Cuts to inheritance tax (IHT) relief on AIM shares announced in the Budget are set to raise an additional £110m a year for HMRC.
TWM Solicitors, a private wealth and family law firm, said the reduction in the relief from 100% to 50% will make gifting a ‘more attractive’ financial planning strategy.
The firm pointed out that the reduction in IHT relief on AIM shares is viewed by many as a setback for UK growth companies that have relied on the AIM market to raise capital, often from investors attracted by the IHT relief.
Since Chancellor Rachel Reeves’ Budget on 30 October, the FTSE AIM 100 Index has fallen 18%, from 3,620 to 2,952 as of 7 April. This compares with the FTSE 100 decrease of just 6%.
Laura Walkley, partner and head of private client at TWM Solicitors, said: “AIM has traditionally attracted a high proportion of retail investors, often older individuals, buying shares in high-growth but risker companies, with the added appeal of full IHT exemption after two years of ownership.
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“Gifts made from genuine extra income are exempt, but you will need to keep accurate records and be able to demonstrate that the gifts were made from surplus income.
“HMRC does also require detailed year-by-year figures showing that these gifts out of income have not impacted your standard of living.”
Other exempt gifts include payments to a spouse or registered charity.
“Setting up an educational trust for grandchildren is worth considering, as it ensures the funds are used according to your wishes and in the best interests of the beneficiaries,” Walkley continued. “This may become an increasingly attractive option, in light of the introduction of VAT on private school fees.”
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