions if they feel they meet a client’s objectives and risk profile. Business Relief is a statutory relief provided by the UK government as a way of incentivising the investment in specific types of trading companies– including many companies that are quoted on AIM. Once assets qualifying for Business Relief are held for a minimum of two years, they are exempt from Inheritance Tax (providing they are still held at the time of death).

Charles Stanley’s specialist AIM team build diversified, well-balanced portfolios of AIM shares, that crucially, qualify for Business Relief. Our expert Tax Advisers provide us with confidence that our investments will qualify for the relief. Since the start of our AIM service in 2012, we have mitigated Inheritance Tax for over 500 families.

2. ISA tax benefits

AIM shares can be purchased within an ISA. Although ISAs are Income Tax and Capital Gains Tax free, many people don’t realise that when someone passes away their ISA will be subject to Inheritance Tax. The number of ISA millionaires is growing each year and is now thought to be more than 4,000 people. Transferring an existing stocks & shares ISA to an AIM service could be a great opportunity for an adviser to save their client from paying Inheritance Tax.

Investing in AIM shares within an ISA is the only strategy that can be used to ensure that the ISA is free of Inheritance Tax, without breaking open the ISA wrapper. This makes AIM one of the most tax-advantageous markets for investors, as the ISA would be free of Income Tax, Capital Gains Tax and if held for the requisite two years – Inheritance Tax.

3. Access and control

Various Inheritance Tax mitigating strategies involve relinquishing some degree of control and ownership of assets; to many, this feels uncomfortable and irreversible. When investing directly in AIM, an individual retains full control and has the ability to distribute the income generated, or liquidate part, or all, of the portfolio at any stage. Should a client’s circumstances change, there is no penalty for realising the portfolio, other than the normal transaction charges.

4. Speed

Currently, the qualifying period for business relief investments is just two years. Comparatively, a large gift would take seven years to be excluded from an estate for inheritance tax purposes.

If the two-year holding period is not met, the surviving spouse or civil partner can inherit the portfolio without restarting the required holding period.

5. Can be created under a Power of Attorney

IHT planning is an area that Attorneys can find confusing and restrictive. A portfolio of AIM shares can be created under a Power of Attorney or Court Order. This is because the investments remain in the beneficial owner’s name, no gifts need to be made.

6. Simple

AIM portfolios are straightforward and do not involve some of the legal complexities of other IHT planning strategies, like trusts. The only difference between a regular stocks and shares account and an AIM portfolio is that an AIM portfolio holds shares that should qualify for Inheritance Tax relief when the holder dies.

Why choose the Charles Stanley AIM IHT Portfolio service?

In November 2023, we were very proud to be announced as the winners of the Best AIM Service award at the 9^th Annual Growth Investor Awards 2023. We previously won this award in 2020 and 2021. Our dedicated, specialist team has a long track record of generating returns for clients from investing in AIM-quoted businesses. The team focus on selecting established, profitable and cash generative companies.

This service should be regarded as high risk because it is exclusively focused on smaller company shares. Share prices on AIM may be more volatile than those on the Official List of the London Stock Exchange and, at times, it may be difficult or impossible to sell such shares.

Due to the high risk nature of the service and the important tax planning element, Charles Stanley require that clients seek financial advice, regarding their Inheritance Tax liability, before opening an AIM portfolio.