IHT AIM Portfolio Service

Transcription

1 IHT AIM Portfolio Service

2 Contents Page 1: Page 2: Page 3: Page 4: Introduction to AIM, Inheritance Tax Rules, S&J s Offering Benefits and Risks Appropriate Advice Speirs & Jeffrey IHT-related AIM Portfolio Service In Victorian times dandelions were tended with care and eaten in sandwiches and salads as they were believed to promote good health. Still today the leaves are used as a cure-all and the flowers made into wine. 8 Please recycle responsibly The rules on taxation can change. Speirs & Jeffrey is not a legal or tax adviser and will not provide you with legal or tax advice. Therefore if you have any queries as to the legal or tax implications of any investment you should seek independent advice. In addition, the value of any tax benefits will depend on your tax position. You should consult your tax adviser in order to understand the impact of your investment decisions in respect of your tax position. The text in this document was compiled in OCTOBER All content is copyright Speirs & Jeffrey.

3 Introduction to AIM Speirs & Jeffrey offers an AIM portfolio designed to mitigate the impact of inheritance tax (IHT). Levied at a rate of 40%, IHT is a significant tax. Investment in an AIM portfolio is one of a number of HMRC-permitted tools which can be used to achieve material IHT savings. This booklet introduces AIM investing as an IHT-related strategy, the benefits and rules of this approach and Speirs & Jeffrey s IHT-related AIM portfolio service. AIM stands for the Alternative Investment Market. Founded in London in 1995 this is a junior market to the main London Stock Exchange. One of the quirks of AIM is that many listed companies qualify for Business Property Relief (BPR), a well-established form of tax relief that incentivises investors to put their money into trading businesses. The relief was introduced in 1976 as a means of ensuring that small businesses and start-ups were not crippled by inheritance tax bills. Shares in a BPR-qualifying business can be left to beneficiaries free from IHT, provided that they have been owned for at least two years at the time of death. Certain AIM-listed investments can qualify for BPR. This has led many investors to invest capital into AIM-listed businesses in later life. Inheritance Tax rules Current basic UK inheritance tax rules state that there is a 325,000 nil-rate band available to an individual, and any assets over and above this will be taxed at 40%. There are few ways to shelter assets from HMRC, with the most common including gifting assets either directly to beneficiaries or into a Trust. S&J s Offering We offer investments into AIM stocks within a standalone nominee account, where shares are registered in our name but owned by the client. Alternatively we can invest within an ISA (Individual Savings Account). An ISA offers additional income and capital gains tax efficiencies. We are also able to separate part of an existing ISA and place it in a standalone IHT-related AIM ISA. This strategy could be useful for a client with a sizeable ISA who may wish to allocate a portion to AIM in order to achieve IHT relief. By switching capital from an ISA there is no capital gains tax (CGT) triggered. Page 1

4 Benefits and Risks Benefits of an IHT-related AIM Portfolio There are a number of key benefits. IHT saving at 40%, the inheritance tax saving is real and substantial. Investing a portion of a taxable estate in AIM-listed stocks confers significant advantages for clients over more established equity portfolios. Pace of relief most forms of estate planning (such as gifts or trusts) take seven years to become fully exempt from inheritance tax. Investments into AIM-listed businesses which qualify for business property relief (BPR) take just two years. One noteworthy caveat is that qualifying investments must have been held for at least that period at time of death to qualify. Control and benefit unlike with assets gifted into Trusts or to other beneficiaries, investors can retain control of the equity holdings. They can therefore reap the benefits of capital growth and dividends paid. Page 2

5 Risks of Investing into AIM There are however various risks to keep in focus: The tax rules could change in the future negating the benefit of an established strategy. Many AIM-listed companies tend to be early stage and have less well-established business models than those companies in the FTSE 100 and FTSE 250. AIM businesses can be dependent on a single product or a single service, making their shares more volatile and investment more risky. AIM-listed companies tend to be more UK-focused businesses and therefore benefit less from international diversification than multinationals which largely make up the FTSE indices. Liquidity can be an issue. AIM-listed companies tend to be much smaller and often a larger proportion of their shares are held by management or controlling families, which contributes to a lower volume of shares being traded daily. Lower volumes tend to lead to greater volatility in daily share price movements. Corporate governance and reporting requirements for an AIM listing are less stringent than those required for admission to the main market. This can at times make it more difficult to analyse the financial characteristics of AIM stocks. Investment time horizon if an investor is simply looking to allocate funds for two years, this does not give adequate time to hold an investment through an economic cycle. We would not advocate investing for such a short time horizon other than to achieve Inheritance Tax relief. Holdings in AIM for IHT-related portfolios need to be held not just for two years (the minimum for qualifying) but until death under current rules. Capital may go down as well as up. Investors may not get back the full amount invested. Volatility could mean that AIM investments could fall by more than 40%, negating the IHT benefits. Appropriate Advice It is crucial to receive appropriate advice before investing into AIM. Inheritance tax is a complex area, with ever-moving goalposts. We would therefore strongly recommend that potential investors take appropriate tax advice before choosing to start an IHTrelated AIM portfolio. Speirs & Jeffrey is an investment specialist, and therefore unable to provide explicit financial planning or tax advice. Page 3

6 Speirs & Jeffrey IHT-related AIM Portfolio Service There are a number of key factors we seek to consider and emphasise within our service. Portfolio purpose to use existing rules to deliver appropriate portfolios and performance as part of an IHT strategy. Aim is to build long term wealth, including intergenerational wealth. Strategy to emphasise where possible companies we view as relatively dull (stable and predictable) within the AIM market. Where possible we are looking for businesses which have orthodox trading activities, strong market positions, have a proven (and incentivised) management team, stable corporate governance and balance sheet strength. Portfolio construction we endorse a basket approach, investing broadly equally across a wide spread of companies. Typically we will be investing in around stocks in equal weighting. This is to ensure that we can manage the additional risk of investing into AIM securities as much as possible. Within the basket we anticipate that there will be both winners and losers but hope that we can also mitigate any stock-specific risk through appropriate diversification. Active discretionary management we monitor the businesses on a regular basis and will therefore look to take advantage of strong share price runs to lock in profits while also culling businesses which fail to deliver. The portfolios are closely monitored and will be actively managed within our discretionary service. Resources we have experienced research analysts who follow a wide range of businesses. We devote considerable time to the AIM market. In addition, we have an AIM investment committee which meets on a quarterly basis to review our AIM strategy and reassess our list of preferred companies. No AIM stock can be purchased until the company has been examined by a dedicated research analyst and then by the full AIM committee. Charges there is no difference in the fees S&J charges for an AIM portfolio. We levy commission on transactions and a competitive investment management fee. For a full copy of our schedule of charges, please speak to your usual investment manager. Speirs & Jeffrey has many years of experience investing in IHT portfolios in this way. This is a specific strategy which fits well with the firm s emphasis on quality and structure for portfolios and careful consideration of each client s specific circumstances. We will be delighted to discuss any aspect of this service in further detail. Page 4

7 George House 50 George Square Glasgow G2 1EH Speirs & Jeffrey Limited registered in Scotland No DX GW 151 Legal Post: LP10 Glasgow7 Fax: A member of the London Stock Exchange authorised and regulated by the Financial Conduct Authority