Under current legislation bequests made to a deceased’s spouse or to recognised charities escapes inheritance tax (IHT). Otherwise the first £325,000 (frozen until April 2018) of assets bequeathed on death attracts no IHT and everything over this figure attracts tax at 40%.
An exemption to this are shares in companies that qualify for Business Property Relief (Business Assets). Companies that qualify for such relief are those that are not listed on a recognised Stock Exchange. Most importantly the AIM and OFEX (now called PLUS Quoted) markets are not recognised stock exchanges for this purpose, although companies utilising these platforms are quoted and may be traded. Business assets are: -
Exempt from IHT if the initial investments into AIM and PLUS Quoted securities were purchased at least two years before the time of death and remained in AIM or PLUS Quoted securities up to the date of death.
Subject to capital gains tax (CGT) at 10% for basic rate taxpayers and 20% for higher rate taxpayers on gains in excess of the annual exemption (£11,100 for 2015/2016 2016/2017). Where a gain is large enough to take someone over the higher rate income tax threshold, the 28% rate will apply to the excess.
There are some AIM and PLUS Quoted companies that currently do not qualify for these reliefs, these include companies dealing in property, investments and general financial instruments (i.e. investment companies) and cash shells. There are over 1,000 companies listed on AIM, as at April 2016. This makes it possible for us to create and manage a portfolio to take advantage of these far reaching tax breaks.
We do have to point out that AIM and PLUS Quoted securities are regarded as high risk and trading liquidity cannot be guaranteed. Investors should only contemplate investing in such equities if they can afford to lose any of the capital committed.
We believe the higher risk nature of AIM and PLUS Quoted investing makes it essential to have a broad spread of companies that have been researched and are regularly monitored. Over the past several years we have put together a core universe of companies from which we select for IHT mitigation portfolios. These companies are regularly appraised and added to when appropriate opportunities arise.