This article first appeared on FT Adviser and is authored by David Thorpe
Advisers expect to increase their clients’ allocation to shares listed on the Alternative Investment Market (AIM) in the coming two years, with inheritance tax benefits being the major reason.
Research compiled by Intelligent Partnership in June and published in its AIM Industry Report this week (September 11) found 56 per cent of advisers cited inheritance tax planning as a key reason for investing in that market.
Most AIM shares, if held in a portfolio for two years, are exempt from inheritance tax.
The exceptions are the shares of companies that are themselves investment businesses, or companies whose sole function is to invest in property and collect the rent.
Paul Jarvis, who helped compile the report, said: “In terms of the relevance of IHT, 56 per cent of advisers in our survey said IHT planning was one of their top three reasons for recommending AIM to clients, followed by growth (55 per cent) and diversification (38 per cent).
“Tax planning excluding IHT was referenced in the top three by 35 per cent of advisers. So it’s fair to say that IHT is one of the key reasons.”
He added the severe market volatility in the latter half of 2018 only had a muted impact on adviser sentiment for AIM shares, with 78 per cent of advisers saying the volatility did not impact on their exposure to the market.
Because the shares listed on the AIM market are typically less liquid than those on the main market, the movements in those stock prices can be more extreme.
AIM shares also qualify for business property relief, as they are not regarded as listed companies. This was introduced to allow family businesses to transfer between generations, rather than having to be sold to pay inheritance tax.
Paul Stocks, financial services director at Dobson and Hodge in Doncaster, said he uses AIM shares for inheritance tax though he outsources the individual stock selection to a specialist firm.
He said: “The thing with IHT planning is there are so many different things to consider, the circumstances of each client are very different. AIM shares do the job we want them to do.”
To read the AIM Report 2019 in full click here