Using AIM portfolios to reduce inheritance tax

By Published On: September 3rd, 20231.7 min read

Using AIM Portfolios to Reduce Inheritance Tax

Inheritance tax (IHT) can significantly diminish wealth passed to heirs with the current IHT standing at 40%. Investing in Alternative Investment Market (AIM) companies can mitigate IHT through business property relief (BPR).

Certain AIM shares are exempt from Inheritance tax if they are held for two years prior to a person’s death. Not all AIM shares are eligible and it is important to seek specialist tax advice.

Investors can either build their own portfolio of AIM shares or use specialist investment management services.

AIM IHT Portfolios

Many AIM companies qualify for BPR, allowing investments held over two years to be passed IHT-free while providing exposure to high-growth companies listed in London.

Specialist wealth managers provide AIM IHT investment portfolios, typically with minimum investment amounts of around £100,000.

AIM portfolios provide exposure to fast-growing businesses while reducing inheritance tax liability. When investing in specialist AIM portfolios, your assets remain accessible at all times and gains can be crystallised. However, if shares are sold, the ability to claim IHT exemption is lost.

Benefits of AIM Portfolios

  • Access high-growth companies with long-term capital appreciation potential.
  • BPR enables avoiding up to 40% IHT after 2 years of investing.
  • Assets remain under the investor’s control and accessible.
  • Portfolios managed by experts and diversified across sectors.

How Business Property Relief Works

Business property relief provides 100% IHT relief on AIM shares held over two years. It encourages investment in growing trading companies by exempting them from IHT.

For example, a company providing a technological solution to clients will likely qualify for BPR whereas an investment company holding a portfolio of other companies will not.

Research is required to ensure investments qualify. More information on Business Property Relief can be found on HMRC’s website here.

Mitigate Inheritance Tax with AIM

With proper planning, AIM portfolios can utilise BPR to legally reduce inheritance tax liability and efficiently transfer wealth. Investors are able to select shares individually or use a specialist investment manager. In either case, investors should consult professional tax advisers.

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Investing in early-stage businesses involves risks, including illiquidity, lack of dividends, loss of investment and dilution, and it should be done only as part of a diversified portfolio. Kemeny Capital is targeted at investors who are sufficiently sophisticated to understand these risks. Tax relief depends on an individual’s circumstances and may change in the future. In addition, the availability of tax relief depends on the company invested in maintaining its qualifying status. Past performance is not a reliable indicator of future performance. You should not rely on any past performance as a guarantee of future investment performance.

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Kemeny Capital does not provide advice on Investments, tax or legal affairs. Kemeny Capital Ltd is Authorised and Regulated by the Financial Conduct Authority, FCA Register Number 941978. Kemeny Capital, 71-75 Shelton Street, London, Registered in England, Company Number 12871856.

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