AIM has helped many growing small and medium size companies in the UK gain access to public markets and the benefits that this brings to their businesses. AIM also provides a platform for the start-ups and small businesses of today to grow into the large businesses of tomorrow, benefitting the wider UK economy.

Individual investors can also benefit from AIM. A client can shield assets from Inheritance Tax (IHT) if held in AIM shares for two years and until death. But what are some specific scenarios where this might be beneficial to a client?

A client with a large stocks & shares ISA in main market stocks who is looking for IHT protection

Many clients have spent a lifetime building up significant sums in their Individual Savings Accounts (ISAs) where they have benefited from tax-free income and capital growth on those investments. However, an ISA in market shares or funds does not give any IHT protection. Since 2013, it became permissible to hold AIM shares in an ISA. As such, a client can transfer previous year’s ISA allowances into an AIM ISA and receive full IHT protection after two years.

A client looking to leave as much as possible to the next generation without losing control of the assets

Settling assets into trust or gifting assets away means the original owner loses control and cannot draw on them if needed in the future. However, shares in BR-qualifying investments remain in the investor’s name which means that if an unexpected event occurs later in life (such as medical bills or care home fees) the client will have the funds needed to meet any resulting costs.

A client who does not have long left looking for IHT mitigation sooner rather than later

Unfortunately, IHT planning often starts too late and many families can find themselves in a position where they are looking for protection sooner rather than later. It can take up seven years for a gift or asset held within a trust to be classified as being outside the original owner’s estate for IHT purposes. However, a BR qualifying investment can be passed on at death free from inheritance tax, provided it has been held for at least two years and at the time of death.

A client who has sold a business in the last 3 years looking to retain the Business Relief benefit

Where a client has sold a business, the proceeds will form part of their estate for IHT. However, where the business assets qualified for BR and were held for two of the last five years, the client has three years from the sale to reinvest into a BR qualifying asset to retain the benefit without having to hold for another two years.

An attorney under a lasting Power of Attorney looking to plan grantor’s estate for IHT without necessitating Court of Protection approval

An attorney under a lasting Power of Attorney (POA) arrangement will require Court of Protection approval to gift assets or settle them into trust on behalf of the client. This is due to the fact these arrangements remove ownership from the client. An AIM IHT arrangement is a simple purchase of shares in the name of the client and does not require such approval.

A client looking to take advantage of the growth opportunity in AIM

AIM is one of the most successful growth markets in the world. Unlike gifts of cash, or cash held in a trust, companies listed on AIM give investors an opportunity to benefit from the potential capital growth AIM has to offer.

A client who wants IHT protection but does not want to use a trust

Some clients are reluctant to set up trusts due to their complexity and cost as well as the possible requirement to take specialist legal advice and on occasion, medical underwriting. AIM allows for clients to achieve IHT protection over their assets in a straight-forward and simple method.

Derek McLay

Business Development Manager, Fundamental Asset Management Ltd.

You can find out more about Fundamental Asset Management’s high performing AIM IHT ISA and AIM Inheritance Tax portfolio service, which has been delivering exceptional investment returns for more than 16 years, from the link here. We also have an Adviser Centre with a wealth of information to support financial advisers including case studies, adviser webinars, guides and contact details.

Last year’s unwelcome introduction of Covid into our everyday lives saw several trends and behaviours emerge. Family solicitors are seeing a significant increase in requests for will writing. And financial advice is no different, with financial advisers seeing an increase in demand for Inheritance Tax Planning (IHT) solutions.

Historically, IHT solutions had only been available directly with investment managers, with advisors forced to direct assets off their designated wrap platform in order to access these. This can be to the detriment of advisers and their underlying clients, as it makes management and monitoring, among other things, more difficult.

Adviser platforms have now evolved to allow clients to invest in individual stocks, including those listed on AIM, the London Stock Exchange’s smaller companies growth market. Many (but not all) AIM shares qualify for Business Relief, which means that if they are held for two years and until death, the holder of the shares is able to mitigate 100% of their potential IHT bill.

Platforms further evolved to allow Discretionary Fund Managers (DFMs), such as Fundamental Asset Management, to manage portfolios of AIM stocks on platform on behalf of clients. This means you can offer AIM for Inheritance Tax planning solutions to your clients and keep their assets in one place, thereby retaining the benefits a platform has to offer.

But what are the benefits?

Costs

Platforms have grown to become the dominant force in asset administration for retail clients and financial advisers in the UK. They are in a formidable position to take advantage of scale in terms of pricing. This is something they do well, allowing clients to benefit from reduced dealing, product, custody and investment costs.

Investments

Investment options for retail clients can often be limited due to the small amounts they are generally looking to invest. However, the growth of platforms has effectively made them the key distribution method for investment managers in the UK. As well as being able to negotiate preferential fees, they can give clients access to investment products they would not normally be able to access by going directly. As a result, clients benefit from a wider pool of investment options at a cheaper price.

Administration

Platforms in their most basic form are a technology which allows a financial adviser to retain and manage assets on behalf of their clients. Advisers benefit from being able to manage everything in one place, reducing time on administration and allowing for more time to be spent with clients. The platform technology itself allows advisers to take advantage of an advanced reporting system. On top of this, platforms are increasingly evolving to support and integrate adviser back office systems, including client portals. Platforms also facilitate custody which removes an element of risk from an advisor’s business model.

The benefits are clear for clients and advisers. However, platforms are also beneficial for investment managers like Fundamental.

The ability to manage client portfolios in one place and to remove custody risk from our own business model is a key advantage. As such, we are committed to the IFA and platform markets and work closely with our platform partners, including Standard Life Wrap, Elevate, Nucleus (listed on AIM), Transact, Ascentric, Funds Network and CoInvestor.

Enjoy your weekend!

Derek McLay; Business Development Manager; 077437 25659/ [email protected]

Join me and the Fundamental Asset Team at our next adviser webinar where we will be discussing another record-breaking year for AIM and what could be in store for 2021. 

Click the picture below to register for the session.

You can find out more about Fundamental Asset Management’s high performing AIM IHT ISA and AIM Inheritance Tax portfolio service, which has been delivering exceptional investment returns for more than 16 years, from the link here.

We also have an Adviser Centre with a wealth of information to support financial advisers including case studies, adviser webinars, guides and contact details.

An article in the Daily Telegraph’s popular Questor column commented on the encouraging evidence of AIM’s centre of gravity tilting away from the ‘get-the-founders-rich-quick outfits’ towards real, well-run businesses with bright prospects.

Telegraph subscribers can read the article here, alternatively, Yahoo! Finance has also kindly provided a free to read version here.

AIM’s fabulous performance in 2020 certainly suggests London’s growth market is indeed a very different proposition to the one we first started investing in for Inheritance Tax planning purposes back in 2004.

AIM ended 2020 with its market value at an all-time high of £131 billion. A record 24 AIM companies were valued at more than £1billion each at the year end and 246 AIM companies were valued at £100m or more, the majority of which were in the £100m – £250m valuation bracket.

After rising 10.1% in December, the AIM index finished 2020 up 20% for the year, an amazing achievement in the circumstances and significantly outperforming the main UK index of 100 stocks in the year, which fell 15%. Specialist research house Equity Development commented how this must be “the biggest one-year differential in AIM’s 26-year history”.

But this was not just a flash in the pan and over the 5 years to the end of December 2020, the AIM All share index has risen 60% whereas the main UK market is up only 11%. We acknowledge that this excludes dividend income, and the main UK market has yielded over 4% per annum over this period. However, as commented on by our associates Investor’s Champion in an article here, 2020 highlighted the fragility of dividends for highly geared companies on the main UK stock market, many of whom have been forced to cut or postpone dividend payments.

As individuals own 25.1% of AIM companies, against just 11.3% of FTSE 100 companies (source: “Ownership of UK shares, UK Government, January 2020”) UK private investors will have benefited very nicely from this outperformance.

It is also worth emphasising that to benefit from the Inheritance Tax planning reliefs, individuals need to own the qualifying AIM shares directly in a segregated portfolio in their own name i.e. the tax benefit cannot be gained through investing via a collective/fund structure. Fundamental Asset Management’s AIM portfolios can also be accessed through a number of adviser wrap platforms.  Our Document Library and Adviser Centre has a wealth of information on investing in AIM Inheritance Tax portfolios.

While it was a poor year for new issues/IPOs, with only 32 new entrants raising £486m, AIM saw a large number of secondary fund raises with a total of £5.27 billion raised, making 2020 the best year for secondary issues since 2010.

Not as illiquid as people think!

The average daily value of AIM shares traded also hit all-time highs at £326m, an increase of £91m per day on 2019. Trading volumes remained strong with c £83 billion of shares traded in the year as a whole compared to c£60 billion in 2019. Those are big numbers (for private investors at least!) and counter the argument that AIM shares are illiquid.

ASOS (LON:ASC) remained the largest company by market capitalisation with a year-end valuation of £4.8bn, ahead of online fashion rival Boohoo Group which was valued at £4.3bn.

Although there has been steep drop in the number of companies on AIM, from a peak of 1,694 in 2007 to only 819 at the end of 2020, the quality of companies is far higher.

You can find out more about Fundamental Asset Management’s high performing AIM IHT ISA and AIM Inheritance Tax portfolio service, which has been delivering exceptional investment returns for more than 16 years, from the link here.

Listen to our Business Development Manager Derek McLay give an 8 minute pitch on what makes Fundamental Asset Management different at the CoInvestor Manager Showcase on 15th December 2020.

If you would like to find out more about Fundamental’s AIM portfolio service you can contact Derek directly on 07743725659 or [email protected]

Fundamental Asset Management has delivered exceptional investment returns for more than 16 years. You can find our latest factsheets, from the link here.

If you would like to find out more about Fundamental’s AIM portfolio service you can contact Derek directly on 07743725659 or [email protected]

Thank you for watching, The Fundamental Asset Team