AIM ISA
AIM ISA Explained
An AIM ISA portfolio or AIM IHT ISA portfolio is a portfolio of AIM shares listed on London’s AIM market, which should benefit from 100% relief from Inheritance Tax (IHT) and is designed to be held in an ISA.
What are the main benefits an AIM ISA?
To quailfy for 100% relief from Inheritance Tax (IHT) your money needs to have been invested in the shares of qualifying AIM companies for at least two years. It should then become IHT free, provided you still hold them on death, and they remain IHT qualifying.
If you are happy to take on additional investment risk, the benefits include:
- Tax-free income and growth – for as long as you live.
- The company still qualifies for Business Relief (BR) at the time of the investor’s death
- Speed – IHT relief kicks in after just two years. This compares favourably to other forms of estate planning.
- Simple to apply – investing in an IHT portfolio requires a simple transaction, similar to investing in other tax-efficient products.
- There are no eligibility criteria for income, health or age. Investors are, however, required to answer some questions about their investment knowledge and experience.
- Professional management – the portfolio is managed by a professional team, which researches and selects the investee companies and monitors them to ensure they remain BR qualifying.
An AIM ISA portfolio or AIM IHT ISA portfolio is a portfolio of AIM shares listed on London’s AIM market, which should benefit from 100% relief from Inheritance Tax (‘IHT’) and is designed to be held in an ISA.
Why do AIM ISAs get relief from Inheritance Tax?
The portfolios invest in AIM companies that qualify for something called Business Relief, BR for short, which was formerly called Business Property Relief (BPR). If you hold shares in AIM companies that qualify for BR for at least two years and still hold them on your death, no IHT should be due.
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In what kind of companies do AIM portfolios invest?
AIM ISAs invest in AIM companies which qualify for BR.IM is a diverse index, comprising 690 companies and a combined market capitalisation of £70 billion (November 2024). AIM IHT portfolio managers tend to focus on better-established, larger, mature businesses. They should be more resilient and deliver growth but can be quite volatile. When you invest in an AIM portfolio you acquire shares in the underlying companies. (For more information about how AIM ISAs work and how they can be used in financial planning watch our webinar recording- All you need to know about investing in AIM for Inheritance Tax)
How much can I invest in an AIM ISA?
You can transfer unlimited amounts from existing ISAs. The maximum that can be subscribed to an AIM ISA in a given tax year is determined by the ISA allowance at the time – currently £20,000 per individual per tax year. The minimum investment in an AIM ISA IHT portfolio will vary depending on the provider. In some cases, the minimum investment is higher than the current ISA allowance, so the portfolio can only be accessed by transferring existing ISAs.
What to consider when transferring existing ISAs?
If you have built substantial wealth in ISAs over the years, one of the most effective ways to protect it from IHT could be to consider transferring it to an AIM ISA.
The process is relatively straightforward:
- You complete and sign a form issued by the AIM ISA provider, which gives it authority to request a transfer from your existing provider(s). You can usually choose to transfer the whole value of your ISA or part of it.
- Your investments will typically be liquidated, and the realised value transferred as cash. However, some portfolios can be transferred in stock. How long this takes will be determined by your existing provider.
- Once the AIM ISA provider receives the funds/stock, it will invest them accordingly.
Before transferring you should double check what fees you might incur. There are normally no transfer-in fees, but your existing provider(s) may charge transfer-out fees. Moreover, you will be out of the market whilst the transfer takes place so your funds will not be affected by any rises or falls in the period.
You can transfer any type of ISA, but please remember AIM ISAs are for experienced investors only. They could be more risky and illiquid than other types of ISA. Before transferring please make sure you are comfortable with the risks.
Could I take an income from an AIM ISA?
You can take money out – even liquidate the whole portfolio. Any withdrawals are tax free.
It’s important to note any withdrawals will reduce the amount you can expect to become IHT free. Moreover, the amount you withdraw will be part of your taxable estate again, unless you spend it. Lastly, after you withdraw money from an AIM ISA, you can only put it back in up to the unused amount of your current ISA allowance. This means you may lose the tax benefits on the amounts withdrawn from your ISA.
Please remember tax benefits depend on circumstances and tax rules can change.
How do I claim AIM ISA tax relief?
Similar to what happens with unquoted IHT portfolios, the executors of the will or administrators of the estate can claim Business Relief when they value the estate. They may have to submit schedule IHT412 (Unlisted stocks and shares and control holdings) in addition to form IHT400 (Inheritance Tax account) and alongside any other forms the estate’s circumstances will require as part of the probate process. Fundamental Asset Management will send details of the investment along with an information pack to help with this.
What happens to my AIM ISA when I die?
IThere are three main options for the executors of the will or administrators of the estate:
- The portfolio could be liquidated, and any proceeds could be passed on to your beneficiaries.
- Remain invested for the beneficiaries. In the case of the beneficiary being a spouse or civil partner, it does not reset the two-year clock for BR and they can continue receiving tax-free growth and income.
- Or it could be liquidated, and the proceeds used to pay any inheritance tax due on other assets, such as your home, directly to HMRC.
If you died within two years of the investment and the portfolio was liquidated, the proceeds could be subject to IHT, unless it is passed on to your spouse or civil partner.
Can I sell my AIM ISA?
One of the main advantages of investing in AIM ISAs over other IHT-planning strategies is the degree of control you can retain. For instance, if your circumstances were to change, it is possible to request the funds. Of course, in this case, you would, however, lose the IHT relief.
What are the main risks of investing in an AIM ISA?
- Your capital is at risk – your investment can fall as well as rise in value so you could get back less than you invest. In addition, because AIM-listed companies tend to be smaller, more volatile and subject to less stringent checks than those quoted on the main London Stock Exchange, the risks are greater.
- Less diversification – an AIM ISA may be less diversified than a well-constructed Stocks & Shares ISA portfolio.
- IHT relief is not guaranteed – tax benefits depend on circumstances and tax rules can change. To benefit from IHT relief you must hold the investment for at least two years and on your death and the companies must maintain their qualifying status. The government may change the rules on BR in future.
- Investments may be difficult to sell – shares in AIM-listed companies are more illiquid than those quoted on the main London Stock Exchange, so they may be more difficult to sell.
- Not for everyone – AIM ISAs are only for experienced investors, who fully understand and are happy with the benefits and risks. You should only invest if you can withstand loss of capital.
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