📉 "The Voluntary Tax"
There is an old saying in the City of London: "Inheritance Tax is a voluntary tax paid by those who distrust their families more than the taxman."
Most people think the only way to avoid Inheritance Tax (IHT) is to give all their money away 7 years before they die. But what if you need that money for your own care?
There is a smarter way. A specific section of the London Stock Exchange allows you to keep control of your money while significantly reducing your IHT bill after just 2 years. It is called the AIM (Alternative Investment Market).
'Business Relief' (BPR)
To understand why this works, you need to understand the government's motivation. They want people to invest in growing British businesses.
To encourage this, they offer Business Property Relief (BPR). Originally designed for family-owned factories, it applies to buying shares in qualifying companies listed on the AIM market.
 |
| Hate Inheritance Tax? |
⏱️ The 2-Year Magic Rule
Unlike gifting cash (which takes 7 years to become tax-efficient), BPR-qualifying shares qualify for relief after you have held them for just 2 years.
- Scenario A (Cash Gift): You gift £100,000 to your son. You die 3 years later. Result: Fully Taxable (failed the 7-year rule).
- Scenario B (AIM Investment): You invest £100,000 in an AIM Portfolio. You die 3 years later (post-April 2026). Result: 50% Relief (Effective 20% Tax instead of 40%).
Real Life Case Study (The Smith Family)
Let's look at the numbers for John (75), a widower with an estate worth £825,000.
💰 Without Planning
John's tax-free allowance is £500,000 (including Residence Nil Rate Band).
Remaining taxable estate: £325,000.
IHT Bill (40%): £130,000 goes to HMRC.
💰 With AIM Portfolio (Post-April 2026 Rules)
John moves £325,000 into an "AIM IHT ISA".
He lives for another 2 years.
On his death, the AIM shares qualify for 50% Business Relief.
Taxable Value: £162,500 (at 40%) = £65,000 Tax Bill.
Benefit: He saves his family £65,000 compared to doing nothing.
The "Double Whammy" (The AIM ISA)
You can hold these AIM shares inside a Stocks & Shares ISA to maximise efficiency.
This provides a powerful combination of tax benefits
- ✅ No Income Tax on dividends while you are alive.
- ✅ No Capital Gains Tax when you sell or rebalance.
- ✅ Reduced Inheritance Tax (20% effective rate) after 2 years.
Is It Too Good to Be True?
The tax benefits are generous because the risk is higher. AIM companies are smaller and more volatile than the FTSE 100.
*AIM companies can fail. Investing in AIM should only be done with money you can afford to risk. Many Wealth Managers offer "Conservative AIM Portfolios" to mitigate this.
Chief Editor’s Verdict
For wealthy individuals over 60, AIM shares remain a powerful tool despite the recent 50% relief cap. It allows you to retain access to your capital (unlike a trust) while halving your potential inheritance tax liability.
Do not pick stocks yourself. Not all AIM stocks qualify for BPR (e.g., mining or property firms often don't). Use a specialized "AIM Inheritance Tax Service" from a wealth manager like Investec, Octopus, or Brooks Macdonald to ensure compliance.
Remember: Paying 40% tax is a choice. You can choose to pay 20% instead.
This article provides general information for educational purposes only and does not constitute financial advice. Risk Warning: AIM shares are high-risk investments, and capital is at risk. Tax rules, including the reduction of BPR to 50% from April 2026, are subject to government legislation. Always consult a qualified Independent Financial Adviser (IFA) before investing.
0 Comments