AIMS ivestments and inheritance tax

janeawej

Hi i could realy do with some advise, i have been advised by a financial advisor to sell my mothers house and put the money into the AIMS market in order to avoid inheritance tax, I unsderstand that she must survive 2 years in order to benefit from this, some of the money would be put into paying off my mortgage (approx £200,00 0r £1200 a month) her property is worth £600,000 and mum lives with me as she needs 24hr care (I have an EPA) her house has been rented out at £900 per month after agants fees but before tax which is apparently not a good return on a property worth £600,000. My quandry is that i dont know anything about the AIMS market, they, the financial advisors who would do the transaction for me, say it is low risk but a stockbroker told me it is a high risk, I just dont know what to do, have any of you heard of this or have any experience of it? I would realy value the advice, Thanks Jane.

cheerfulcat

Hi, Jane,

The AIM market as a whole is very high risk. It is much more loosely regulated than the main market and contains some very spivvy companies.

Investments in some AIM companies are tax-advantaged because they are treated as business assets ( which may be passed on free of IHT after two years ), and some AIM based funds are sold as a way of avoiding IHT; these are probably what the financial advisor is referring to. I would be reluctant to go down this route, to be honest. What does and does not qualify as a business asset in the AIM is slightly hazy. I suspect that this is deliberate, as HMRC refuse to clarify the matter. I would guess that if enough people use AIM investments to get out of IHT the Chancellor will, as is his wont, change the rules. In any case, " low risk " they are not ( if they were low risk, you wouldn't be getting special tax treatment...)

It also worries me slightly that you are seemingly intending to use some of the money from the sale of your mother's house to pay off your own mortgage. I suspect that this is not allowed...

I would strongly suggest that you see a qualified professional, preferably a specialist in estate planning. You can find one here.

HTH

Cheerfulcat

EdInvestor

janeawej wrote: »

her house has been rented out at £900 per month after agants fees but before tax which is apparently not a good return on a property worth £600,000.

Certainly isn't.If you sell the property and put the money in a bunch of high interest bank accounts paying 4.5% pa after tax you would end up with 2,250 a month compared with 900 a month before tax from the letting.

There is no need to go for a high risk route to increase the income.Who is paying the cost of her care? Is she claiming attendance allowance?

Are you aware she can give unlimited regular amounts of money away from income without incurring IHT liability, as long as it doesn;t impact her lifestyle? (As well as 3k a year from capital.....)

cheerfulcat

EdInvestor wrote: »

There is no need to go for a high risk route to increase the income.

This appears to be purely a scheme to escape IHT. There's not much income to be had from the AIM, anyway.

Petmidget

I can say from personal experience that income and capital growth can be made from the AIM. It is true that a lot of the market is speculative ventures and they should be avoided unless you have detailed knowledge of the sector.

But they are some good companys (probably about 50) which are good solid medium sized companies with long profitable trading histories, the 2 that come to mind are Domino's Pizza (the UK franchise holder) and Majestic Wines.

And if the companies you choose to invest in happen to have nice tax breaks attached all the better.

cheerfulcat

Petmidget, I have a few AIM shares too and I agree that there are some very good profits to be made there.

But I do not think that it is in any way a good idea to invest in them simply for IHT avoidance. I know that several companies have jumped on this band wagon and put together portfolios of AIM listed shares for this purpose but I suspect that the OP's mother would be better advised to go to an estate specialist and get proper advice.

These portfolios are IMHO not only risky because of the nature of the underlying companies. There is also the risk that only very few companies which are also reasonably safe to invest in actually qualify for the business asset IHT relief since there are a number of restrictions. I would be afraid of more and more investors seeking this relief distorting the share prices both on the way in and on the way out.

Then there is of course the political risk; if this becomes too popular the Chancellor will almost certainly restrict or even remove the tax advantages.

I have seen too many of these fancy plans going to the wall; if you're an experienced investor, fine, but if you are an elderly lady needing 24 hour care then I think that something a little safer is in order.

dunstonh

Not many financial advisers would go near the aim market. Indeed, it would be outside the scope of advise for most IFAs and Tied Agents just wouldnt have access to anything close to that level of knowledge, let alone compliance to allow it.

You should check the FSA register to see if the adviser has remit to be able to advise you on this sort of thing.

janeawej

Thanks everyone, I was begining to think that maybe this wasnt as good as it sounded, it had been explained to me by the FA I have to use this firm as they are trustees of the trust fund that owns the house, however I was begining to feel aprehensive about it and you lot have made me realise i need to investigate more before I allow them to commit to it, It seems that I need to speak to someone specialised in this area, thanks for your help

It also worries me slightly that you are seemingly intending to use some of the money from the sale of your mother's house to pay off your own mortgage. I suspect that this is not allowed...

help! i had no idea this may not be allowed, it is what was suggested to me by the financial advisor, they seemed to think that as i am the only benificiary of the trust it would be ok, how would i find out about this?

You should check the FSA register to see if the adviser has remit to be able to advise you on this sort of thing.

how do I do this please?

thanks again everyone

cheerfulcat

janeawej wrote: »

help! i had no idea this may not be allowed, it is what was suggested to me by the financial advisor, they seemed to think that as i am the only benificiary of the trust it would be ok, how would i find out about this?

Ah, you hadn't mentioned a trust. That complicates things even further...I really, really, really urge you to find a member of the Society of Trust and Estate Practitioners ( LINK again, in case you missed it ) and get some professional help ASAP. As in, first thing tomorrow morning.

janeawej

cheerfulcat wrote: »

Hi, Jane,

The AIM market as a whole is very high risk. It is much more loosely regulated than the main market and contains some very spivvy companies.

Investments in some AIM companies are tax-advantaged because they are treated as business assets ( which may be passed on free of IHT after two years ), and some AIM based funds are sold as a way of avoiding IHT; these are probably what the financial advisor is referring to. I would be reluctant to go down this route, to be honest. What does and does not qualify as a business asset in the AIM is slightly hazy. I suspect that this is deliberate, as HMRC refuse to clarify the matter. I would guess that if enough people use AIM investments to get out of IHT the Chancellor will, as is his wont, change the rules. In any case, " low risk " they are not ( if they were low risk, you wouldn't be getting special tax treatment...)

It also worries me slightly that you are seemingly intending to use some of the money from the sale of your mother's house to pay off your own mortgage. I suspect that this is not allowed...

I would strongly suggest that you see a qualified professional, preferably a specialist in estate planning. You can find one here.

HTH

Cheerfulcat

I have checked the website you gave me the link to and yes the solicitor is listed by them as a specialist in estate planning, thanks again cheerfull cat

however i am going to see him armed with a few pertinent questions now!!

DavidHM

Did you say you are getting finanical advice from a solicitor? That's not just estate planning but advising on the nature of the investment. Obviously if he is authorised by the FSA/dual qualified then that's all well and good but it's more than a little surprising to see a solicitor advising on the nature of the investment you should enter into, as opposed to the legal and tax consequences and letting you make your own mind up or obtain separate advice about the specific product.