The under-the-radar shares with tax perks
Aim shares can be free of inheritance tax – but you need a strong stomach, says Holly Thomas
A risky, but potentially rich, hunting ground can be found on London’s junior market, the Alternative Investment Market.
Aim is home to some of the most innovative smaller businesses in the country, comprising thousands of fast-growing technology, healthcare and environmental companies run by entrepreneurs.
Returns can be higher and quicker than larger, older companies. The added perk is the potential for shares to be completely free of inheritance tax. Companies like package holiday seller Jet2 and video games support company Keyword Studios – today worth more than £1bn – have shone a light on the diamonds that can be discovered if investors are brave enough to mine less-researched businesses.
There are many other success stories. The value of Aim-listed Sondrel more than doubled recently following reports it played a key part in Elon Musk’s Neuralink brain chip. Sondrel assisted with semiconductor technology that allows Neuralink’s implants to function. Sondrel is one of only a handful of firms capable of supplying the higher-spec chips required – with the share price of the Berkshire firm soaring 117pc since the start of the year.
Tax perks
As with shares listed on the main market, Aim shares can be placed within an Isa or pensions, which protects gains from tax. Some Aim shares come with extra tax benefits for investors with an eye on estate planning. After two years of holding qualifying shares, you should be able to pass them on without a penny due in inheritance tax (IHT) – charged at 40pc over the £325,000 threshold.
Unlike other forms of inheritance tax planning, you keep hold of your money (and control of it) rather than having to give it away before you die.
If there is a sudden market dive, Aim stocks will need to fall 40pc more than other investments to cancel out their IHT benefits.
Investing in Aim has become more attractive with increasing numbers of estates falling into the web of inheritance tax. The latest figures show £6.3bn in inheritance tax receipts were collected in the 10 months from April to January 2024, according to HMRC: £400m more than the same period a year earlier.
Risk factors
While the Aim is home to thousands of success stories there are no guarantees a company will prosper. Smaller firms suffer in downturns and many Aimlisted firms have struggled and failed.
Unlike the main market, there is no minimum size requirement or trading record. This means that there is more risk than investing in larger, more established companies.
Jason Hollands, of stockbroker Bestinvest, said: “The Aim market has a bit of a Wild West reputation as it has lighter touch rules than the main market, stocks are often very small and illiquid, and Aim shares have very little scrutiny by stockbroking analysts.”
Another risk for those planning to use Aim investing to minimise inheritance tax, is that the tax benefit will be scrapped. Reports suggest the Labour Party is considering scrapping “business property relief ”, the inheritance tax relief that applies to Aim, as part of a wider closing of tax loopholes.
There is even uncertainty around the future of inheritance tax itself. There have been rumours that the Government might be looking at scrapping the tax altogether to win votes – which would negate the need for Aim shares. This could of course be damaging for the market and existing investors. Laith Khalaf, head of investment analysis at AJ Bell, warned: “There’s a fair amount invested in the market on the basis of its inheritance tax treatment, so if this suddenly became surplus to requirements, there would be a fair wedge of cash leaving the market, which could knock share prices.”
The flip side of investing in smaller riskier businesses is that when an economy starts to recover, the growth of smaller companies is often faster than larger rivals. Many fund managers like Aim companies for their ability to be nimble in changing markets and look for firms with strong balance sheets that can keep growing their businesses.
How to invest in Aim
You can buy Aim shares for your Isa in the usual way, using an Isa and pension platform such as Fidelity or Hargreaves Lansdown.
AJ Bell, another stockbroker, said the most popular Aim stocks included mining companies such as Greatland Gold which deals in gold and copper, Sylvania Platinum which finds platinum, palladium and rhodium, and Premier African Minerals, a Uk-based mining and exploration company, operating primarily in Africa. Helium One Global is also in the top 10 most popular. This company explores, develops, and produces low-carbon helium. Helium is used to make semiconductor chips and cool cloud computing data centres, among other things.
Another favourite is life sciences company Avacta, a cancer treatment specialist spun out of the University of Leeds as well as “fast fashion” retailer Boohoo.
‘Aim has a Wild West reputation as it has lighter rules than the main market’