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Using AIM investments to mitigate IHT
Business Tax, Personal tax, Probate and Inheritance Tax

Using AIM investments to mitigate IHT

RJP LLP By RJP LLP

One of the big benefits of investing in shares on AIM is the tax advantage it offers, because AIM shares can provide 100 per cent relief from inheritance tax, through business property relief. Although this isn’t appropriate for everyone, provided you weigh up the pros and cons fully, and take appropriate investment advice, it can be very tax efficient, as this article explains.

What is Business Property Relief (BPR)?

BPR is an important tax relief for shareholders of family companies and owners of family-owned businesses, because often the shares or business interest will be covered by BPR on death, meaning that no inheritance tax is charged. Without this relief, multi-generational family businesses could be under threat because IHT would need to be funded on the death of a family member.

When it comes to AIM investments, provided the companies in question also meet the same qualifying criteria for BPR, shareholders are eligible for tax relief in the same way as if their shares were in any other unquoted family company.

In addition, AIM shares can been held in a stocks and shares ISA, so any dividend income and gains when the shares are sold can also be tax free. Provided a company’s trade is qualifying, the key qualifying criteria for BPR is that the shares have been held for a minimum two-year qualifying period.

What types of businesses qualify for BPR?

The majority of trading companies can qualify for BPR, with the exception of companies that are: dealing in securities, stocks or shares; dealing in land or buildings, or primarily involved with making or holding investments. Any companies that do undertake these activities should have an involvement of less than 50%, in which case only the non-qualifying element of trade will be excluded from relief, rather than the entire company.

How can you mitigate inheritance tax?

In addition to investing in AIM shares to qualify for BPR, there are other ways to mitigate inheritance tax. One of the most straightforward is to gift excess funds, either on a regular basis as part of your annual gift allowance, as regular gifts out of excess income, or by making larger lifetime gifts and surviving for 7 years. Note that if you intend to gift capital assets you are likely to have an exposure to capital gains tax and should take advice.

If you would like some advice on IHT planning or CGT exposure, contact is via partners@rjp.co.uk

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