A simple and efficient tax planning strategy using ISAs

The ability to protect savings and investments from income and capital gains tax through an ISA are well known. What is perhaps less widely appreciated is how clients can achieve 100% relief from Inheritance Tax (IHT) after only two years through investing in shares listed on AiM.

As you may be aware, it is now possible to transfer your existing ISA investments into our ESP AiM Portfolio Service without penalty, a development that has created a whole new transfer market.

Great AiM Performance

Our AiM portfolios delivered growth of 29.9% to investors in 2015.

The sums are impressive. Take Charles, a cautious 70-year old investor, who has accumulated an ISA portfolio of £150,000 over a 20 year period. Not wishing to liquidate his portfolio, he has been able to transfer the value of that portfolio into the Stellar AiM ISA simply by filling in one form.

After two years, he:

• Saved £60,000 (calculating IHT at 40%) after all charges – even if his portfolio shows no increase in value;
• Increased the value of his estate to £163,000 if his investments achieve only 3% annual growth, potentially saving IHT of £65,000; and
• Retained access and control over his capital throughout the period.

Thanks to changes in legislation in 2013, our ESP AiM Portfolio Service is now firmly established as one of the most tax-efficient investment opportunities available today.

Unlike companies with a full listing on the London Stock Exchange, the shares of a significant proportion of AiM-listed companies qualify for Business Property Relief (Business Assets); the principal exceptions are property development and investment companies. AiM shares held for at least two years before death, and on the date of death, are exempt from IHT.

The benefits of combining AiM shares with ISAs were enhanced still further when the Chancellor raised the annual ISA threshold to £15,240, or £30,480 per couple, in last year’s Budget. He also announced that the tax free threshold for IHT for couples would rise from £650,000 to £1 million by 2020.

Platforms

ESP AiM can be held on platforms and this enables advisers to hold different investments from multiple providers in one place. This makes investing much easier and faster. To learn more and see which platforms ESP AiM is available on, click here.

If you would like any further information about this blog or any other topics of interest, please call us on 020 3326 0682 or you can email matthew.steiner@stellar-am.com.