Shares traded on the alternative investment market or AIM will be brought inside the inheritance tax regime from April 2026, raising the question of whether the junior market is worth the risk for those using this vehicle for inheritance tax planning purposes.
AIM is home to smaller companies that might not meet the listing requirements of the main market. AIM is generally less liquid and more volatile than the main market.
Historically, investors in AIM shares have benefitted from business property relief meaning no IHT was due upon death, provided the original owner had held the investment for at least two years. This acted as an incentive for investors who would arrange to invest in a professionally managed AIM portfolio.
However, from April 2026, business property relief will be halved from 100% to 50% after changes announced in the October 2024 Budget. This means families will consequently pay inheritance tax at the reduced rate of 20% (half of the full 40% rate).
AIM shares have had a tough time in recent years. Over the past five years, the FTSE AIM 100 has lost almost 20% (as of market close on 17 April). By way of comparison, the FTSE 100 has risen almost 38% over the same period. London’s junior market has also suffered an exodus of companies thanks to takeovers and companies moving to the main market.
How much tax will the IHT changes raise?
It is estimated that the changes impacting on AIM shares will generate around £110 million for the government annually. That is according to figures shared by HMRC in response to a Freedom of Information request from law firm TWM Solicitors, according to the professional financial press.
The £110 million sum only equates to around 1.3% of total inheritance tax receipts, based on the £8.3 billion forecast to be collected in 2024/25.
This is miniscule when you consider that inheritance tax already accounts for less than 1% of the government’s overall tax take. As such, the Treasury could be looking at a 0.01% boost to its coffers overall as a result of the policy (1% of 1%).
AIM & IHT Strategy?
AIM shares will still offer an inheritance tax break, even once the new rules kick in next April. Business property relief will be halved from 100% to 50%, meaning families will pay IHT at the reduced rate of 20% (half of the full 40% rate).
Whether or not this offers an attractive proposition will depend 100 per cent on your circumstances, IHT position and risk tolerance.
Stephen Parnham
