What should you do with AIM portfolios?
30th May 2025
Posted in Articles, IHT by Andrew Marr
Up until 5 April 2026 AIM portfolios that have been held for two years will benefit from full inheritance tax (IHT) relief due to the availability of Business Property Relief (BPR). After that date the BPR rate will be halved for AIM portfolios which means that they will generally suffer IHT at 20% (assuming that the estate is within the scope of IHT). From 6 April 2026 there is ‘only’ a £1m allowance for each individual for ‘normal’ BPR assets such as shares in privately owned trading companies.
Many individuals who do not have significant stakes in private companies have invested in AIM portfolios in the belief that these assets will enjoy full IHT protection once they have been held for two years. For deaths that take place after 5 April 2026 this will no longer be the case and these portfolios will give rise to IHT at 20% of their market value.
Replacement property
One way of preserving full IHT relief beyond 5 April 2026 is to dispose of the AIM portfolio and then use the proceeds to acquire an asset that will qualify for full BPR (up to £1m) from 26 April 2026. There are quite a few investment vehicles which fit the bill here and they often involve bridging loan companies or companies which are involved in renewable energy such as wind farms. Any such investment will have to be made within three years of disposing of the AIM portfolio to be effective. This will only be relevant to the extent that the individual does not already have £1m of other assets which qualify for BPR.
Example
Four years ago, Bill invested £400,000 in an AIM portfolio to leave to his son Jake. He had hoped that there would be no IHT on this due to full BPR. He is still in good health and it seems very likely that he will live beyond 5 April 2026, after which time the portfolio would give rise to IHT of £80,000 (or 20% of what ever it is valued at on the day before death). Bill therefore sells the portfolio and invests the proceeds in a company which provides wind farm energy. Although Bill had to take a capital gains tax hit of £10,000 to do this he felt that this was worth while given the envisaged £80,000 IHT saving (also he only saw the £10,000 CGT as £6,000 given that it reduced the ultimate IHT liability by £4,000!).
Some tax-payers hold AIM portfolios in ISAs that they have built up over the years. Although they could break up their ISAs and use the proceeds to invest in replacement property, unfortunately ISAs cannot hold private company shares (such as the wind farm company) and so one disadvantage of doing this is that any dividends or gains in respect of the new company will be taxable.
Forbes Dawson view
AIM shares have had a bit of a rocky ride over the last few years and so many investors may welcome the ‘IHT excuse’ to exit and they may want to consider acting now in case a mass exodus closer to 5 April 2025 triggers a market freefall (although as you know we cannot give investment advice). As always great care should be taken with any new investments and detailed due diligence should be undertaken. In particular investors will be interested to understand the timescale and structure of any exit. Although it should be possible to enjoy full BPR relief on the value of the new shares on death any value increase may still end up being taxed as income in the beneficiary’s hands. This will be the case if for example (as is often the case) an exit is structured as a company purchase of own shares. It will usually be preferable to have the opportunity to exit through a liquidation after death but this will usually be commercially unfeasible. Holders of AIM portfolios should at least me made aware of this opportunity to extend IHT protection beyond 5 April 2026 because the opportunity will go after that date.
