An Introduction

AIM is the most successful growth market in the world. Since its launch in 1995, over 3,000 companies from across the globe have chosen to join AIM. Powering the companies of tomorrow, AIM continues to help smaller and growing companies raise the capital they need for expansion.

It is important to look at measures to help mitigate Inheritance Tax. The earlier you prepare for this inevitability, the better. These plans can involve making gifts to beneficiaries of your estate at least seven years before your death. At MB Capital we believe there are ways of planning around this to maximise your tax savings and prepare your estate prudently.

AIM Investments Explained

Inheritance tax is also now an issue that has to be faced by a very much larger proportion of the population mainly as a result of property values far outstripping inheritance tax. This estate planning measure involves investing some of your estate in the Alternative Investment Market (AIM).

Any money invested in AIM listed companies falls outside of your estate for inheritance tax purposes after just two years. Furthermore, unlike many other solutions to inheritance tax, you retain access to your money at all times. Such an investment is very high risk and that fact alone will mean that it should not be considered by the majority of people seeking to reduce the impact of inheritance tax for their beneficiaries. On the other hand, if you do nothing, 40% of your estate in excess of the nil rate band is certain to be paid to the Revenue rather than your chosen beneficiaries.

At MB Capital we can help you by advising which companies to invest your estate into to help your future estate planning. Trading turnover on AIM is now running in excess of £5 billion per month. Under AIM rules, companies prospectuses must carry the warning that AIM is designed for emerging or smaller companies. The rules for trading are less demanding than those of the Official List. More than 70 companies have now progressed from AIM to the main market and for tax reasons some have moved in the opposite direction.

Business Property Relief (BPR) has been an established part of inheritance tax legislation since 1976. And as an investment incentive, it’s relatively straightforward. Once BPR-qualifying shares have been owned for at least two years, they can be passed on free from inheritance tax on the death of the shareholder.

 

Understanding BPR

Not every interest in a business will qualify for BPR. Broadly speaking, investments in the following kinds of businesses that carry on a trade rather that investment activities could qualify for BPR, including:

  • Shares in qualifying companies that are not listed on any stock exchange.
  • Shares in qualifying companies listed on the Alternative Investment Market (AIM).

Most recently, since 2013 investors can hold AIM-listed shares within Individual Savings Accounts (ISAs). This means an ISA that invests specifically in AIM-listed companies that qualify for BPR can potentially offer inheritance tax exemption as well as the traditional ISA benefits of tax-free income and capital growth.

Investing in the shares of BPR-qualifying companies can be beneficial if you fit into one of these categories:

  • You don’t want to give away large sums of money: You can give your money away during your lifetime to reduce the value of your estate, but it’s not an option many people feel comfortable with. However, with a BPR-qualifying investment, the shares are held in your name, which means you keep hold of your wealth.
  • You want to give the inheritance you plan to leave behind the chance to grow: Investing in BPR-qualifying companies means your investment has the potential to increase in value. Of course, remember as with any investment, there are no guarantees, and you could lose some or all of your money.
  • You want the money you invest to become inheritance tax exempt quickly. Some people are put off by traditional estate planning strategies, such as making gifts or putting money in trusts, as these typically take seven years before becoming fully exempt from inheritance tax. A BPR-qualifying investment, allows your shares to become 100% inheritance tax exempt after a holding period of just two years, as long as the shares are still held at the time of death.

 

Risks to be aware of

To qualify for BPR, a company must not be listed on a main stock exchange. Such companies could fall in value, and investors may get back less than they invest.

Tax rules could change in the future. The value of tax reliefs will depend on an investor’s personal circumstances. There cannot be any guarantee that companies that qualify today will remain BPR qualifying in the future.

Investments in unquoted companies or those quoted on AIM are likely to have higher volatility and may be harder to sell than shares listed on the main market of the London Stock Exchange.

While BPR is a well-established relief dating back 40 years, the rules are subject to change. The availability of tax reliefs depends on an individual investor’s personal circumstances. Therefore, we always recommend investors talk to a qualified financial adviser before making any investment decision.

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