Tax Efficient Investments  

Aim investments have a lot to offer

Paul Jarvis

Paul Jarvis

Wealth management remains a key issue for the UK’s ageing population.

As Nigel Ashfield, managing director of Time Investments, says in Intelligent Partnership’s Adviser’s Guide to Business Relief: “Care costs continue to loom large in the minds of older people.”

Offering 100 per cent inheritance tax relief after two years, investing in shares that qualify for Business Relief (BR) is an increasingly popular way to support some of the UK’s most exciting businesses while also protecting and passing on wealth after death.

To qualify for BR, shares must be in companies that are not listed on a major stock exchange; however, the Alternative Investment Market (Aim - the London Stock Exchange’s junior market) does not count for these purposes and therefore an investor needs to consider the potential of this market.

The decision to invest in Aim shares will be a matter for each individual investor, aided by proper support and advice, as there are pros and cons to both approaches to BR.

Perhaps one of the most obvious attractions of Aim is the fact that companies quoted on the exchange have to meet certain corporate governance rules, which have recently been strengthened.

This offers a level of transparency in the due diligence process that may not be found in unlisted companies, giving a certain amount of comfort to investors about the robustness of the companies they are investing in and making the investment process quicker and cheaper, allowing managers to diversify across a greater number of investees more easily.

Having said that, these rules cannot prevent companies going bust, and while they can reduce the risk of bad practices taking place, again these cannot be completely ruled out just because a company is listed on Aim.

Nonetheless, because Aim is an exchange, there is much greater potential for shares to be traded than is the case for unlisted companies.

While Aim is considerably less liquid than the main FTSE market, an average of £5bn-worth of trades were made per month during 2019, with around 570bn shares traded over the year.

Another benefit of investing in Aim-listed companies is the ability to wrap Aim shares within the tax-free environment of an Isa.

Investing in Aim can also give investors access to companies with activities outside the UK.

As Brexit rumbles on, the potential to invest in companies whose futures may not be affected by the UK’s relationship with the EU has become increasingly attractive - whether that is firms with international operations or organisations in the UK whose specialisms are unlikely to be significantly affected by Brexit.

Notwithstanding this opportunity to diversify out of UK-derived incomes, one of the downsides of Aim is the overall number of companies from which investors can choose.