Allowing stocks from the London Stock Exchange’s Alternative Investment Market into Isa portfolios could open the way for inheritance tax-free savings accounts, Hargreaves Lansdown has said.
After a consultation launched in March, the Treasury announced that Aim stocks would be allowed in Isas by autumn 2013. The government has since confirmed that it will allow Aim stocks into Isas from 5 August of this year. The rules also apply to Junior Isas and Child Trust Funds.
Some Aim stocks qualify for business property relief which provides an IHT exemption once held for two years.
According to Hargreaves Lansdown senior investment manager Adrian Lowcock, investors holding these stocks in their Isa for the two year qualifying period would have to pay almost no lifetime taxes and no death taxes.
In response to news that the inclusion of Aim stocks in Isas was set to be confirmed earlier this month, Chase de Vere IFA Patrick Connelly warned that allowing Aim stocks in Isas could mistakenly make them look too ‘mainstream’, while the inherent risks of Aim stocks would persist even in an Isa.
Mr Lowcock agreed that the appeal of an IHT-free Isa based around Aim stocks would be “fairly limited”, saying “most investors who have reached the age that they are concerned by IHT will not be wanting to take on the risk of Aim shares”.
He added that investors should “choose stocks or funds which are suitable for their investment approach and objectives, and not just for the tax benefits”, adding that Aim shares were “high-risk” and volatile.
The government’s move to allow Aim stocks within Isas was also welcomed by The Tax Incentivised Savings Association’s director general Tony Vine-Lott, who said the change in rules would benefit smaller growing businesses often starved of funding.
He said: “Many of these companies are micro employers with a handful of staff who will in future have far greater opportunities to invest in the business as well. This is good news for investor choice and for the economy and job creation.”
Mr Lowcock said: “Matching investments to one’s own objectives is always the most important factor, these changes allow a bit more flexibility, which should be welcomed.
“The tax reliefs available on investment, originally the Pep and then in the Isa, have always been aimed at encouraging investment and this change to the rules continues this theme.
“Investors are already able to buy and trade exchange traded products inside their Isa, some of which are rightly considered rather risky investments by the Financial Conduct Authority, so including Aim stocks just brings consistency.”
Additional reporting by Michael Trudeau.
