23 July 2013

AIM Shares, Your ISA, and Inheritance Tax

The government have just announced that it will be possible to include AIM shares in your ISA - probably from August.
 
What does that mean and why is it significant?
 
AIM shares are company shares traded in the usual way but on the "Alternative Investment Market". Because of the more relaxed regime than on the main London Stock Exchange, AIM shares basically mean smaller companies.
 
Such shares have not been allowed in your stocks and shares ISA before (unless they were also listed on some other exchange as well). Apart from restricting your choice of shares to buy, that has meant that your ISA is free of Income Tax and Capital Gains Tax but is not free of Inheritance Tax - it is assessed as part of your estate just like other investment assets, so your beneficiaries could end up paying 40% tax on your ISA.
 
But AIM shares offer the possibility of using Business Property Relief which, subject to certain criteria, means that you can pass on your part-ownership of   a small company without paying Inheritance Tax.
 
You could previously choose whether to avoid Income Tax / Capital Gains Tax, or Inheritance Tax. Now you have the possibility of avoiding both.

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