Investing in the AIM market for IHT reasons

Take AIM

I have previously mentioned investing in the Alternative Investment Market (AIM) market as a way of reducing inheritance tax (IHT). This month I’d like to go into a little more detail as to how that works and explain the other distinct tax advantage of investing in AIM shares.

Operated by the London Stock Exchange, AIM is a market for growing businesses, most of which have a market capitalisation of under £100 million. Majestic Wine and Domino Pizza are both AIM listed companies, so it’s not just small high risk companies that it was originally associated with when it first came into existence.

HM Revenue & Customs has afforded AIM-listed companies the benefit of being treated as business assets and they can therefore qualify for both business property and taper relief, provided it’s a real trading company.

After the investments have been held for two years, most AIM shares qualify for business property relief, protecting these investments from IHT. In contrast, direct gifts take seven years before they become free of IHT. And the best bit is that investors can retain control of their money.

It should be remembered that the value of shares can fall as well as rise, so if the investment falls by more than 40% before death then the beneficiaries would not be any better off than if they had been required to pay IHT.

AIM shares can also qualify as business assets, so can enjoy accelerated taper relief for Capital Gains Tax (CGT) purposes. So for higher rate taxpayers, this effectively reduces CGT from 40 per cent to 10 per cent after just two years. This compares very favourably with most quoted shares and other non-business assets, which only reduce to an effective rate of 24 per cent after ten years.

Remember investing in the AIM market is not suitable to all investors. It is regarded as a higher risk investment strategy due to the nature of the equities being invested in.