Tag: Alternative Investment Market

Smart thinking AIMed to reduce your inheritance task exposure

An IHT opportunity you may not know about

As the game of cat and mouse continues with the government and taxpayers, the scope of tax planning opportunities that are legitimately open for high earners has been steadily reducing in number and variety.

The latest industry figures show that taxpayers paid £5.3bn in inheritance tax in the last year to February 2018. That’s a rise from the £4.7bn paid in 2016/17. UHY Hacker Young, have suggested that there is a real scope to use Business Relief (BR) to further lessen Inheritance Tax (IHT) bills to HMRC. With forecasts predicting that the value of BR to have risen 8% in 2017/18, from £655m in 2016/17.

Investing in the Alternative Investment Market (AIM), with an Inheritance Tax (IHT) Plan,enables qualifying taxpayers to reduce IHT bills, through investments made in unlisted companies and other business assets.Not only that, but both investors and the government seem to like what’s on offer; as it can produce healthy savings and returns, as well as contributing to the wider economy and create jobs and growth.

An alternative to a Trust that’s worth considering

When you invest in the AIM market, most companies are eligible for Business Relief (BR); and, if held for at least two years, the shares are classed as business assets, so are completely free from IHT.

An AIM Portfolio IHT Plan can also provide you with greater flexibility than a trust and can also be less expensive and time-consuming to set up.

Unlike a Trust, you don’t have to wait for seven years in order for your assets to escape the remit of IHT, as your AIM IHT Plan qualifies for tax relief after just two years as opposed to seven – provided the AIM shares continue to be held thereafter.

Another benefit over a Trust, is that you no longer run the risk of losing access to your investments, as you retain control of your assets at all times. You are also free to increase contributions in the future, as well as possibly earning equity related returns on your AIMs investments.

You can even utilize an existing, or new, (ISA) 

You can either transfer an existing ISA, or set one up in your AIM IHT Plan. Which has the double advantage of the holdings in the AIM companies qualifying for BR. You’ll also be exempt from any income tax on dividends and capital gains tax on profitable disposals. 

How are savings on Inheritance Tax achieved? 

Providing you have held the shares for over two years then, under the current taxation rules, there us unlimited exemption from IHT on all shares that qualify for BR held by you when you pass away.  

Pretty much all of the companies traded on AIM, with the exception of those principally engaged in property or investment activities, qualify for BR. Which means that, under the current legislation, all of the applicable shares in your AIM portfolio will be seen to be business assets, which means that they are exempt from IHT if owned for more than two years.

As the IHT exemption is only available on the qualifying shares, held at the point of death, any AIM IHT Plan should be viewed as a medium to long-term investment, with a view to keeping it for a minimum of five years. 

Upon your death, your portfolio can be sold, or transferred to a spouse, without attracting IHT. 

Is an AIM IHT Plan right for you? 

If you’re concerned that a large portion of your wealth may not get to the people you wish to leave it to, because of the likely IHT charges to be made on your estate, then the AIM IHT Plan could be just what you are looking for.

As it provides you with an investment opportunity that could not only deliver a strong performance, but can also reduce your IHT liability. 

If you are considering investing in an AIM IHT Plan, then it’s important that you get the right kind of independent advice. As it should always be viewed as a long-term investment option that carries a slightly higher risk than other investments and my not necessarily be the best option for your immediate requirements.

The usual minimum investment you should consider with an AIM IHT Plan is £100,000. An additional contribution of a minimum of £25,000, or the full annual ISA contribution, can be made at any time after you start the plan.

A cautionary word about the Plan

Firstly, it’s important to appreciate that the current rate of IHT as well as the value of this option regarding IHT savings and the exemption afforded by an AIM IHT Plan could all change in the future.  

Having said that, BR has been around for a number of years and under various different Governments, and doesn’t appear to be drawing attention in any of the current manifestoes. 

It is important to recognise the long-term, and higher risk, aspect of the plan. As I would suggest that you especially consider the following points, in order to ascertain whether this type of investment fits your personal investment profile:

  • As most AIM shares tend to be illiquid, it might be more difficult to sell them. Also obtaining reliable information regarding their value and the risks they are exposed too can also more difficult to find.
  • Any AIM company can revert to private status. This would mean that shares may become impossible to trade and the value and protection offered by AIM would end. 
  • Like the FTSE, past performance is no guide to the future and the value of shares purchased on AIM (and income received) may go down as well as up; and you may not get back your full investment
  • Not all investments into the AIM market qualify for BR, plus the amount of tax relief available may change at any time. 

Need to know more?
As always, if you have any questions regarding your current or future financial situation, especially around AIM IHT Plans, then please contact us at Bridgewater Financial Services where we will be delighted to help guide you through your individual options and strategies.