Growing up with AIM
Posted on Tuesday, June 6, 2017
By Bill Cant, Investment Consultant at Thorntons Investments
An important part of our service to private clients is to reduce any potential Inheritance Tax (IHT) liability. Adding shares that qualify for Business Property Relief (BPR), quoted on the AIM (Alternative Investment Market) to existing discretionary portfolios is a valued part of our service.
There is no definitive list of AIM companies that are eligible for BPR for Inheritance Tax purposes. However, by avoiding mining and oil companies and investing in trading businesses with a decent track record over a few years, we have made useful additions to our portfolios. Our golden rule, that we always adhere to, is that the company must look after its shareholders by paying a dividend.
Our early investments illustrate our experience with AIM companies. These include: James Halstead, Dobbies Garden Centres and Majestic Wine. Dobbies was bought by Tesco providing our clients with a reassuring capital gain which was reinvested in other AIM companies, with the Dobbies holding period contributing to the two-year minimum holding period for BPR. Majestic Wine has continued to operate in the competitive retail market place and we have continued to hold the company, despite a brief period when they suspended their dividend. James Halstead, a floor covering manufacturer based in Lancashire, is a text book example of a long-term winner that has grown in value consistently over the last ten years, pays increasing dividends and continues to be a mainstay of our portfolios.
Of course, not all investments have been winners. Companies listed on AIM are normally smaller and at earlier stages of development and therefore carrying a greater level of risk. However, sensible diversification has helped manage this risk and over the long term the winners have outweighed the losers.
It is also important to remember that the primary objective is to select companies that eventually qualify for BPR. To date, all AIM share investments (held for two years) that have gone through the executory process have been approved for BPR and have fallen out of the estate for IHT assessment.
With technology advancements, we have transferred AIM shares into separate portfolios to improve our control and monitoring of these investments. In October 2013, the Chancellor of the Exchequer changed the regulations to permit AIM shares to be held in ISAs. This significantly changed the dynamics of building AIM portfolios as significant amounts of an ISA investment could be transferred into an ISA containing AIM shares.
We continue to develop the list of companies that we invest into, maintaining our rule of looking for companies paying dividends. Companies growing in value are pleasing and reassuring to clients, but the main objective of an AIM portfolio is to reduce an estate’s liability to Inheritance Tax. Therefore, if an AIM portfolio maintains its value our clients’ beneficiaries will save 40% of the value of the AIM portfolio by a reduced Inheritance Tax charge.
We have developed our AIM portfolio service further by offering an AIM IHT model portfolio based on AIM companies, some of which we have been investing in for over ten years. I’m pleased to say that some of our early clients are still hale and hearty, and pleased with their AIM portfolios. However, sadly, some have died but the benefit of the holdings of AIM shares to their estates has been straightforward and greatly appreciated by their beneficiaries.
Thorntons have been managing AIM portfolios for clients for over ten years.
If you would like to get in touch to discuss our AIM Inheritance Tax service please contact my colleague David Holmes on 01382 214 900 or email firstname.lastname@example.org
There are inherent risks associated with investing in AIM stocks. The Thorntons Investments AIM Inheritance Tax services is only made available via authorised financial advisers.
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