13 November 2013

Investing to Save Inheritance Tax

Back in July I blogged about the new rules which allow you to invest your ISA money into shares based on AIM (the smaller companies stock exchange) - see AIM Shares, your ISA and Inheritance Tax.

Now, as you'd expect, investment companies have started coming out with plans which take advantage of this. The biggest benefit could come to those who are older and who have a large-ish ISA portfolio along with a potential Inheritance Tax (IHT) liability. That's because after two years of holding most AIM shares, "Business Property Relief" means that they are free of IHT. So a relatively simple ISA transfer into one of these products cuts a potential IHT bill quite quickly.

The downside is the more risky nature of smaller companies. But in the first place a managed portfolio of AIM shares will reduce that risk, and in the second place it is possible to buy life insurance to guard against a loss of value at the date of death. It's also possible to buy insurance to cover the IHT bill in the first two years before Business Property Relief kicks in.

The end result could be an investment with no Income Tax, Capital Gains Tax, or Inheritance Tax. Sounds good to me.

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