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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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Looking for ISA bargains ?

With the end of the tax year fast approaching, many investors will be looking to use their ISA allowance. Here is our brief introduction to some potentially interesting ISA bargains.

AIM shares have only been permissible investments in ISAs since August 2013, but since then they have proved a very popular choice, notably for those investing with an eye on potential inheritance tax savings.

AIM had a difficult 2018 and despite a strong opening to 2019, many excellent smaller companies are trading at modest valuations, offering compelling dividend yields and decent growth prospects.

Chris Boxall and Stephen Drabwell, co-founders of Fundamental Asset Management, would be delighted to discuss the investment opportunities on AIM through our bespoke AIM portfolio service. Please email [email protected] or call 01923 713890.

Our recent Blog commented on Redde (LON:REDD), a substantial business where the dividend yield had risen to more than 11%. While the shares have rallied marginally since our original Blog, the forecast yield is still over 10%.

The share price of Fulcrum Utility Services (LON:FCRM), an independent energy and multi-utility infrastructure and services provider, has been extremely weak over the past few months. Fulcrum’s primary business is the design and installation of utility services from single site properties to large complex multi-site projects. It also owns and operates gas and electrical assets that connect properties to the main UK gas and electricity networks.

Fulcrum has delivered consistent earnings growth over the past 4 years and in 2018 acquired the Dunamis Group, an electrical infrastructure services company. Unfortunately, the Dunamis business has experienced some Brexit induced contracts delays which has accelerated the share price decline. While the Dunamis business is made up of larger, lower margin projects, it’s operating in a very dynamic market with a notable opportunity in the area of electrical vehicle charging.

This week’s trading update provided some reassurance that bsuiness was not as bad as many believed it to be. The modest earnings multiple of 9x current year earnings falling to 8x for the year ending March 2020 and a forecast dividend yield of 6.3% means Fulcrum warrants a closer look for ISA investors.

The Property Franchise Group (LON:TPFG), one of the UK’s largest property franchises, has seen its share price pulled down principally due to fears surrounding the impact of the tenant fee ban on its business. The ban is due to be introduced on 1st June 2019 with the impact on group revenue less than originally anticipated.

TPFG was founded in 1986 and encompasses a diverse portfolio of longstanding high-street brands and a hybrid, no sale no fee agency, called EweMove.

The lion’s share of group revenue is made up of service fees (royalties) charged to franchisees, principally relating to lettings business. Therefore, this is a business which generates relatively stable revenues, high operating margins and returns on equity and excellent cash flow. With modest capital expenditure requirements, the attractive cash flow is able to support a generous dividend, with the yield just over 6.5 per cent at the current share price.

Fundamental AIM for Inheritance Tax planning portfolios may hold shares in the companies mentioned in this article.

Our associates Investor’s Champion publish in-depth research reports on many exciting AIM companies.