At the October 2024 Budget, Rachel Reeves announced that investment portfolios invested in AIM shares would cease to be 100% exempt from inheritance tax (IHT) from 6 April 2026. Instead, a new 20% rate of IHT will apply to AIM shares held on death.
At the same time, the Chancellor confirmed that a new regime would also apply to assets that currently benefit from Business Relief (BR). Anyone dying in possession of an asset that qualifies for BR will pay no IHT up until 5 April 2026. From 6 April 2026, only the first £1M of a qualifying BR asset will be exempt from IHT: the balance will be subject to IHT at 20%.
These proposed changes have resulted in a disconnect between the tax treatment of AIM portfolios and other investment assets that qualify for BR.
The purpose of this article is to explain the options open to you if you hold an AIM share portfolio.
What are the alternative BR investment options open to you in place of your AIM portfolio?
There are a number of investment firms who offer a collective investment vehicle which allocates investors shares in one or more trading businesses that qualify for BR.
The nature of these businesses varies, from lending and leasing to owning renewable energy, broadband and other infrastructure assets. If you would like to find out more about these BR qualifying investments, please get in touch.
Option 1 – do nothing
One option is to leave your AIM portfolio alone. You will not incur any sale costs or purchase costs related to a replacement investment. If you hold some or all of your AIM portfolio in an ISA wrapper you will continue to benefit from tax free income and capital gains. On death after April 2026, to the extent you have used your available nil rate bands, your executors will be required to pay 20% of the AIM portfolio value to HMRC in IHT, assuming your AIM shares qualify for the 20% tax (NB: not all AIM shares qualify).
Option 2 – liquidate your AIM portfolio and transfer the proceeds to an investment that qualifies for BR
The alternative option is to recycle up to £1M of your AIM portfolio into an investment that qualifies for BR.
However, if you wish to do this, you should ensure that the liquidation of the AIM portfolio/reinvestment into the BR qualifying investment is completed before 6 April 2026. Up until this date, AIM portfolios will continue to benefit from the same IHT[AM1] ‘rollover relief’ that applies to BR investments: this stipulates that so long as a BR qualifying investment (which includes AIM portfolios currently) has been held for 2 years, and you then sell that investment, you can automatically ‘re-qualify’ this sum for BR so long as you reinvest it into another BR qualifying investment within 3 years of selling the original one. If you meet these conditions, the ‘replacement’ BR investment automatically qualifies for BR on the day the reinvestment is completed: there is no need to hold the replacement investment for a further 2 years to ‘re-qualify it’.
The key risk (in terms of losing BR) faced by anyone looking to replace their AIM portfolio with another BR qualifying investment is that they die during the period the AIM portfolio proceeds are in cash, before they can be reinvested into the new qualifying asset. This time ‘at risk’ is likely to be anything from 2 -4 weeks and potentially longer.
The other main considerations relate to potential loss of ISA wrapper, gains tax and charges.
If you hold your AIM portfolio within an ISA wrapper, you will not be able to ‘port’ this ISA wrapper to the new BR qualifying investment. However, a positive aspect is that due to the ISA wrapper you will not have to pay any gains tax on sale of the AIM portfolio.
If you don’t hold your AIM portfolio within an ISA wrapper you may face gains tax on disposal, at 18% or 24% depending on whether you are a basic or higher/additional rate taxpayer.
Finally, the charges that you will incur for selling the AIM portfolio and purchasing the new BR qualifying investment can be expected to total in the region of 5-6% of the investment value. These charges include sale commissions for liquidating the AIM portfolio and initial charges levied by the new BR investment firm.
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