Aim shares can now be held in ISAs
A key benefit of this is that many Aim shares are eligible for a form of tax relief called Business Property Relief (BPR), which means they become exempt from inheritance tax after two years.
Stocks and shares ISAs are normally subject to inheritance tax, meaning older investors who have built up significant Isa portfolios over the years have faced a dilemma - enjoy the tax benefits now (by keeping their money in the wrapper) or give their families tax benefits later (by selling out of the Isas, in order to gift the money or put it into trust).
Richard Power, head of the smaller companies team at Octopus Investments, said: "Transferring Isa savings into an Aim-focused Isa that's built around BPR genuinely appears to offer the best of both worlds - tax-efficient growth for as long as possible, followed by significant tax savings when the investor passes away. There's even the scope to pass the portfolio on to the beneficiaries, so it's truly a long-term investment plan."
However, investing in Aim can be risky. In the year to 9 July, the FTSE Aim All-Share index fell by 6.5%, while over five years it was down 22%, as pointed out by Moneywise contributor Andrew Pitts in his August column.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
Alternative Investment Market
AIM is the London Stock Exchange’s international market for smaller companies. Since its launch in 1995, 2,200 companies have raised almost £24 billion listing on AIM. The market has a more flexible regulatory system than the main market and can offer tax advantages to investors but its constituents are a riskier investment than bigger companies listed on the main market.