How can investing in AIM shares help to manage inheritance tax (IHT)?

One of the ways you can help to protect your family’s future financial wellbeing is by using inheritance tax (IHT) planning to reduce the amount of tax they will have to pay on your estate.

Investing in shares listed on the Alternative Investment Market (AIM) can be a useful way to do this. An IHT investment portfolio consisting wholly of AIM shares, such as the Inheritance Tax Portfolio Service offered by Canaccord Genuity Wealth Management (CGWM), is a legitimate way to manage your IHT.

How do AIM shares help with IHT?

Under current rules, shares in some companies that trade on AIM are treated as 'business property' and eligible for Business Relief (BR) – an HMRC allowable tax benefit. Once you have held AIM shares in one of these companies for two years, they can become potentially exempt from IHT. This compares favourably with the usual rules that apply to gifts and simple trust transfers, when you have to survive for seven years before they fall out of your estate.

What are the issues with AIM shares?

Because AIM shares are small capitalisation stocks, investing exclusively in AIM shares via an IHT portfolio service should be considered a high-risk investment strategy. This means that our IHT Portfolio Service is available via professional advisers or intermediaries, so that you can discuss your individual financial arrangements before investing.

If you don’t have a professional adviser, we have an expert team of independent Wealth Planners here at CGWM who would be pleased to help you. They can offer specialist IHT planning advice and have no ties to any provider or products, not even our own. 

How does investing in AIM shares via an IHT portfolio service work?

Investing in AIM shares via an IHT portfolio service means you benefit from the knowledge, experience and strict criteria of the professional service.

Our own IHT Portfolio Service is a successful service backed by strong performance and a robust investment process. As specialist IHT portfolio managers we look after more than £600m of client assets, both directly and across third-party platforms, working with some of the country’s best known independent financial advisers.

To meet our clients' objectives, we have strict investment criteria. Our managers are supported by a 16-strong smaller company investment committee, enabling us to meet and monitor many under-researched companies listed on the AIM.

We look for businesses with high-quality management, a history of consistent earnings, dividend growth, balance sheet strength, proven cash generation, high barriers to entry, reasonable valuation, strong earnings growth, and owner managers. This has enabled us to build a portfolio that has delivered a strong return since inception.

Speak to one of our AIM shares experts

If you’d like to know more about our IHT Portfolio Service, please contact Paul Parker on +44 20 7523 4534, email paul.parker@canaccord.com or Natalie Howard on +44 20 7523 4824, email Natalie.Howard@canaccord.com.

Find this information useful? Read more: 

• Gifting surplus income to family to reduce IHT | CGWM UK
• Inheritance tax planning tips | CGWM UK

The tax treatment of all investments depends upon individual circumstances and the levels and bases of taxation may change in the future. Investors should discuss their financial arrangements with their own tax adviser before investing.

The tax treatments set out in this communication are based on our current understanding of UK legislation. It is a broad summary and cannot cover every circumstance and it does not constitute advice.

Specific risks of the IHT portfolio service investing in AIM-listed companies include the potential volatility and illiquidity associated with smaller capitalisation companies. There may be a widespread between buying and selling prices for AIM-listed shares. If you have to sell these shares immediately you may not get back the full amount invested, due to the widespread. AIM rules are less demanding than those of the official list of the London Stock Exchange, and companies listed on AIM carry a greater risk than a company with a full listing. The current inheritance tax rules and tax treatment of AIM shares may change in the future. In addition, you must be prepared to hold your shares in AIM-listed companies for a minimum of two years or these assets will be considered part of your estate in the IHT calculation.