IHT exemption on AIM listed shares

Inheritance tax breaks on AIM-listed shares has allowed a small group of wealthy UK estates to shelter £1.8 billion of assets from inheritance, according to a Freedom of Information request as reported by the Financial Times.

• Invest with ii: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

Commenting, Richard Wilson, CEO at interactive investor, says: “The irrational tax treatment of UK shares, from IHT exemption on AIM-listed shares to stamp duty on UK shares, has created inefficiency and unfairness that has led to the decline of UK stock exchanges on the global stage.

“The Institute for Fiscal Studies estimates that the removal of business relief for AIM shares could raise around £1.1 billion in the current tax year, rising to £1.6 billion in 2029–30. Abolishing the IHT exemption on AIM shares could go some way towards paying for the abolition of stamp duty on UK shares, a blight on the investing landscape.

“Any distortion from a level investment playing field is simply wrong, and the tax varying treatment of UK shares, preferential or otherwise, has all the signals of a market that is unhealthy. The current regime distorts investors’ choices by much more than is necessary, which is to the detriment, not benefit, of UK markets and the wider economy.”

Key points:

• Inheritance tax (IHT) is levied at 40% on assets over and above the first £325,000 in an estate.
• AIM qualifies for IHT relief because it is not deemed to be a designated recognised stock exchange, and the shares are deemed to be unlisted.
• The exemption from IHT came about primarily to allow entrepreneurs to pass on their businesses intact, as otherwise beneficiaries would often be forced to liquidate assets to pay tax.
• The tax relief, known as business property relief, is therefore only available on direct stakes in a business, which means investors cannot claim it for AIM shares held in a collective fund.