Is this the beginning of the IHT Isa surge?
Octopus Aim Isa takes advantage of new rules to sidestep inheritance tax after two years.
Octopus Investments has launched an Isa invested in companies listed on the London Stock Exchange’s Alternative Investments Market, in what could mark the beginning of a swathe of launches to take advantage of new rules to provide an inheritance tax planning solution.
The new product - the Octopus Aim Inheritance Tax Isa - allows investors to take advantage of a recent change in Isa rules that opened up the tax wrapper up to investments in Aim shares.
The rule change means money invested in an Aim Isa will benefit not only from the income and capital gains tax exemptions the tax wrapper already provides, but also become exempt from IHT after two years, when the shares qualify for business property relief.
Originally designed for entrepreneurs passing on family firms, business property relief gives full relief from IHT on assets held for a minimum of two years if they are held at the time of death. It applies to transfers of unquoted shares and esoteric assets, as well as those listed on Aim.
Business property relief schemes can offer real value to clients as they effectively reduce the seven-year qualifying period for potential IHT transfer exemption to two years, though at the cost of taking on the risk of investing in smaller businesses or non-mainstream assets.
Earlier this year (17 July) Hargreaves Lansdown senior investment manager Adrian Lowcock predicted a move towards IHT-friendly Isas after the government announced they would permit Aim shares to be included in the products. The rules also apply to Junior Isas and Child Trust Funds.
Mr Lowcock added, however, that the appeal of an IHT-free Isa based around Aim stocks could 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”.
Richard Power, head of the smaller companies team at Octopus, said: “We have long believed in the benefits of investing in the Aim market on behalf of our investors. The Aim market includes a number of the most dynamic and high growth smaller companies in the UK.
“Compared with larger FTSE companies, which are covered by many analysts and attract greater investor attention, smaller companies can offer significant value and potential for earnings growth through careful stock picking.”
For more information on IHT planning for clients, read FTAdviser’s Guide to Inheritance Tax Planning - and earn 60 CPD minutes!