AIM Investing For IHT Planning

[Blatter]

Not sure if I've put this in the correct forum?

We're currently looking at IHT planning and I've been reading a bit about how investing in AIM can help reduce/avoid IHT as long as the funds have been invested for a minimum of two years?

Does anyone on here have any experience of this, good or bad?

Does anyone know if there is such a thing as an AIM Index Tracker that would qualify for Business Relief, or does the investment have to be directly in individual companies?

[scrumpyjack]

Not sure if I've put this in the correct forum?

We're currently looking at IHT planning and I've been reading a bit about how investing in AIM can help reduce/avoid IHT as long as the funds have been invested for a minimum of two years?

Does anyone on here have any experience of this, good or bad?

Does anyone know if there is such a thing as an AIM Index Tracker that would qualify for Business Relief, or does the investment have to be directly in individual companies?

It has to be directly in AIM companies but only some qualify for relief. They have to be trading businesses not investment businesses.
Anyway I very much doubt this relief will survive Rachel Reeves's first budget so personally I would not bother.

Some firms organise it all for you, at a cost, by investing in a selected range of AIM businesses that qualify for relief. You then hold the shares personally - it is not a Unit Trust.

[Lootman]

A fund or tracker would not work. And only some individual AIM shares (so-called "qualifying shares") will do the job. You can probably find a broker or adviser who will run a portfolio of such shares for you, at a cost. Otherwise it is your job to know which ones qualify and which do not. AIM shares can cease to be qualifying for a few reasons - it has happened to me twice.

And you cannot shelter an entire net worth from IHT in this way without taking the risk of being very overweight in AIM shares which, by their nature are volatile.

Finally a future government could change this provision and all that effort will have been for nothing. So my opinion is that it is fine to buy such AIM shares if they are the investments you would choose anyway. But otherwise you could lose 40% anyway, just in a different way!

For these reasons, I stopped using AIM shares as a tax strategy, and am adopting other strategies for mitigating IHT.

[1nvest]

Get your son/daughters children to paint something, declare them as masterpieces and buy each of them for £37,700. They'll each have to pay 13.3% tax (20% tax on the difference between the 37,700 lower rate band minus 12,570 allowance), but 4 paintings this fiscal, another 4 in April and 13.3% tax on £300K is better than 40%. And you might sell them on for a capital loss that might offset capital gains elsewhere.

IHT should be abolished for all but high levels, same as in the US where they're allowed something like $12.5M.

Come to that so should income tax, its a invasion of privacy. In the past not tolerated, taxes were raised via businesses, which is fairer, the more you have to spend the more tax you pay. The faceless state wants to know where all YOUR money is, where you travel, what you do, even want you think. The introduction of crypto will make things even worse, enable the state to accept or decline what you can buy/do. They are your servants, who are rebelling to make you their slave.

[DrFfybes]

There are companies like Octopus that provide this sort of service, in fact Octopus seem to have pretty much targetted themselves towards this market.

However you need to be directly invested in the companies, so there is nothing to stop you making a list if AIM listed companies, narrowing it down to the IHT exempt ones, and making a portfolio yourself.

Of course the downside of this is the performance of those investments might lag behind other investments (or sometimes not!) but tney do need to lag a long way to fall 40% behind.

Note that you must hold the shares at Death, or if given away sooner the recipient must still hold them at Death (yours or theirs!) so you can't buy £100k of IHT exempt investments, gift them to a child after 2 years, and let the child sell them and use the proceeds, as the gift then falls back under the 7 year rule. Consequently you might have to hold these investments for a long time, during which period the company might restructure and no longer qualify anyway.

Unless you have developed health issues the simplest thing is to carry on as you have done and keep giving it away, as this still allows you to retain £1m of combined Nill Rate Band assuming everything passes to descendants and the property is worth £350k or more.

Paul

[Blatter]

Thanks for the enlightening replies all.

Like your business proposition, 1nvest

[Lootman]

Note that you must hold the shares at Death, or if given away sooner the recipient must still hold them at Death (yours or theirs!) so you can't buy £100k of IHT exempt investments, gift them to a child after 2 years, and let the child sell them and use the proceeds, as the gift then falls back under the 7 year rule. Consequently you might have to hold these investments for a long time, during which period the company might restructure and no longer qualify anyway.

I do wonder how that is enforced in practice. Suppose:

1) I give a million in AIM shares to X after holding them for 2 years
2) X sells the shares
3) I die
4) My executor sees the gift and asks X if he still holds them
5) X falsely states that he still has them
6) Probate is granted with no IHT

So then what happens? Neither I nor the executor did anything wrong. And X is not anywhere in the documentation, since the gifts were exempt.

[Charlottesquare]

Re AIM shares always remember that a lot of the share price re same is propped up because of the IHT relief, if that is ever withdrawn the investment case for holding vanishes with I suspect a fair amount of value. If content AIM relief will survive for years, some merit, if not then very much caveat emptor.

[DrFfybes]

I do wonder how that is enforced in practice. Suppose:

1) I give a million in AIM shares to X after holding them for 2 years
2) X sells the shares
3) I die
4) My executor sees the gift and asks X if he still holds them
5) X falsely states that he still has them
6) Probate is granted with no IHT

So then what happens? Neither I nor the executor did anything wrong. And X is not anywhere in the documentation, since the gifts were exempt.

7) Probate Office asks for evidence X still holds the shares as stated on IHT412.
8) X is tried for Fraud.

[scrumpyjack]

I do wonder how that is enforced in practice. Suppose:

1) I give a million in AIM shares to X after holding them for 2 years
2) X sells the shares
3) I die
4) My executor sees the gift and asks X if he still holds them
5) X falsely states that he still has them
6) Probate is granted with no IHT

So then what happens? Neither I nor the executor did anything wrong. And X is not anywhere in the documentation, since the gifts were exempt.

7) Probate Office asks for evidence X still holds the shares as stated on IHT412.
8) X is tried for Fraud.

and perhaps the Executor is prosecuted as well for negligence (not substantiating that X still owns the shares)?

[Laughton]

Note that you must hold the shares at Death, or if given away sooner the recipient must still hold them at Death (yours or theirs!) so you can't buy £100k of IHT exempt investments, gift them to a child after 2 years, and let the child sell them and use the proceeds, as the gift then falls back under the 7 year rule. Consequently you might have to hold these investments for a long time, during which period the company might restructure and no longer qualify anyway.

I do wonder how that is enforced in practice. Suppose:

1) I give a million in AIM shares to X after holding them for 2 years
2) X sells the shares
3) I die
4) My executor sees the gift and asks X if he still holds them
5) X falsely states that he still has them
6) Probate is granted with no IHT

So then what happens? Neither I nor the executor did anything wrong. And X is not anywhere in the documentation, since the gifts were exempt.

What do you think all those HMRC Inspectors are doing when "working" from home? They're thinking of all the possible scams and what they can do about them. That's one of the reasons they don't have time to answer the phone.

[Lootman]

7) Probate Office asks for evidence X still holds the shares as stated on IHT412.
8) X is tried for Fraud.

and perhaps the Executor is prosecuted as well for negligence (not substantiating that X still owns the shares)?

A big problem with being an executor is that the job doesn't come with any real powers. So if you are X then I cannot legally compel you to produce documentation or proof of anything. I mostly have to take what I am told by you at face value.

A more specific problem here might be that X could always re-purchase the same number of shares if he is ever asked to prove that he still owns them.

Also would the gift even be mentioned on IHT412 if the executor believed that X still holds them? In much the same way as gifts over 7 years old do not get documented on it.

I am not suggesting this trick would work. Only that in practice it could be very difficult to detect.