TAX PLANNING - INHERITANCE TAX AND AIM
Inheritance Tax (IHT) is the amount of tax due on someone’s estate when they die. The current rate is 40% payable over and above the nil-rate band. For most people the nil-rate band is £325,000, although some may be eligible for an additional allowance of up to £125,000 (rising to £175,000 over the next two years). There is no IHT when spouses and civil partners inherit estates – but estates inherited by other heirs are subject to it.
What is AIM?
The Alternative Investment Market is a subsidiary of the London Stock Market which allows smaller companies - such as Youngs Brewery, Majestic Wines - to be floated as an alternative to the main market. It has been one of the most successful platforms for investment since its inception in 1995. HMRC recognises AIM companies as unlisted — unlike companies listed on the main London Stock Exchange.
The AIM market has had more than its fair share of controversy. The exchange has played host to an often questionable mix of small businesses, many of them international (Chinese
firms have provided more than a few upsets) or focused on the resources sector, with highly volatile share prices. That profile though has changed; AIM has slowly evolved into more of a platform for UK-based companies. Back in 2012, a third of new additions to the market were based in the UK. By 2016, this had increased to 78 per cent. So far in 2018, 14 of the new
joiners (82%) have been UK based.
As AIM provides a much more accurate representation of the UK’s small-cap sector, liquidity has also improved — which helps not only private investors but also the investment managers who run AIM portfolios. Trading volumes have picked up steadily.
Another key factor of its evolution is that AIM-listed companies are getting bigger. In April 2018, the average market capitalisation reached an all-time high of £114m — a 20 per cent increase year-on-year.
Private investors in qualifying AIM companies can avoid an inheritance tax liability via business property relief (BPR) when they pass on their investment to their heirs provided they have held the shares for more than two years prior to death. Pretty simple really. You don’t pay 40% inheritance tax. Or a lower rate. None. You might get some significant growth (although this is not guaranteed) and qualifying AIM shares can be held tax-free in an ISA.
On a day-to-day basis, the value of AIM listed companies can fall or rise more sharply than shares in larger companies listed on the main market of the London Stock Exchange. This means that AIM shares are likely to be higher risk investments than other stocks and shares. Shares in AIM companies can also be more difficult to sell than shares of larger companies so it may take longer to realise money invested. Tax rules are also subject to change and although qualifying AIM shares have enjoyed tax relief since 1995, there is no guarantee that this will continue indefinitely.
If you do nothing, you will pay 40% Inheritance Tax on assets of over £325,000, including property. As a recent client said to us, quite simply – I want to leave my money to people I know.
For more information regarding AIM or IHT contact us at firstname.lastname@example.org where we can put you in touch with one of our specialist advisers regarding AIM investment.