AIM IHT ISAs – latest deadline 2 April

Archived article

Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.

Are you an experienced ISA investor likely to be affected by IHT?

This is a reminder the deadlines to subscribe to an AIM IHT ISA in the current tax year are within the next few days. 

The latest – for the Octopus AIM Inheritance Tax ISA, the largest portfolio of its kind – is 5pm on 2 April. 

Why consider an AIM Inheritance Tax ISA?

Contrary to what many think, ISAs are not free of IHT, so could be subject to a 40% tax charge on death. 

An AIM Inheritance Tax ISA, such as that managed by Octopus, could offer experienced investors, prepared to take more risk, a solution.

When you invest, you could retain the ISA benefits of tax-free growth and income. In addition, after two years your ISA should also become IHT free. Importantly, unlike other forms of estate planning, you don’t lose access to your money. Please note, tax rules can change and benefits depend on circumstances. AIM shares are more illiquid than those on the main stock market and, as the current global COVID-19 situation has demonstrated, can move up and down quite suddenly, so capital is at risk.

If you haven’t yet done your ISA for this tax year, and are happy with the considerable risks, there is still time. The Octopus AIM Inheritance Tax ISA will accept applications until 5pm on Thursday 2 April. 

Read about Octopus AIM IHT ISA and apply online »

See all AIM IHT ISA offers »

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 listed 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 paying a penny in 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.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.

Make this year's ISA IHT free

Read more on Octopus AIM IHT ISA and find out how you could make your ISA subscription IHT free this tax year. See full review, including performance and risks. The deadline for the 2019/20 tax year is 2 April.

Read more and apply online