Indeed, as Aim stocks may be held in Isas it is possible to combine the tax-efficient characteristics of Isas during an investors’ lifetime with IHT mitigation on death by investing in a portfolio of Aim stocks.
So, why are BR-qualifying investments attractive?
Firstly, unlike pensions, investors retain access to their capital without the limitations described above.
Secondly, there is no mandated cap on the amount that can be invested in BR-qualifying investments in any single year.
As a means of mitigation IHT, BR-qualifying investments also compare favourably to gifting – that is, giving away money during an individual’s lifetime.
While gifting is an option to reduce IHT, with the ongoing cost of living crisis, this is becoming less popular. Moreover, as clients are gifting the capital, they no longer have control of it should their circumstances change.
In addition, it can take seven years for the value of the gift to be outside a client’s estate. BR-qualifying investments allow clients to keep shares in their name and keep hold of their wealth should they need it.
Additionally, in contrast to gifting, after only two years the value of the investment can be IHT-free.
In terms of how to make BR-qualifying investments, clients can of course invest in companies directly, both private and those trading on Aim.
However, as noted above, the rules are complex, and it is therefore worthwhile considering the wide array of discretionary portfolio services available that can provide access to BR-qualifying investments.
Several fund managers have developed good track records of performance, offer diversification and often carry out annual audits with independent advisers to check that their portfolios meet the BR rules.
Although sentiment towards scrapping the LTA is largely positive, it is important to consider a holistic approach when sitting down with clients to consider intergenerational planning.
Having the option of an unlimited pension is one way to limit IHT for beneficiaries, but there are material drawbacks in terms of amounts that can be contributed and accessing capital, which can be addressed with other options, including BR-qualifying investments.
David Kaye is chief executive of Puma Investments
