How investment in AIM shares can lead to Inheritance Tax savings for you…

Inheritance Tax (IHT) can be a huge cost to your family in the event of your death.  However, in many cases, the IHT liability on your estate can be reduced, or even completely removed, with forward planning.

Broadly, if the value of your estate exceeds a threshold of £325,000 (£650,000 for married couples / civil partners) your family will have to pay IHT on your demise.  Currently, IHT is payable at a rate of 40% on the excess above the threshold.

One of the most common ways of reducing your IHT liability is to give assets away and assuming that you live for a further 7 years, the assets no longer fall within your estate for IHT purposes.

However, for this type of planning to be effective, it is not generally possible to continue to benefit from or control the asset that you have given away.  This can cause problems later on in life, particularly if you find that you need access to the funds.

There are various useful reliefs and allowances available for mitigating IHT and this article explores how investment in AIM shares can lead to IHT savings.

What are AIM shares? 

AIM shares are UK shares listed on the ‘Alternative Investment Market’ (AIM).

AIM is a flotation market for smaller companies, designed to give them access to capital by offering investors equity participation and a share trading facility.

Over 1,100 companies are currently listed on AIM (as at June, 2012).  They are generally smaller, youthful enterprises with the potential for rapid growth and therefore, investing your money into these companies is regarded as higher risk than investing in more established companies.

How can investing in AIM shares reduce IHT?

An area of tax planning not traditionally explored is the use of business property relief (BPR) in the mitigation of IHT liabilities.

Assets that qualify for BPR include property and land used for business purposes.  In addition, the shares of unlisted companies and qualifying AIM shares are eligible for BPR.

Investing in qualifying AIM shares is attractive, relative to making a gift, as you do not have to forgo access to your money.  Assuming that the shares you invest in qualify for BPR they will be exempt from IHT after 2 years of ownership and will remain accessible should you require access to the funds.

A further advantage of investing into AIM shares, relative to making a gift, is that the qualifying period for the monies to be exempt from IHT is reduced from 7 to 2 years.

How do I invest in AIM shares?

Although it has been possible for some time to invest in assets attracting BPR as a means of mitigating IHT, more recently inheritance tax relief portfolios have become available which are designed specifically to invest in AIM shares that qualify for BPR.

We are able to advise upon a variety of bespoke discretionary portfolios, which invest in a wide range of shares, typically up to 50 stocks, arranged specifically for each individual investor.

It should be noted that investing in AIM shares is typically high risk, suited to financially secure people with alternative liquid capital, enabling them to invest widely enough to bear the risks involved.

To find out more about investment in AIM shares and other IHT planning opportunities contact Springfield Financial Services Ltd on 01772 729742.