AIM IHT Portfolios - All you need to know (2024) - Generation Money (2024)

In this guide our team of finance professionals cover everything you need to know about AIM IHT portfolios.

Alternative Investment Market (AIM) Inheritance Tax (IHT) portfolios are investment portfolios created to invest only in AIM-listed shares that qualify for business property relief from inheritance tax.

Investments in certain AIM shares do not count towards the value of your estate upon death. This allows them to be passed on free from inheritance tax.

We cover the rules around AIM shares and inheritance tax, what AIM IHT portfolios are, the best AIM IHT portfolios and how to create your own. It’s important to understand the risks involved and we cover these too.

What is an AIM IHT portfolio?

An AIM IHT portfolio is a fund which invests in shares listed on the Alternative Investment Market which will qualify for business property relief for inheritance tax (IHT) purposes.

As we discuss below, certain shares listed on the AIM are eligible for ‘business property relief’. This is a relief granted by HMRC on ‘unquoted’ shares in the calculation of an estate’s value for inheritance tax.

Effectively, qualifying AIM shares are given 100% relief meaning your AIM investments can be passed on upon death without paying inheritance tax. We discuss this in more detail below.

There are funds run by professional fund managers which seek to benefit from business property relief for investors by investing in AIM shares. These are known as AIM IHT portfolios.

AIM IHT portfolios still seek to make a return on your investment, but they specifically choose AIM shares which will be eligible for business property relief.

So, an investment into an AIM IHT portfolio is primarily made to pass on your shares free from inheritance tax rather than seeking a return on investment.

AIM IHT portfolios and ISAs are specialist products with high minimum investments. They’re usually only available to high net worth investors or via a regulated financial advisor.

AIM Shares and Inheritance Tax

For the purposes of inheritance tax (IHT), AIM shares are considered ‘unquoted’ by HMRC. Unquoted shares are eligible for ‘business relief’ under inheritance tax rules.

This means they are exempt from the value of your estate when calculating it for IHT purposes. Technically, they get IHT relief at 100%, rather than a ‘true’ exemption.

Not all AIM shares will qualify, though. There are further criteria for AIM shares to be eligible for business property relief:

• They cannot be investment trusts, including Real Estate Investment Trusts (REITs), or any business whose main purpose is to deal in shares or land and property
• It must be a ‘business’, which means that its purpose is to carry out a trade or profession for gain. So, no not-for-profit organisations
• The company should not have a secondary listing on a ‘listed’ stock exchange anywhere in the world
• You must hold the shares for at least 2 years prior to death

HMRC does not prospectively decide which AIM shares qualify for business property relief. So, you can’t ask HMRC if a particular investment will qualify. HMRC only assesses claims when they arise, i.e. upon death and the calculation of an estate for inheritance tax purposes.

Specialist AIM IHT funds invest in companies that the fund managers are confident will qualify for IHT relief. More on these below.

If you invest in AIM shares through an ISA, you will also not have to pay capital gains tax or income/dividend tax on any gains made or dividends received.

Overall, buying AIM shares can be a very attractive proposition from a tax perspective.

Remember, though – tax is down to your personal circ*mstances and tax rules can change. There’s no guarantee the government will maintain IHT relief on AIM shares in the future.

Read our full guide to AIM shares and inheritance tax for more info.

Stamp Duty

AIM shares are also exempt from Stamp Duty.

HMRC states that shares listed on a ‘recognised growth market’ are exempt from stamp duty. The AIM is listed by HMRC as a recognised growth market, so no stamp duty is payable when dealing in AIM shares.

How to invest in an AIM IHT Portfolio

There are two ways to invest in an AIM IHT portfolio. Either you can put your money into a ready-made AIM IHT portfolio run by professional fund managers, or you can build your own.

Professional AIM IHT portfolios

There are a number of professionally run AIM IHT portfolios provided by investment management companies.

These are funds which invest entirely in AIM listed companies that will be eligible for business property relief. As they’re run by professional fund managers, you don’t need to manage your AIM investments yourself.

The key benefits of using professionals are that they take care of the investment selection process and any divestments and reinvestments required over time.

They also have many years experience of running these funds which should give you confidence that your investments will get 100% BPR relief from inheritance tax – although it is never guaranteed.

However, they typically charge higher fees than standard AIM funds and investment trusts, sometimes 2% per year or more.

We cover 3 of the best known AIM IHT portfolios further below. To access these funds you may need to go through a qualified financial advisor (who is likely to charge their own fees, too). This is because AIM IHT portfolios are considered sophisticated investments.

Some professionally managed AIM IHT portfolios are also sold as ISA products. By investing in them you are effectively opening an ISA product with the fund administrator.

Any funds you invest will have ISA benefits on top of going into an AIM IHT portfolio.

Create your own AIM IHT portfolio

Alternatively, you can create your own AIM IHT portfolio and avoid the often expensive fund manager fees.

To do this, you will need to open an investment account with a broker that provides access to AIM shares. Our recommended AIM broker is Interactive Investor.

Once opened, you can then pick AIM shares to invest in and build your portfolio.

You should carefully research each AIM company you choose to ensure as far as possible that they are eligible for business property relief.

If you contact the company directly they should tell you whether they think they are compliant with BPR. Most AIM listed companies are aware that investors are often seeking IHT relief and will usually be helpful with your queries.

You must also stay on top of your portfolio over time. Regularly review your portfolio and each AIM listed company within it to check that they are still within the BPR rules.

Be prepared to adjust your portfolio when needed. If, for example, one of your AIM investments de-lists from the AIM, or graduates to a main market listing, you must be ready to dispose of your investment and immediately reinvest in another BPR compliant company.

This should ensure compliance with the two year holding rule.

You can build your AIM IHT portfolio through an ISA instead of a General Investment Account and enjoy tax-free gains and dividend income. We cover AIM IHT ISAs in more detail below.

As ever, though, tax is always down to your individual circ*mstances and tax rules may change over time.

You should also be aware of the risks involved with AIM investing – we cover these in detail later in this guide.

AIM Inheritance Tax ISA

An AIM Inheritance Tax ISA is where you invest in, or create your own, portfolio of AIM shares for business property relief purposes through a Stocks and Shares ISA.

Stocks and Shares ISAs are government approved investment accounts which are free from income tax, dividend tax and capital gains tax on any income or gains made within them.

So, investing in AIM shares for IHT purposes through a Stocks and Shares ISA has the added benefit of avoiding tax on gains and income on your AIM investments.

To create your own AIM IHT ISA portfolio, we recommended Interactive Investor.

Read more on ISAs in our guide to the best Stocks and Shares ISA for beginners and the cheapest Stocks and Shares ISAs.

Professionally managed AIM IHT portfolios will often have an ISA option. This means you can put your money into an AIM IHT portfolio with an investment management company and still get the benefits of an ISA.

Best AIM IHT portfolios

Below, we’ve picked out 3 of the best-known AIM IHT portfolios.

It’s important to note that these portfolios are run as discretionary portfolios. They are not ‘ready-made’ investments in the way that robo-advisor portfolios are. So, if you invest, your funds may not be invested across each of the shares in the overall AIM IHT portfolio.

The fund management teams may operate a ‘buy’ and a ‘hold’ list. New investors will only be exposed to the ‘buy’ list companies but existing investors will stay invested in ‘hold’ list companies.

Octopus AIM IHT Portfolio

Assets Under Administration: £1.5bn (Feb-24)
Initial charge: 1% (no initial charge if investing through an advisor)
Annual management charge (AMC): 2% +VAT, or 1.5% +VAT if investing through an advisor
Dealing fee: 1%
Financial Advisor required: No
ISA option: Yes
Minimum investment: £20,000 (£25,000 for non-ISA option)
5 year performance (to 31/12/23): -8.37%

Octopus Investments’ AIM IHT Portfolio is by far the largest AIM IHT portfolio in the UK. It’s also one of the oldest, having been established in 2005 (the ISA version was launched in 2013).

Its investments (at the time of writing) include CVS Group, Boku and RWS. It typically invests in 20-30 AIM shares and seeks to prioritise companies with strong growth potential and market positions.

Puma AIM IHT

Assets Under Administration: £194.4m (Feb-24)
Initial charge: 0%
Annual management charge (AMC): 1.5%
Dealing fee: 1% (or variable via broker)
Financial Advisor required: No
ISA option: Yes
Minimum investment: £20,000 (£25,000 for non-ISA option)
5 year performance (to 31/12/23): 48.7%

The Puma AIM IHT portfolio was set up in 2014 and has returned 96.9% up till 31/12/2023.

Its investments include Ewin and Tracsis and its strategy involves avoiding early stage companies.

Downing AIM IHT

See Also

AIM Investing - all you need to know (2024) - Generation Money

Assets Under Administration: £122m (Feb-24)
Initial charge: 2% (no initial charge if investing through an advisor)
Annual management charge (AMC): 2% +VAT, or 1.5% +VAT if investing through an advisor
Dealing fee: £35 per transaction (no more than 0.5% of portfolio per year)
Financial Advisor required: No
ISA option: Yes
Minimum investment: £20,000 (£25,000 for non-ISA option)
5 year performance (to 31/12/23): 36.4%

Downing aims to invest in companies which it believes are undervalued and therefore their shares are ‘cheap’. It also looks for these companies to have a reason for turning around their fortunes.

This strategy can be risky, as some companies may well be trading ‘cheaply’ for good reason and not recover their ‘value’.

That being said, Downing’s recent performance has been strong. Downing also includes loss cover for new investors under the age of 90 which covers the first 20% of losses on the initial investment upon death.

AIM IHT portfolio performance

Below we summarise the AIM IHT portfolio performance of the above 3 portfolios we discussed.

How to create your own AIM IHT ISA portfolio

Instead of investing into a professionally managed AIM IHT portfolio, such as those above, you can build your own.

This will avoid the fees involved with investing in a managed fund. On an annual basis, investing in managed funds can cost 2-3% or more including dealing fees. This can significantly eat into your returns over time.

To create your own portfolio you’ll need to open a general investment account or an ISA with a broker that provides AIM shares. We recommended Interactive Investor, one of the most popular platforms for AIM investing.

You will need to do your own research when selecting which AIM companies to invest in. It’s important to pick companies that should qualify for IHT relief according to the criteria we laid out above.

As a starting point, you may want to consider some of the AIM listed companies that the professionals have picked. These include CVS Group and Jet2 (at the time of writing).

Professional AIM IHT funds tend to invest in 20-40 companies, so you may want to use this as a benchmark when building your own portfolio.

If in doubt, speak to a qualified financial advisor or tax accountant. Or, if you have more general questions, you should consider speaking to a financial coach.

Remember – your capital is at risk when you invest and this is particularly so with AIM shares. The AIM tends to be more volatile and less liquid than main stock markets which means share prices can move up or down rapidly.

AIM IHT portfolio pros and cons

Below we summarise the main advantages of AIM IHT portfolios, and their disadvantages.

AIM IHT Pros

• Inheritance tax relief – fully compliant investments get 100% relief from inheritance tax
• Access to your money – unlike trusts, you can access your AIM IHT portfolio funds any time
• ISA benefits – investing in an AIM IHT portfolio through an ISA can also save on income, dividend and capital gains taxes
• Run by experts – professionally managed portfolios will get the benefit of continued assessment by experts, making compliance with business property relief IHT rules more likely
• Short holding period to qualify for IHT relief – relief from inheritance tax can be achieved in just two years of holding qualifying shares

AIM IHT Cons

• Expensive – professionally managed AIM IHT portfolios are expensive with fees of 1.5%-2% or more annually
• May need a financial advisor – you may need to be introduced by a financial advisor who may charge their own fee on top of fund fees. However, good financial advice is often worth the price
• High minimum investment – usually at least £20,000
• IHT relief is not guaranteed – IHT rules may change meaning your investment may no longer attract IHT relief, and IHT relief is not guaranteed – HMRC will confirm the relief at the time it is claimed
• Your capital is at risk – shares listed on the AIM are considered to be riskier and more volatile than main market listed shares
• Less diversified investments – by investing in AIM shares for the purpose of IHT relief, it may be harder to create a diversified portfolio versus a regular investment portfolio

AIM investing and IHT risks

When investing in AIM shares there are additional considerations beyond the usual warning that your capital is at risk.

AIM shares can be highly volatile. They’re generally traded in lower volumes than main market shares so prices can quickly move up or down. Investing in the AIM should be considered part of a diversified investment portfolio.

It’s also important to remember that the tax status of AIM shares can be changed by HMRC.

For example, a new government could impose stamp duty on AIM shares. There’s no currently no suggestion that the current or imminent future government will do so but that could change.

Similarly, the government could remove inheritance tax exemptions on AIM shares. If it did, then the value of AIM shares could rapidly fall as people seek to exit their investments made for IHT purposes. This could mean a major loss on your AIM investments.

As we mentioned above, HMRC does not prospectively confirm the eligibility of any shares for business property relief. It is only when the relief is actually claimed that HMRC will confirm eligibility.

So, there is always a risk that HMRC will rule one of your investments in AIM shares to not be eligible. That should be unlikely, though, if you’ve bought AIM shares for IHT purposes and followed the guidelines.

Finally, although we’ve outlined the current tax situation around AIM shares, tax is always down to your personal circ*mstances.

If in doubt, seek regulated advice from a qualified financial advisor or tax accountant. We recommend Unbiased, who will connect you to an appropriate professional for your needs.

Interactive Investor, like all of the investment platforms we cover, is regulated by the Financial Conduct Authority (FCA) and is part of the Financial Services Compensation Scheme (FSCS). The FSCS protects up to £85,000 of your money in the unlikely event that the platform goes out of business.

AIM IHT Portfolios – Summary

That covers AIM IHT portfolios. They’re investment portfolios specifically set up to invest in AIM shares which are eligible for business property relief on inheritance tax.

Qualifying AIM investments get 100% relief against inheritance tax, making them an option to consider when passing on your wealth on death.

You can either invest with a professional fund manager who will look after your AIM IHT portfolio for you, or you can build your own portfolio.

In both cases you can do so through a Stocks and Shares ISA and benefit from your investments also being free from dividend and capital gains taxes.

Investing in the AIM comes with higher risks than investing in shares listed on main markets. The AIM is more volatile and less liquid, meaning share prices can rise or fall rapidly with little warning.

IHT rules may change over time and HMRC does not prospectively confirm any AIM IHT relief. Tax is always down to your personal circ*mstances.

To build your own AIM IHT ISA portfolio, Interactive Investor is our recommended platform.