Since 1996, private investors have been able to hold shares in AIM-listed companies and pass them on free from inheritance tax, provided the company qualifies for BPR, and provided the investor has held the shares for at least two years when they die. In 2013, it became possible to hold AIM shares in an ISA. As a result, for the last seven years it has been possible to either make new subscriptions or to transfer some or all of an existing ISA pot into an BPR-qualifying ISA.
Since 2013, Octopus has helped over 12,000 investors invest into AIM-listed shares in this way.
A specialist manager is essential
Claire makes clear that her recommendations means Barry’s portfolio being managed by a specialist investment manager. At first, Barry is a bit disappointed. He has always enjoyed choosing the investments in his ISA and deciding when to buy and sell. However, Claire explains that the investment manager would not only be choosing the stocks from an investment perspective from those listed on AIM, which is a specialist market, but would also monitor the portfolio to check that every company is expected to qualify for BPR. Barry agrees that this is a skillset he doesn’t have and is happy to have an investment manager manage his portfolio.
Barry understands his capital is at risk
Claire also explains to Barry that he should consider this to be a long-term investment. The tax relief afforded to BPR-qualifying investments is designed to offset some of the risks of investing into qualifying shares listed on AIM. The value of his new ISA portfolio, and any income from it, can fall or rise, and he may not get back the full amount he invests. Claire also makes Barry aware that AIM-listed shares can go up and down in price by more than shares listed on the main market of the London Stock Exchange. They can also be harder to sell.
She explains that HMRC will assess whether each company in his portfolio qualifies for BPR when he dies. Entitlement to the relief will depend on the companies qualifying for BPR when he dies. She explains that the value of BPR to his estate will depend on the value of his whole estate at that time, and that, like all tax legislation, the rules applicable to BPR could change in future.
After two years, Barry’s portfolio is zero-rated for inheritance tax
Barry is happy to transfer his stocks and shares ISA. He expects to hold this investment portfolio until he dies and is comfortable taking these risks in order to pursue his estate planning objective. Barry transfers his Stocks and Shares ISA into an AIM Inheritance Tax ISA. Once he has held the shares in his new portfolio for two years, they should be zero-rated for inheritance tax. From then on, Barry can continue to hold his portfolio in the knowledge that he can pass it on to Peter without expecting it to add to the inheritance tax bill that will be due on his estate.
