Knowledge

AIM IHT planning scenarios

Explore the different ways you can use an AIM portfolio to mitigate inheritance tax for your clients.

AIM Inheritance Tax Portfolio How we work with you

Case study

Could AIM help your clients who have sold their business in the last three years?

Find out how this works in our client example below.

Executive summary

Family businesses often qualify for business relief and can be passed on to beneficiaries free of inheritance tax. If a client chooses to sell their business, they can lose this exemption if the sale proceeds remain in cash.

Fortunately, if the business has been sold within the last three years the client could choose to reinvest some, or all, of the proceeds into an AIM portfolio. In this scenario, the AIM portfolio would immediately qualify for inheritance tax relief if the client passed away.

See how this works in numbers AIM Inheritance Tax Portfolio

A little about Sarah

Sarah had successfully built Josa Gardens from little more than an allotment to a successful company with three garden centres.
Sarah’s children weren’t interested in taking over the business as both had their own flourishing careers. Sadly, Sarah’s husband, John, suddenly passed away and Sarah made the decision that it was time to hang up her gardening gloves for good.
Shortly after putting Josa Gardens up for sale, Sarah received an offer of £1 million which she accepted.

See how this works in numbers AIM Inheritance Tax Portfolio

The problem

Sarah and her late husband John had built up plenty of savings. This meant Sarah could enjoy an easy retirement. However, following discussions with her financial adviser, she realised that the value of her estate was significantly above her inheritance tax allowance thresholds.
The shares in Josa Gardens had qualified for 100% inheritance tax relief, but the sale proceeds did not.

See how this works in numbers AIM Inheritance Tax Portfolio

The solution

Sarah met with her financial adviser who assessed her objectives, risk appetite and capacity for loss. After discussion, the financial adviser recommended that she reinvest the proceeds back into business relief qualifying assets, in Sarah’s case a portfolio of AIM shares, as she had plenty of assets and was willing to accept a higher level of risk.
The adviser explained that as it had been less than three years since the sale of Josa Gardens, the new AIM portfolio would immediately qualify for business relief.
One year after investing in the AIM portfolio, Sarah sadly passed away. As business relief tax legislation remained the same and Sarah held the AIM shares at death, her investment qualified for business relief in full despite only holding the AIM portfolio for one year.

See how this works in numbers AIM Inheritance Tax Portfolio

Case study

A solution for elderly clients who worry it's too late

Find out how this works in our client example below:

Executive summary

Many elderly clients can worry that they have left their inheritance tax planning too late. They may feel that they won’t be able to gift assets and live for seven more years. In addition, other solutions like life insurance may not be appropriate.

Business Relief solutions, such as investing in AIM shares, may be able to help. If held for two years and at the time of death these assets should be exempt from inheritance tax.

What’s more, married couples benefit from a joint two-year qualifying period. If the first spouse dies within two years of investing, the business relief assets can be passed to their surviving spouse or civil partner without restarting the two-year clock.

See how this works in numbers AIM Inheritance Tax Portfolio

A little about Arthur and Katrina

Arthur and Katrina had both recently celebrated their 87th birthdays. They met at university and had been together ever since, raising a family that extended to many grandchildren.
Sadly, Arthur suffered a stroke a few years ago. Although he was recovering well, that event and Arthur’s growing immobility prompted the couple to move to an apartment in an upmarket retirement/sheltered development close to several of their children.

See how this works in numbers AIM Inheritance Tax Portfolio

The problem

Before retiring, both Arthur and Katrina had successful careers and had built up significant savings. Arthur also had a large stocks and shares ISA. They already had an inheritance tax liability and after downsizing their property they were left with a significant cash pile.
Although they had considered inheritance tax planning before, they had been nervous about gifting assets away. In their late eighties, they were now worried that they had left it too late to make lifetime gifts, where they would have to live for a further seven years.

See how this works in numbers AIM Inheritance Tax Portfolio

The solution

Arthur and Katrina met with their financial adviser who assessed their objectives, risk appetite, and capacity for loss. After a discussion, the financial adviser recommended that Arthur convert his stocks and shares ISA to an AIM ISA.
The AIM provider would sell down his current holdings and reinvest in AIM stocks. This was the only way to get the ISA out of his estate’s potential inheritance tax liability without breaking open the ISA wrapper and this approach should make the ISA free of inheritance tax within two years if held at the time of death.
If Arthur were to die within two years of making the investment and was survived by Katrina, his ISA of AIM shares could pass to her tax free to continue the two-year business relief clock. As long as one spouse survives for two years from the point of initial investment, the shares should be free from inheritance tax.

See how this works in numbers AIM Inheritance Tax Portfolio

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