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Kirk Rice Blog

Take AIM To Reduce Inheritance Tax?Written on May 12, 2015 by Michael Powell

Financial Services Questions

The Question:

We are considering making gifts to our grandchildren to reduce the inevitable inheritance tax liability on our deaths.  Is it still true we must survive our gifts by 7 years for these to be effective?  My friend Tommy said one of the weekend papers carried an article saying that it is now 2 years.

Michael Powell answers:

You will probably be aware that most gifts have to be survived by 7 years to be ignored when calculating the value of someone’s estate at death and the inheritance tax due.  It is relevant to remember that since 2007 it has been possible for a married couple or civil partners to transfer the Nil Rate Band (NRB) of the first to die to the survivor.

There is an inheritance tax relief that requires ownership of an eligible asset for at least 2 years before death.  If you have owned a business for at least 2 years before your death, the value of the business may qualify for full relief from inheritance tax (Business Property Relief).  There are some types of business, such as those holding investment assets that do not qualify.  Shares quoted in the Alternative Investment Market (AIM) also qualify for BPR once they have been held for 2 years.  AIM provides wider accessibility for young and developing companies that are seeking to sell shares, while maintaining a regulated and orderly market.

There are investment services that choose and monitor a portfolio of AIM quoted shares so that BPR can be available at death on those held for the full 2 years.  The investment provider will maintain a high level of analysis of eligible firms to ensure they qualify for 100% relief.

If you are used to low cost investing, you will find the charges to be relatively high, but weigh this against the potential that up to 40% of your portfolio will not be lost to tax on death.  Some people feel more comfortable investing in up and coming businesses than passing 40% of the money in tax on death to a government to spend.

This type of investing is considered relatively high risk, compared with investing in larger, more established companies and good research is essential in making investments as the number of potentially qualifying shares may be low.  Smaller companies may not pay regular dividends, are considered at higher risk of failure, the shares may not be traded daily and price movements can be very large.  As always I recommend you seek independent advice for estate planning as AIM portfolios are not suitable for all and there are a number of other reliefs and plans that should be considered.

If you would like more advice regarding this issue or any other financial services matter, please contact us.

If you would like to receive Kirk Rice’s Financial Services Questions regularly by email, simply email info@kirkrice.co.uk stating Financial Services Questions in the subject heading and we will add you to our distribution list.

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.  Information is based on our current understanding of taxation legislation and regulation. Any level and bases of, and reliefs from taxation, are subject to change

Past performance is not a guide to future performance.  The value of your investment and the income from it will vary and the initial investment amount cannot be guaranteed.  The value of the investment may decline, and there is a risk that this may outweigh any inheritance tax saving