Product review: Octopus Aim Inheritance Tax Isa
More on Tax Efficient Investments
Capitalising on Aim shares now being accepted into Isas is the latest product from Octopus Investments.
The Octopus Aim Inheritance Tax Isa, launched on 12 September, allows investors to take advantage of tax relief on Isas and business property relief, giving an IHT exemption after two years of holding.
It will invest in a portfolio of Aim stocks on behalf of investors, with allocation broadly similar to the company’s existing Aim IHT product, the Octopus Aim Inheritance Tax Service. The product focuses on 20-30 shares.
For advised sales, an initial charge of 2.5 per cent is applicable, along with an AMC of 1.5 per cent. For execution-only or direct sales, the initial charge is 5 per cent where commission is requested and the AMC is 2 per cent. A 1 per cent dealing fee will be applied to all transactions within the portfolio and 0.5 per cent stamp duty applied to in-portfolio purchases.
The news that Aim stocks would be allowed in Isas was met with a somewhat mixed response.
For hardcore Aim investors, it opened up an additional form of tax relief. But the vast majority of Isa investors opt for cash rather than stocks and shares, so others questioned where the demand would come from for this niche option.
It makes sense for Octopus, a specialist in tax-efficient investing, to get into this market. But why would anybody want to buy such a product?
Intuitively, it is probably those who would seek an IHT shelter product anyway who are happy to use up their Isa allocation in doing so, gaining two types of tax relief along the way.
But this just diverts people away from existing IHT products.
If somebody were simply interested in investing in Aim stocks alongside other investments, it would make far more sense for them to choose a generic stocks-and-shares Isa that offers a full range of choices.
The answer, perhaps, is that this product is appropriate for those who do not want to do the stockpicking, but want the double tax relief.
But investors should not be tempted into Aim for that fact alone. The alternative market comes with its own risks that are distinct from the main market, which investors must be aware of.