New tax year: make this year’s ISA IHT free
Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.
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.
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.
Octopus AIM IHT ISA – apply now for the 2022/23 tax year
This is the largest service of its kind, from a highly experienced team which manages £2.9 billion in UK quoted company investments (including the Octopus AIM VCTs). Octopus seeks to invest in businesses with dominant positions in growth markets, often much larger companies than one might expect when considering an AIM investment.
Save 0.25% on the initial charge when investing through Wealth Club.
RC Brown AIM IHT ISA – invest from £20k, £0 initial charge for a limited time. Apply now for the 2022/23 tax year
The service is managed by specialist investment boutique RC Brown and applies the same investment strategy the close-knit RC Brown team has followed for the past 30 years, focusing on opportunities in the primary market, e.g. new share issues.
With a simple and competitive fee structure, the RC Brown AIM IHT ISA is currently available through Wealth Club with a £0 initial charge, for a limited time only.
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.
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.