New tax year: make this year’s ISA IHT free

With the new tax year comes a new £20,000 ISA allowance – and an opportunity for experienced investors to start to protect ISA money from tax even after they die.

Why consider an AIM Inheritance Tax ISA?

Nearly six million investors aged 65+ hold a total of over £305 billion in ISAs. This money is tax free during one’s lifetime, but potentially subject to inheritance tax of up to 40% on death. 

An AIM Inheritance Tax ISA could offer experienced investors, prepared to take more risk, a solution. You could make a new subscription (up to the current ISA allowance of £20,000) or transfer unlimited amounts from existing ISAs. When you invest in an AIM IHT ISA, you could benefit from:

• No tax on UK income or capital gains from the investments
• No inheritance tax after two years (provided you still hold the investment on death)
• Control – you invest for the long term but can take money out if needed
• Growth potential – your money is invested in a portfolio of AIM-quoted companies and should hopefully continue to grow

Tax rules can change and benefits depend on circumstances. Remember, investing in AIM can be higher risk and more volatile than mainstream stocks and shares

If you still plan to use your ISA allowance for this tax year, and are happy with the higher risks of AIM, you could consider an AIM IHT ISA.

See all AIM IHT ISA offers »

Current AIM Inheritance Tax ISA offers for new ISA subscriptions

One thing to bear in mind is that the minimum investment for some offers is higher than the current ISA allowance of £20,000. This means that to make a subscription this tax year, you also need to transfer previous ISAs (unless you’re topping up an existing ISA). 

There are, however, two featured offers that accept new subscriptions of £20,000: the Octopus AIM IHT ISA and RC Brown AIM IHT ISA. You can read more about these below or see all AIM ISAs, including offers with a higher minimum investment. ‘Featured Offers’ are the current offers we consider have the most investment merit – this is not personal advice and you should form your own view.

Important note on transfers

ISA transfers can be made as cash or as stock (known as “in specie”) which means you stay invested. With a cash transfer, the investments are sold, so you’ll miss out on any market rises or falls during the transfer period. Transfers can take several weeks, depending on the transferring provider.

ISAs and IHT at a glance

ISAs lose their tax-efficient status on death. This means the beneficiary will not benefit from tax-free income and growth and might have to declare them in their tax return. In addition, ISAs can form part of your estate. If your estate is liable for inheritance tax, your ISA will be caught too. 

There are, however, two exceptions. 

1. It is effectively possible to pass on an ISA to a spouse or civil partner

On your death, your spouse has a one-off chance to invest that amount in their own ISA, in addition to their standard allowance for that year. However, that only defers the IHT problem. On your spouse’s death, the ISA would form part of their estate and potentially be subject to IHT then. In other words, whilst the tax benefits on income and growth are preserved, the IHT problem is postponed rather than solved.

2. You can invest in certain AIM stocks that benefit from IHT relief through your ISA

Many companies quoted on AIM can qualify for something called Business Property Relief, BPR in short. If your ISA is invested in BPR-qualifying AIM stocks you should be able to pass it on to your loved ones without them having to worry about IHT. That’s provided you hold the shares for at least two years and still hold them on your death.

So you could enjoy tax-free growth and income during your life with the peace of mind no inheritance tax should be due on your death. Tax rules can change and benefits depend on individual circumstances.

AIM shares are for experienced investors and should be considered only as part of a wider portfolio. They are more volatile, less liquid and generally seen as higher risk than more mainstream investments: you could get back less than you invest. You could lose the entire amount invested.

This is a brief summary of a very complex subject. If you're at all unsure, you should seek professional advice.

Read more on how AIM ISAs work »