Search the ETC Tax Website

Request a callback

Callback Request

Please provide as much detail as possible in regards to the reason for your enquiry so our tax advisers can prepare and tailor their response to reflect your needs. We will endeavour to call you back to discuss your enquiry and you will not be charged for this time.

  • Sign-up to our newsletter

    Newsletter Main Form

  • IHT Business Property Relief: Taking aim at AIM

    22 June 2018

    Andy Wood

    IHT Business Property Relief: Taking aim at AIM


    I noted with interest last week that the Association of Accounting Technicians (AAT) has called for shares issued by Companies on the Alternative Investment Market (“AIM”) to be stripped of their beneficial Inheritance Tax (“IHT”) status.

    This is something I totally agree with and, I might add, have said myself for several years.

    I will tell you why shortly.

    However, what is this beneficial IHT status of which you hear me speak?

    IHT Business Property Relief

    IHT Business Property Relief is a tax relief which, where it applies, provides for a 100% or a 50% exemption against IHT on either a lifetime transfer or on death.

    The rate depends on the type of asset in question. However, in this context we are considering how it applies to shares. Where one holds shares in an unquoted trading company for two years then the relief is 100%.

    Not too shabby.

    The first relevant question is what is an unquoted company? Easy I hear you say. One that is not quoted. Move on.

    However, this answer is only half correct. If your company is not quoted then it certainly is unquoted. However, if the company is quoted on AIM then it is, well, still unquoted.

    In the absence of any other requirements, it is therefore possible for a retired person to invest, say, £1m in to a basket of AIM shares. After two years (or less if one is investing as ‘replacement property’) then the potential IHT liability of £400k is completely removed once the holding period is satisfied.

    There is no need to have any involvement in the business. Just ask your financial adviser to pick the shares or the retail product containing them.

    It is worth noting that not all AIM companies will qualify for BPR as some will not meet the definition of ‘trading’.

    For example, a company that is mainly investing or, say, dealing in land will not qualify even if the shares are listed on AIM as they do not meet the trading requirement.

    Strange results

    For me it seems rather strange that a person can obtain an incredibly attractive business tax relief whilst having no involvement or material interest in the business. One might say that investing in a basket of shares on AIM is likely to be volatile experience. This is risk. However, this is investment risk and not business risk.

    Indeed, in recent years, retail products have emerged trying to protect from this volatility / risk.

    Let us contrast this with the lot of buy to let landlords.

    As most people will be aware, landlords have been hit with punishing tax measures over recent years including the restrictions in the interest relief on their mortgages that they are allowed to offset against their profits. This restriction creates phantom profits that are subject to tax.

    Many of these are running their portfolios as a business (by anyone’s definition) yet they are having fundamental business tax expenses stripped away.

    It is also interesting that someone who runs a business dealing in land cannot get BPR on the value of their business. Someone who spends their entire work researching and acquiring land, acquiring land, perhaps obtaining planning permission and selling at a profit is precluded from BPR. They may need to take on substantial finance to do this.

    This is entrepreneurial behaviour. Again, in my view, this is a type of activity that more warrants BPR than our retiree.

    IHT Business Property Relief – the policy intention

    Of course, like most things it is not simple. There will be long term shareholdings in family businesses which are now listed on AIM. Should these shareholdings be outside of the scope of BPR?

    My view is no.

    It must be the case that BPR was made available to reward entrepreneurial behaviour and allow the wealth created through such endeavours to be passed to the next generation without such businesses being broken up.

    A case could also be made for employees who own shares in their companies and these have now become listed.

    The difficulty is how does one make a distinction between AIM shareholdings that:

    • Are owned by the deserving: family ownership of the business and employee / director shareholdings; and
    • Passive investors

    A solution?

    It is my view that for a holding in AIM shares (and any unquoted shares) to qualify then the investor should be required to meet other conditions.

    For example, in order to qualify for BPR, a shareholder of an AIM company might be required:

    • to hold a material interest in the Company such as 5%: This could be aggregated with other family members holdings; and / or
    • to be an employee or director of the company

    Of course, my view assumes that BPR is available to reward entrepreneurial behaviour and allow the wealth created through such endeavours. It is quite possible that I may not understand the policy intention.

    However, the alternative, that the Government of the day thought that it was better to inflate the AIM through the provision of generous tax reliefs to passive investors would seem rather strange.

    As we see the Government is looking to raise additional revenue to pay for a floundering NHS. Reforms in this area may be on the list.


    If you would like to find out more about IHT Business Property Relief or have any other IHT queries then please get in touch.