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AIM for Inheritance Tax planning is not early stage investing

Many are attracted to invest in AIM for the Inheritance Tax planning attractions yet are fearful of the perceived extra risk of investing in smaller quoted companies and the notion that they will have their money locked up in early stage businesses.

While the vast majority of AIM companies are smaller than their peers on the main market, there are now many large companies on AIM, with nineteen valued at more than £1 billion each at the end of October. AIM’s largest company ASOS, which is valued at more than £4 billion, would gain it entry to the FTSE100 index of the UK’s largest companies.

Our philosophy for investing in AIM for Inheritance Tax planning purposes is to stick to well-established, proven and profitable businesses, many of which are often run by their founders who continue to own significant equity stakes. Our AIM for Inheritance Tax portfolios include several companies that have been controlled by the same founding families for several generations.

In eschewing small, early stage ventures, with unproven business models and negligible revenue, we may miss out on the occasional star performer, however, experience has also shown that we also avoid the numerous failures.

Investing in early stage companies requires a large degree of patience. New concepts and technologies take many years, and often decades, to come to commercial fruition. AIM previously attracted many small early stage business, often in the healthcare sector, some of which have seen great success over the pandemic. Rather than raise new capital via a listing on AIM, early stage companies now have access to start-up capital through venture capital, private equity or crowd funding routes. This means that new arrivals to AIM in recent years have largely been better-established businesses, the majority of which are revenue generating and profitable.

The primary attraction for those investing in AIM for Inheritance Tax planning purposes is often the short 2 year qualifying period for assets to fall outside the estate, following the Business Relief rules. Accordingly, while investing in equities should always be viewed as a long-term exercise (5 year plus), the window of investment opportunity for Inheritance Tax planning is somewhat shorter than would normally be the case.

Our webinar ‘The truth about risk in AIM’, highlights the more pertinent risks associated with investing in AIM for Inheritance Tax planning purposes. You can watch the webinar from the link here.

 

Chris Boxall

Cofounder & Co-Managing Director

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.


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Sunak scraps the Budget – should AIM tax reliefs be enhanced?

The popular press had previously alluded to the potential withdrawal of Inheritance Tax/Business Relief on AIM shares. With Chancellor Sunak scrapping his autumn Budget, as he focuses on matters of more immediate concern to the economic welfare of the country, any adverse tax changes for holders of AIM shares therefore appear to be off the table for the time being.

As we have suggested before, the Chancellor may be more inclined to extend tax reliefs for those supporting smaller companies in an effort to unlock the considerable savings held by the wealthier members of the population, which are effectively being eroded due to inflation and the derisory interest available on savings accounts.

The poor returns generated by the main UK stock market over the last decade and the significant outperformance of AIM portfolios over this period also suggests that investors would have been far better off investing in smaller, faster growing companies on AIM, than many of the aged dinosaurs of the main market.

Numerous small AIM pharmaceutical and biotech groups have been at the forefront of developing tests and vaccines in the battle against Covid-19. This has not been possible without the support of their shareholders, many of whom have been encouraged to invest with the added attraction of various tax reliefs.

Specialist research house, Equity Development, previously highlighted the huge benefits AIM brings to the UK economy and how the mild encouragement provided by the Inheritance Tax concession to those considering an IPO onto AIM is a very large multiple of the cost in tax foregone by HMRC.

Equity Development considers AIM companies contributed over £33bn Gross Value Added (GVA) directly – over 40% more per employee than the national average – and just as much indirectly to the UK economy since their direct GVA has increased by 35% in the last five years, more than twice as fast as the average. Not only are AIM companies more productive than average, their productivity is growing – at 11% pa, significantly faster than average.

A report by Grant Thornton on AIM’s first 25 years shows that small companies listed on AIM perform ‘better’ – generating more added value, more employment and far greater tax receipts for HMRC – than comparable “private” companies.

AIM’s superior growth has, in just the last five years, added £4.7bn pa to UK economy and more than £1bn per annum to HMRC. Rishi, take note!

Many investors and advisers are fearful of the perceived extra risk of investing in AIM. Our forthcoming webinar ‘The Truth about Risk on AIM’ will cover this and other misconceptions about AIM.  You can register for the event by visiting the link here.

Not only is AIM of huge benefit to the UK economy but AIM listed companies represent the primary source of growth for UK small cap investors, reflected in the significant outperformance of AIM for IHT managers, including Fundamental, over the past decade or more.

Since launch on 19 June 1995, AIM has supported nearly four-thousand growth companies in raising over £117bn, 61% of which has been through follow-on fundraisings. The equity fund raisings over the pandemic have seen investors plough £billions into UK companies, removing a further burden from the government.  For the eight months to the end of August AIM companies have raised £3.6 billion of follow-on capital.

We reiterate our suggestions that, for a limited period, the UK government should actually consider enhancing the tax incentives for investing in the newly issued shares of UK listed companies, whatever their size, whether on the main market or AIM. Now that’s a radical thought!

Chris Boxall

Cofounder & Co-Director

Please join the Fundamental team at our webinar ‘The Truth about Risk in AIM’.

Click the picture below to register..

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


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In case you missed us..

Find out from our Co-founder Chris Boxall where the opportunities are in AIM and why this is a market you should be considering for growth and not just the Inheritance Tax planning benefits.

Click anywhere on the picture below to take you straight to the recording.

Derek McLay

Fundamental Asset Management

 

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