Guard your haul from the taxman

ONE of the reasons why AIM shares are popular is that they can help to lower inheritance tax bills.

The stocks listed on this market benefit from an allowance introduced in 1976 called Business Property Relief (BPR). Originally, BPR was meant to ensure that family businesses did not have to be broken up to pay IHT bills, but it now applies to unquoted company investments and companies trading on AIM.

By buying AIM shares, you can keep hold of your wealth and still reduce any IHT bill when you die. The relief is available after just two years, whereas gifts to family members outside certain allowances only become IHT-free after seven years. In other words, any qualifying AIM shareholding escapes inheritance tax provided the holder has owned the shares for at least two years.

But AIM shares can be risky and it is not a given they will always have the protected status they have now when it comes to inheritance tax. Jason Hollands at Tilney Smith & Williamson warns: ‘Not all AIM companies are eligible for such relief and this is something that needs to be assessed by the investor or their portfolio manager. It is not detailed in a set of report and accounts or on a company website.’

Eligibility can change over time, too. He adds: ‘Ultimately, the eligibility of an AIM share for business relief will be tested when the owner has died, at the time of probate.’

While protection from IHT can be useful, it is important to choose AIM shares and AIM oriented funds for their investment potential.