PAM Guide to Wealth Management

AIM investments and business property relief

One way to mitigate IHT is to invest in stocks listed on AIM (formerly the Alternative Investment Market), whose companies can benefit from business property relief. If you buy AIM stocks that qualify for business property relief and remain invested for at least two years, then your capital qualifies for 100 percent relief from IHT. If the AIM shares are listed on any HMRC recognised stock exchange, they will not qualify for the 100 percent relief, so it is important to obtain specialist advice before making the investment, to ensure the relevant shares are only listed on AIM. You can switch between AIM stocks, without returning to the start of the two-year process. If you sell your AIM holdings, however, then the money is deemed to have returned to cash and becomes subject to IHT again. For beneficiaries to avoid paying IHT on your AIM portfolio, therefore, it needs to be held until you die.

Around two-thirds of AIM stocks qualify for this relief. Investments do require careful review and monitoring, however, to ensure they continue to qualify for business property relief. As with VCT and EIS investments, AIM stocks can potentially be higher risk than FTSE All Share companies. Fund managers argue that not only does the 40 percent IHT relief provide a buffer against capital losses, but the risk profile of AIM portfolios can vary significantly. There are sizeable companies on AIM that can make portfolios more defensive. Furthermore, portfolios enable you to spread risk across sectors and companies.

AIM portfolios have greater flexibility than some other tax efficient investments. While VCT and EIS investments are also free of IHT after being held for two years, they can only invest in companies within prescribed parameters

Business property relief is also available on private companies. But these must be deemed to be trading companies by HM Revenue and Customs and not acting as a holding company for your investments.

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