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.
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.