Interactive Investor

AIM ISAs explained

Learn how to build an AIM ISA portfolio to invest in smaller growing companies. Get started with our guide to holding AIM shares in your ISA.

Make your money go further

Important information - investment value can go up or down and you could get back less than you invest. If you're in any doubt about the suitability of a Stocks & Shares ISA, you should seek independent financial advice. The tax treatment of this product depends on your individual circumstances and may change in future. If you are uncertain about the tax treatment of the product you should contact HMRC or seek independent tax advice.

What is an AIM ISA?

An AIM ISA is a portfolio of AIM shares, which can be exempt from inheritance tax. 

AIM stands for Alternative Investment Market, a sub-market of the London Stock Exchange. The AIM allows typically smaller and fast-growing companies to issue shares and raise capital to fund that growth. 

AIM shares that qualify for Business Property Relief are exempt from inheritance tax (IHT) if they've been held for more than two years, making AIM ISAs – also known as AIM IHT ISAs – attractive tax wrappers.


How does the AIM market work?

AIM shares can be more volatile than traditional investments and are often viewed as riskier than more established companies on the Main Market. That could be because of their size, nature of their business, difficulty trading shares, short track record, need for cash to fund growth, or lack of profits. However, including AIM shares in your ISA can be a way to add diversification to a balanced portfolio.

Tax advantages of AIM shares in your ISAs

Tax-free income and growth

Like any ISA investments, you will not have to pay capital gains tax on profits you make, and you will not be taxed on dividends. AIM shares are also exempt from stamp duty. 

Passing on more wealth

Certain AIM shares qualify for Business Property Relief. This means that after being held for two years, the value of any qualifying AIM shares in your ISA will be excluded from your inheritance tax calculation. You must have held these shares for at least two years and still be holding them on your death for them to qualify for exemption. 

Investing in AIM shares via an ISA means that you benefit from tax breaks and your inheritors can receive 100% of the value.

Access 

Anyone can benefit from the tax break by investing in their own ISA or via an AIM IHT ISA portfolio run by a fund manager. There are no minimum cash or age requirements - the only limit is the annual ISA allowance. Other ISA assets from previous tax years can be transferred to AIM IHT portfolios. 

Ease

Many fund managers that run AIM IHT ISA portfolios invest in established, profitable companies paying dividends and some have impressive track records. Investing in a portfolio of 20 to 30 AIM shares via a fund manager means that an investor does not need to worry about movements in individual AIM shares or whether they have retained their eligibility to business property relief. Some fund managers also offer income or growth portfolios. 

The AIM market can be volatile and hard to navigate, but our award-winning financial experts can help you. We publish regular news articles on AIM shares to keep you in the know, and our Super 60 investment range features a section on AIM stocks to help you diversify your ISA portfolio.

AIM investment risks

If your ISA is your primary investment, focusing on potentially more volatile AIM shares is a risky strategy. If you are planning to leave money to your family, a stock market crash could significantly reduce the amount you are able to pass on. It can also be hard to dispose of some AIM shares. Finally, future changes to inheritance tax rules could affect your estate planning. Generally, AIM shares are best viewed as a component of a balanced portfolio.

There is also no guarantee that an individual company will continue to be eligible for business property relief. HMRC decides which companies qualify for BPR and they may change their eligibility rules or could scrap the relief altogether.

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