The AIM of Estate Planning

 The desire to hand down family wealth to the next generation is an age old problem that continues to concern an increasing number of individuals.  Historically, families might have looked at creating trusts to move monies between generations, or gifting funds to their children so that after the transfer, providing the donor lives seven years, that proportion of assets would be considered outside of their estate for Inheritance Tax (IHT) purposes.

With average life expectancies continuing to increase, giving funds away may not suit many families because of concerns within older generations that they will not be able to get these back if their circumstances change in later life.  However, the requirement to pass this wealth on to children, grandchildren or other family remains important.

Simon Chatterton, Partner at Stockport based Stockbrokers S&T Asset Management explained “We are seeing an increasing demand from clients wanting to protect wealth, but at the same time retain access to both Capital and Income through old age, and one solution worthy of consideration is investment in an AIM portfolio”.

Investment in AIM (Alternative Investment Market) portfolios has become increasingly popular because certain company shares qualify for Business Property Relief (BPR).  The main benefit is that once a qualifying asset has been held for a period of two years and is still held at death, it is excluded from your estate for the purposes of calculating IHT.  Not all business interests will qualify for BPR, but broadly speaking, holdings in businesses which carry on an actual trade as opposed to investment activities and are not listed on a recognised Stock Exchange could qualify.  Simon went on “Investment in AIM companies is not for everyone as the investment should be considered high risk.  However, as part of a diversified asset base, it may be a suitable way to assist tax planning.”

A key benefit is that there is no lock in period, so in the event the investor were to need the capital they can simply sell the shares.  However if the shares have gone down in value the investor may not get back all the money they have invested.  Whilst any sale would mean the loss of the IHT benefit, the money can go back to the investor which can be a good help in assisting with day to day living.  This would not be possible if the asset had been given away.  Additionally, Business Property Relief can (subject to certain limits) be rolled over, often benefiting individuals who have sold a stake in an unlisted private company, which itself qualified for BPR.  By establishing an AIM portfolio, the two year clock is seen to start with the original asset meaning that the 2 year timeframe will often have already passed by the time the AIM portfolio is established.  Additionally, a non-performing share or one which may have been taken over in the AIM portfolio can be replaced by another qualifying investment within 3 years, and the BPR continues.

Due to a legislation change in 2013 investors now have the added benefit of being able to hold AIM shares within an ISA, removing any potential to capital gains or income tax.  Additionally the purchase of AIM shares have the added benefit of being free from stamp duty.