How investing your ISA in the Alternative Investment Market can reduce your IHT Liability
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Written by James Green
Independent Financial Advisor
As the IHT exemption threshold has been frozen (at £325k) since 2009, and the recent budget announced that it will continue to be frozen until at least 2028, the amount of IHT paid has (unsurprisingly) increased steadily. Families in the UK now pay 70% more IHT than they did in 2010. The average IHT bill is expected to reach £283,000 by 2028 due to the huge impact of the frozen IHT exemption.
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It is therefore more important than ever to consider ways of mitigating this (often avoidable) tax for your beneficiaries. There are various means available, such as Trust planning, gifting and taking out whole of life insurance, all of which can be important measures in estate planning. Another increasingly relevant tool for estate planning is the use of Business Property Relief (BPR), either through investment in qualifying AIM securities, or other BPR qualifying investments.
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Investing in the Alternative Investment Market (AIM) can be an effective way to pass on more wealth and reduce the Inheritance Tax (IHT) burden on death. Investments into AIM qualify for Business Property Relief. As long as shares have been held for at least two year and are still held upon death, they can be left to your beneficiaries free from Inheritance Tax.
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The most common way to invest in AIM is through a portfolio of shares managed by a specialist Fund Manager. If you have built up funds in Individual Savings Accounts (ISAs) these can be transferred into an AIM ISA and still benefit from all the tax advantages an ISA provides.
Reasons to invest
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· It can be an effective way to reduce or potentially even eliminate an IHT bill that your loved ones may otherwise have to pay on your death.
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· Investments should become zero-rated for IHT after just two years. This compares favourably with other IHT planning methods where generally funds remain in your estate for seven years.
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· Investments remain in your control and can be accessed by you if necessary.
Risks to bear in mind
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· Your capital is at risk and the value of investments, and any income from it, can fall as well as rise and you may not get back the full amount you invest.
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· Tax treatment may change. Current tax legislation allows AIM shares to qualify for Business Property Relief but there is always the risk that future governments may remove this.
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· The shares of AIM-listed companies tend to be more volatile than shares listed on the main market of the London Stock Exchange and should be considered high-risk. They may also be harder to sell.
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· Business Property Relief is assessed on a case-by-case basis. HMRC will only conduct a BPR assessment after the death of an investor to confirm whether the companies invested in qualify for BPR at that time.
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Please feel free to get in touch if you would like a chat about your own Estate Planning situation.
Want to know more?​
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Call us for a friendly chat on 01943 871638 or email: info@watsonfp.com
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