In Focus: Tax  

Advisers cite rise in Aim investing among clients

Advisers cite rise in Aim investing among clients
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Aim investments have risen in popularity among advised clients, with more people expected to invest before the end of this tax year than previous years.

This is according to a poll carried out among 50 high-net-worth advisers by Time Investments.

Sam Jermy, business development director for the company, said the overarching reason for the rise in popularity was the use of qualifying Aim holdings in mitigating inheritance tax liability.

According to the poll, 82 per cent of respondents said they expected more clients to be adding Aim-listed investments during this Isa season than in the previous tax year.

Some 54 per cent said the IHT benefits of Aim investments were the 'most important factor'.

Many companies qualify for Business Relief (formerly known as Business Property Relief), including some companies listed on Aim.

Once shares in qualifying companies have been owned for a minimum of two years and at point of death, the shares are free from IHT.

Since 2013, Aim shares can be held in Isas. Jermy pointed out this means investors holding BR-qualifying Aim shares within an Isa can create a tax-efficient investment with no income tax, capital gains tax or IHT.

Only 4 per cent advisers said that an IHT benefit was not important when making their recommendation.

However, there were also strong investment reasons for adding them into the portfolio, not least the potential for long-term, rising dividends, with 48 per cent of advisers stating their clients looked for the inclusion of profitable, dividend-paying companies. 

The hunt for income comes as no surprise; dividend cuts and suspensions during the pandemic have left many investors in the main FTSE indices hungry for higher income yields, while the persistently low Bank of England base rate means return on cash is negligible. 

As at March 31, the dividend yield on the FTSE 100 was 3.11 per cent, compared with 4.35 per cent at the end of 2019 and 4.68 per cent at the end of 2018.

Other findings from the Time Investments poll revealed: 

  • Just over half of advisers (52 per cent) said they look for an investment process which delivers lower volatility.
  • 50 per cent of advisers look for Aim managers that invest in larger and more established companies.
  • Nearly half of advisers (48 per cent) look for portfolios with diversification, to reduce specific company and sector risks.

Jermy added: “Investors looking for tax-efficient growth are increasingly considering investing in AIM companies. Investors could create their own portfolio of Aim-listed shares or they could choose to invest with a fund manager with professional expertise investing in AIM.

"Not all AIM shares qualify for BR, therefore investors seeking IHT relief would be wise to focus on managers with specific experience in these types of investments and a long track record of achieving BR for investors.”

He noted that there is a risk/reward trade-off.

Because Aim is the junior market on the London Stock Exchange, and is often perceived to be more volatile than the main market, volatility is a concern for investors.

AIM listed companies do not have to adhere to a minimum trading period, which means they may have only been around for a short period of time.

There are also particular sectors such as mining and exploration that historically have proved very volatile and experienced significant company failure rates.