Investing in companies listed on the Alternative Investment Market (AIM) is often seen as an attractive prospect from an inheritance tax (IHT) viewpoint, with shares in many AIM listed companies falling outside the scope of IHT due to their qualifying for business property relief (BPR). However, potential investors should remain vigilant that shares in an AIM company continue to qualify for BPR throughout their lifetime, otherwise, they run risk of their estate incurring an unexpected IHT liability.
Broadly speaking, in order to qualify as relevant business property for BPR, the shares will need to be held in a trading company, whose business does not consist wholly or mainly of dealing in stocks and shares, land and buildings or making or holding of investments. The shares also have to be held for a minimum period of two years and the company must not be listed on a recognised stock exchange, and it is this final point which investors need to pay particular attention to.
AIM was established in 1995 with the intention of attracting a wide range of new, small and growing companies but a lot has changed since then and companies from around the world are now quoted on it. It is not uncommon for overseas companies to have a separate listing on another recognised stock exchange outside of the UK and a significant number of UK based AIM companies may also have a secondary listing on a stock exchange outside of the UK at the same time as being quoted on AIM. Should either situation occur, this will result in the shares no longer qualifying for BPR. This position will need to be reviewed continually as, should a company become listed at any point during ownership of the shares, they will automatically cease to qualify for BPR, regardless of its position when they were originally acquired.
This situation will also need to be considered for an individual thinking about making a gift of AIM shares during their lifetime. Should the transfer fail to be covered by the usual seven year period when making a potential exempt transfer (PET), BPR will only be available if the AIM company remains unquoted at the time the person making the gift dies.
If an individual becomes aware of a company’s impending listing, it is possible to retain BPR by selling their shares prior to listing and investing the proceeds in another qualifying company or asset. Such a situation will mean that the two year ownership period will continue to apply from the date of the original share acquisition and it is not re-set.
If you have any queries regarding assets qualifying for business property relief, please contact us to discuss how this might affect you.
