AIM Shares Inheritance Tax Explained (2024) - Generation Money (2024)

In this guide our team of finance professionals cover the AIM shares Inheritance Tax (IHT) rules.

The Alternative Investment Market (AIM) is a subsection of the London Stock Exchange. It’s defined by HMRC as ‘unquoted’ for IHT purposes.

Unquoted shares can qualify for ‘business property relief’, meaning you can potentially get 100% relief from inheritance tax on AIM shares you hold.

AIM Shares Inheritance Tax

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

Business property relief

Introduced in 1984, business property relief is mainly designed to allow business owners to pass on their business upon death without paying inheritance tax.

It usually provides relief of 50% to 100% depending on criteria laid out by HMRC and tax law. This means that up to 100% of the value of qualifying ‘business property’ will be removed from the calculation of your estate’s value upon death.

Inheritance tax is based upon the value of your estate upon death – there are many exemptions and reliefs that may apply.

AIM shares are unquoted

Since 1996, HMRC has been clear that ‘unquoted’ shares can qualify for business relief of 100% for inheritance tax purposes. HMRC defines unquoted shares as those not listed on a recognised stock exchange.

According to this criteria, HMRC specifically states that the Alternative Investment Market is not a listed stock exchange. So AIM shares are ‘unquoted’ for business property relief purposes meaning that you could get 100% relief from inheritance tax on AIM shares you own.

Which AIM shares qualify for IHT relief?

So, we’ve outlined how and why AIM shares qualify for IHT relief. But, that doesn’t mean all AIM listed shares will qualify for business property relief and therefore inheritance tax relief.

There are some additional criteria that also must be met:

Investment trusts are excluded

A number of investment trusts are listed on the AIM. Investment trusts are companies specifically formed to invest in other companies or in land and property.

HMRC makes it clear that companies whose purpose is to deal in shares or land and buildings will not qualify for business property relief.

So, if you’re thinking of building an AIM IHT portfolio make sure to exclude investment trusts, including Real Estate Investment Trusts (REITs).

Holding companies, however, will still qualify so long as their shareholding is in a real trading business.

For more on AIM investment trusts, read our guide to AIM funds.

Companies which are not ‘trading’ businesses

There’s no specific definition of ‘business’ in inheritance tax law, so the ordinary definition applies. This means that it must be a business which carries out a trade or profession for gain.

Any organisation, such as not-for-profits, which doesn’t meet this definition will also be excluded.

As mentioned above, that means that investment trusts (including REITs) listed on the AIM are also excluded.

Two years ownership of AIM shares

Any AIM shares you own must be held for at least two years prior to death to be eligible for business relief at 100%.

You may also be wondering what happens when a qualifying AIM listed business leaves the Alternative Investment Market. For example, it might graduate to a main listing on the London Stock Exchange.

If you sell the shares upon their exit from the AIM and immediately reinvest the proceeds into another qualifying AIM listed company, HMRC will usually accept the continuation of an ownership period.

So, if you own AIM shares you may be able to pass them on free from inheritance tax when you die provided you owned them for at least 2 years prior to death.

International shares listed on the AIM

Although most shares listed on the AIM are those of UK focused and headquartered companies, the AIM has attracted listings from foreign companies. This is partly due to the less stringent regulations on the AIM compared to the main London Stock Exchange.

But, business property relief applies to business property anywhere in the world. So just because an AIM listed company has most of its operation overseas does not exclude it from attracting business property relief for IHT.

Secondary listings on a ‘listed’ stock exchange

Companies listed on the AIM which also have a secondary listing on another exchange will be excluded if the other exchange is classed as ‘listed’ by HMRC.

Remember, HMRC allows business property relief to apply on shares listed on what it defines as an ‘unlisted’ stock exchange. But, some companies have dual listings which means they may have their shares listed on multiple stock exchanges.

If an AIM listed company has a secondary listing on a ‘listed’ stock exchange, such as the NASDAQ, then HMRC will disqualify it from business property relief.

An example is Hutchmed (China) Limited (ACM) which is listed on the AIM in London. But, it’s also listed on the main section of the Hong Kong Stock Exchange which is a ‘listed’ exchange according to HMRC. Therefore, shares in ACM won’t be eligible for business property relief.

Similarly, listing American Depositary Shares in the US on the NASDAQ or the main section of the New York Stock Exchange will also likely disqualify a company from business property relief.

So, you need to be careful when doing your research in looking for any secondary or dual listings that an AIM company may have. HMRC’s full list of recognised stock exchanges is here.

AIM IHT ISAs

Seeing ‘AIM IHT ISA’ might be a meaningless jumble of abbreviations for most people. And you’re probably right.

But an Alternative Investment Market Inheritance Tax Individual Savings Account (to give them their full name) is a product specifically set up to get relief from IHT on your investments.

Essentially, they’re a type of Stocks and Shares ISA set up with the purpose of investing your money into AIM shares that are compliant with business property relief for inheritance tax.

A minimum investment of at least £20,000 typically applies. You can also invest in these specialist funds outside of an ISA, but the minimum investment is usually higher – sometimes upwards of £50,000.

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. Read more about the best Stocks and Shares ISA for beginners and the cheapest Stocks and Shares ISA.

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

Remember, though – tax rules can change and there’s no guarantee the government will maintain IHT relief on AIM shares in the future.

AIM Shares and Stamp Duty

Another favourable tax position with AIM shares is that they’re exempt from stamp duty.

Usually, stamp duty is charged at 0.5% on the value of the transaction when you buy shares electronically. Most brokers will automatically charge you stamp duty when it’s due on share purchases and pay HMRC on your behalf.

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.

This helps to encourage investment in smaller UK companies.

What is the AIM?

The Alternative Investment Market (AIM) is a sub-market of the London Stock Exchange (LSE).

It’s geared towards smaller and high-growth businesses. Prior to 1995 it was known as the Unlisted Securities Market.

Companies listed on the AIM face fewer regulations than those on the Main Market LSE listing. For example, there are no requirements around the amount of cash a company must hold or the number of shares they must issue.

These factors make the AIM an attractive option for smaller companies to float their shares. The AIM has also attracted a number of foreign companies seeking to list their shares in the UK but without having to comply with the more restrictive regulations of the main LSE market.

Whilst there are benefits to companies in facing less regulation on the AIM, overall it’s seen as a riskier stock market to invest in.

It’s been referred to by some as the ‘wild west’ of the London Stock Exchange. But, there are lots of success stories – Asos plc being one well-known company which graduated from the AIM to a main LSE listing.

A large number of the businesses listed on the AIM are smaller and early stage UK companies. The government wants to encourage investment into these companies to drive growth. This is partly why AIM shares inheritance tax rules are favourable and why AIM shares do not attract stamp duty.

Read our guide for more on AIM investing.

How to buy AIM shares

Interactive Investor is our recommended platform for buying AIM shares.

All of the investment platforms we cover are regulated by the Financial Conduct Authority (FCA) and are 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 investment risks

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

AIM shares can be highly volatile and are generally traded in lower volumes so market 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 the government or HMRC.

For example, a new government could impose stamp duty on AIM shares, although this has not been suggested.

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.

You should also be aware that 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 have 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.

AIM Shares Inheritance Tax – Summary

So, that covers AIM shares inheritance tax rules.

Business property relief is a type of inheritance tax relief that reduces the value of AIM shares by 100% for estate calculation purposes on death.

You must hold AIM shares for at least two years before death for them to qualify for business property relief at 100%. They cannot be shares in investment trusts or any AIM listed company which is not a usual business.

You can either invest in AIM shares yourself or put your money into a specialist AIM IHT fund. If you invest yourself, you should consider doing so through an ISA so that any gains or income generated by your AIM investments are free from capital gains tax and income/dividend tax. Interactive Investor is our recommened ISA platform.

Remember: Tax always comes down to your personal circ*mstances and tax treatment may change in the future.

You should seek regulated financial advice from a qualified professional, especially when it comes to estate planning and inheritance tax. We recommend Unbiased, who will connect you with a suitable qualified financial advisor or tax accountant for your needs.

Alternatively, for general investment guidance you could consider speaking to a financial coach.

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