The inherent riskiness of the underlying investments means shares listed on the Aim should only ever comprise a small part of a client’s estate planning, according to a range of financial advisers.
Under business property relief rules, unquoted shares are exempt from inheritance tax if held for two years prior to death.
Although Aim shares are listed on a stock market, they are counted as unquoted for the purposes of the tax rules.
Paul Stocks, an adviser at Dobson and Hodge in Doncaster said: “We do use Aim shares for IHT planning, but we know it’s not for every client.
"If we do use one, we make sure the client has gone in with their eyes wide open to the risks. Aim shares are a risky investment, though if you consider that by investing in them the tax saving is 40 per cent, there is a lot of head room.
"We use an Aim portfolio service, but even then it would only be a small part of the clients portfolio, and we sold stocks that were in another part of their portfolio and transferred to the Aim portfolio, so the overall level of equity risk didn’t get dialled up.”
There is far less liquidity in Aim shares which can make them more difficult to sell at a later date.
MInesh Patel, an adviser at EA Financial Solutions in London said: “Aim portfolios are an important and useful area for IHT planning particularly where the client is older and using other solutions will take seven or more years to be effective.
"There are some criteria I look for when I would use them. The first is if the client need to be wealthier and have capacity for loss since Aim is a riskier area of investment.
"For example in 2018 I invested £500,000 for two clients who are still showing losses. Although they are still saving on IHT both have significant capacity for loss. They need to be more sophisticated and be experienced investors.
"The charges are higher with Aim portfolios since it is a specialist area that requires much more research and sensitivity to cost need to be considered.”
Paul Gibson, an adviser at Granite Financial Planning in Aberdeen, said: “As financial planners we encourage clients to spend and gift their way out of inheritance tax wherever possible. For those who wish to retain control over assets Aim shares are part of our IHT toolkit.
"Given the nature of the investments, we emphasise the higher costs, greater concentration and risk and importantly the liquidity issues that may arise. For the right client we would also recommend no more than 10% to 20% of the overall portfolio be invested in such assets.”
david.thorpe@ft.com
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