Investing in AIM shares to avoid IHT

qprjames

My mum has a share portfolio of 300k which WILL be subject to 40% inheritance tax in the future.
Rather than offloading it via early inheritance to the 3 children, I am thinking of advising that she moves her portfolio into AIM shares - so only 2 years applies to IHT.
Does this seem sensible? I know there shares are a bit more risky, but seems fair when looking at the longer duration of 7 years of standard IHT  - mum is currently 74.
Also, she can sell these AIM shares if she suddenly needs any funds in the future.
Can anyone forsee a problem with the above?

Jeremy535897

Investment advice is a regulated activity and your mother should take proper investment advice.

The obvious problem with your proposal is that it may not fit with her risk profile or the wisdom of spreading investments across asset categories.

Browntoa

What was wrong with continuing in your earlier thread about your mother and iht

https://forums.moneysavingexpert.com/discussion/6161886/inheritance-tax-situation-advise-needed#latest

qprjames

Browntoa said:

What was wrong with continuing in your earlier thread about your mother and iht

https://forums.moneysavingexpert.com/discussion/6161886/inheritance-tax-situation-advise-needed#latest

Nobody ever mentioned AIM shares. I'd rather she keeps hold of her capital (incase she needs it) but at the same time cancels out any future inheritance tax. it seems like the perfect solution to me.

Linton

AIM shares may seem like a perfect solution to you, but what about to Mum?   AIM shares are very risky and are certainly not a way of her keeping hold of her capital.  How would she feel if her wealth fell by say 20% in a few weeks? They are also illiquid which means that when you want to buy you may find that no-one actually wants to sell at the published price and vice versa.

Perhaps https://www.investorschronicle.co.uk/shares/2019/12/13/avoid-aim-s-traps/ will be of interest,

bowlhead99

qprjames said:

Browntoa said:

What was wrong with continuing in your earlier thread about your mother and iht

https://forums.moneysavingexpert.com/discussion/6161886/inheritance-tax-situation-advise-needed#latest

Nobody ever mentioned AIM shares. I'd rather she keeps hold of her capital (incase she needs it) but at the same time cancels out any future inheritance tax. it seems like the perfect solution to me.

The FTSE AIM All-Share index led by a couple of particularly big constituents in recent years has given a total return over the last 5 years of more than the FTSE 100 or 250 or main market All-Share.

However, over longer periods the picture is less rosy. For example over the last 10 years the AIM All-Share delivered 56% vs 79% for the main market All-Share and 136% for the FTSE250. If you draw a graph back to 15 years ago, the AIM index didn't really give much growth for the first couple of years (compared to the main market) but still took a hammering from the credit crunch / global financial crisis that followed, and by the first quarter of 2009 the AIM all-share had dropped about 60% from where it was in mid August 2005. Although it recovered eventually, it took a full 12 years (i.e. to August 2017)  to get back to where it had been in August 2005. It has bobbled up and down since then, but the total growth (dividends reinvested) from August 2005 to August 2020 is less than 10%!  Compared to 100%+ for the main market All-Share, or almost 250% for the FTSE 250.

So, although you might look at a 5-year snapshot and think it has been a good performing index giving 40% in five years, that is basically it getting back up to zero from, in 2015, still being 30% under water from a 2005 start point.

There is a lot of rubbish and broken dreams within the AIM market and the companies listed there have lower regulatory requirements; compliance is cheaper than it is on the main market because you don't have to respect your investors so much. You get business property relief against the inheritance tax precisely because it doesn't count as a 'proper' stock market

Returns for the larger companies in the AIM100 or AIM50 have been better than the average of everything on AIM. However, when you advise her to move everything to AIM, how is she going to know which companies she should buy?  Are you going to tell her?  Remember not all AIM shares qualify for IHT relief (e.g. the ones that are themselves investment companies or property rental businesses rather than operating businesses), and the smaller less liquid ones can have massive spreads and uncertain futures, so the pool in which to go AIM share shopping  for IHT purposes with a low risk outcome is much smaller than the total number of companies that exist.

If your selections are good enough to match the performance of the AIM All-Share, and the AIM All-Share over the next 15 years is the same result as it was over the last 15 years, it will have been a lot better to have bought main market shares or investment funds, grown the portfolio better, and just paid the tax. 

There are some specialist investment products to help. For example Octopus offer a managed AIM-IHT portfolio service (inside or outside an ISA) where - for a management fee - they will navigate the waters of what qualifies and what doesn't and apply discretionary management techniques to buy and sell on your behalf. If the returns are decent enough to offset the fees and not lag too far behind what your mum could have had with 'whole of global market' investment fund investing, then the saving on the IHT bill will have been useful. But there is no certainty the returns they can find among the larger and more liquid AIM companies that they would use in the portfolio will be as good as the returns on e.g. the Microsofts and Googles and Apples that dominate the global indexes.