Mitigating IHT using an ISA

Inheritance Tax (IHT) has to be paid on any estate valued more than £325,000 by a financial beneficiary who is not a spouse or civil partner, for example a child or grandchild.

 

HMRC consider an estate to be the total value of the deceased’s assets inclusive of property, cash holdings, belongings and investments.

 

IHT was once an issue for the very wealthy, but with property price increases and greater opportunities and incentives to save for the future through savings vehicles like ISAs, and before that PEPs, an ever increasing number of people are finding that IHT would apply to their estates.

 

This can be a problem for the beneficiaries of these estates who may not have access to the capital required to be able to pay the IHT liability HMRC applies. Whilst stocks and shares can be liquidated, other assets like art work, or property, can have emotional attachments as well as financial values.

 

However there are legitimate ways to mitigate inheritance tax using established Government legislation.

 

IHT mitigation options

 

There are many ways to mitigate IHT, such as trusts and gifts, which are widely used. While these are established routes to take, they are not always suitable for IHT mitigation because you lose control of your capital.

 

Under current IHT regulations any annual gift exceeding £3,000 per annum is considered part of your estate for up to seven years. For example, if you give someone other than your spouse or civil partner, say your son, £10,000 to help them put a deposit on a house and you died within seven years of making this gift, then HMRC would consider it part of your estate and your son would have to pay an IHT bill of up to £2,800.

 

Alternative strategies using AiM

 

AiM shares now qualify for Business Relief – meaning if you invest in AiM you can achieve full IHT relief after just two years, five years faster than a trust or gift.

 

In addition if you invest in AiM through an ISA, you will benefit from full IHT relief and maintain your existing ISA benefits of income and capital gains tax free growth.

 

AiM can be perceived as being more volatile than the FTSE, because of the wide variety of companies listed. This is a market where research and risk management really counts. The right portfolio manager can deliver real value for your clients by carefully selecting larger and more established companies to invest in, which can provide capital preservation in addition to growth.

 

This offers many different planning opportunities for maximising the legacy you leave to your beneficiaries.

 

Utilising your ISA allowance

 

The UK Government recently announced that they are increasing the ISA allowance up to £20,000 from next April, this represents a considerable tax efficient annual allowance for financial legacy planning purposes of investing in an AiM ISA.

 

This new ISA limit allows you to take up to £20,000 out of the value of their estate each year, and, if invested in AiM, after two years it will be exempt from IHT for your financial beneficiaries.

 

ISA consolidation is a very useful planning tool. Since ISAs were first introduced in April 1999 the limits have changed, almost on an annual basis. In total you could have saved up to £141,200 of your capital in an ISA over the last 17 years (source: www.gov.uk). With interest or growth in stocks and shares this value could be higher still, contributing significantly towards the total value of an estate. Using ISA consolidation you can transfer all your previous ISA savings in to an AiM ISA.

 

The benefits of doing so are:

 

  • easy to manage – all in one place;

  • IHT exemption after two years;

  • capital gains tax free growth; and

  • the prospect of continued growth.

 

How we can help

 

Our AiM IHT ISA offers all the above benefits, additionally it has an impressive performance history and, for more cautious clients, the ability to insure your original investment or transfer against any loss in value.

 

Over the last three years, investors in our AiM IHT ISA saw their ISAs grow by 76% and by 96% over five years, over the same period the FTSE AiM All-Share Index returned just 2.3% and -21.8% respectively. This growth takes into account all fees and charges and is completely free of income and capital gains tax. In addition these ISAs have been held long enough to be passed on with full IHT relief.

 

Key benefits of our AiM IHT ISA:

 

  • IHT relief with growth;

  • low risk strategy for capital preservation;

  • ability to insure ISA; and

  • great performance history.

 

To find out more about our AiM IHT ISA and see if it would be suitable for you, please contact your financial adviser.

 

To download a PDF of this guide to share with clients please click here.

 

  

 

Marketing Manager


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