There is often a misconception that the only way to avoid inheritance tax (IHT) is to gift money away and hope that you live 7 years.
There is an alternative option, which involves holding specific types of investments for 2 years or more prior to death. So long as those investments are still held at date of death, the entire value of the investment holding should qualify from an exemption to IHT.
There are two main types of easily accessible investment.
The first type of investment is an AIM share portfolio. AIM stands for the Alternative Investment Market and is the ‘junior’ London Stock Exchange share market. Small companies list on the AIM market (for example companies such as Fevertree, the tonic maker) and in order to encourage investment in these companies the government grants investors in them an exemption from IHT if the companies meet certain qualifying conditions.
Whilst the returns from companies listed on the AIM market that do well can be stellar, companies that perform badly or fail (for example Patisserie Valerie) can see their share price collapse. The AIM market can also suffer heavily when investors become nervous about the risks of future recessions, as was the case in the autumn of 2018, when the AIM market fell far further than the blue chip FTSE 100 index.
The second type of investment is into vehicles which invest into infrastructure assets (usually renewable assets such as onshore wind farms or solar panel farms) or vehicles that lend money to businesses on usually a short term basis. These investment vehicles target relatively low returns (2-4% per annum is normal) but place a priority on capital security. As such they are seen as a less volatile alternative to an AIM portfolio.
If you are interested in discovering more about how to invest to mitigate the inheritance tax your estate might suffer on your death and potentially save 40% please get in touch with your usual Ryecroft Glenton contact in the first instance.