Invest in business to gain ISA allowance tax relief
MANY savers have accumulated substantial amounts in Individual Savings Accounts (ISAs), where one of the few downsides is that its value is included in the estate calculation for Inheritance Tax (IHT) liabilities.
“It is possible to invest your ISA allowance in shares in a carefully chosen portfolio of companies listed on the Alternative Investment Market (AIM) that qualify for Business Property Relief (BPR),” says Kenneth MacPhie of Anderson MacPhie Financial Services. “BPR is a tax relief provided by the UK Government as an incentive for investing in certain trading businesses.
“An investment in this type of ISA should qualify for BPR after just two years. This means that when the investor dies, if they have held their investment for at least two years, and providing they still hold it when they die, their beneficiaries would not be subject to IHT on the value of the investment.
“As well as being available to new business, you can transfer existing ISA holdings which will retain all of their current ISA tax advantages. For example, there’s no income tax to pay on any dividends and no capital gains tax due when investors choose to sell their investment.
“Most IHT planning strategies – such as those that involve the use of gifts or trusts – take seven years before the amount becomes fully exempt from IHT. However, investments in an AIM Inheritance Tax ISA can become free from IHT after just two years, provided they are still held at the time of death.
Investors retain access to their investment and it stays in their name. If their circumstances change, it is possible to make lifetime withdrawals from the investment – subject to being able to sell the shares – although money withdrawn will no longer be exempt from IHT.”
Companies listed on AIM normally involve more risk than those on the main market of the London Stock Exchange, and their performance tends to be more volatile. The Financial Conduct Authority (FCA) does not regulate IHT planning.
The benefits of tax relief will depend on the individual circumstances of each investor and may be subject to change. The value of investments and the income they produce can fall as well as rise – you may get back less than you invested.