Family business succession planning

Last month, we launched our four-part series on Inheritance Tax (IHT). It’s a guide to how you can prepare for Inheritance Tax and how, by taking account of all the financial and legal areas it affects, you can mitigate its impact on your wealth and estate.

So far, we’ve looked at the tax from a financial planning and a private legal perspective. This week, in part three, we’re shifting focus to look at Inheritance Tax from an asset management point of view; specifically, how investing in the Alternative Investment Market can be an effective way to reduce your Inheritance Tax liability. It’s an approach that has been popular with our clients and, as we’ll see later, has won acclaim from our industry peers too.

A More-Than-Viable Alternative

Investing in the Alternative Investment Market (AIM) is becoming an increasingly popular way for investors to lessen the impact of Inheritance Tax on their estate. But what is the Alternative Investment Market?

AIM is part of the London Stock Exchange. It helps smaller companies to grow by providing them with a more flexible regulatory system than the main FTSE indices. Its purpose is to allow these relatively young, untested companies to access the sort of capital they need to fund their early development. It was first launched in 1995 with just 10 companies involved, but now nearly 1,000 companies from over 100 different countries are traded on the Alternative Investment Market, representing 40 different sectors and boasting a market value of approximately £112 billion1.

So how is this relevant to Inheritance Tax? Well, many of the companies traded on AIM are eligible for Business Relief, an established form of tax relief that aims to encourage investments in specific businesses. The shares of the unquoted companies in the AIM market that qualify for this relief (most do, but not all) will attract 100% relief after two years. This means that shares in Business Relief-qualifying stocks can be left to beneficiaries free from Inheritance Tax, provided that the securities have been held for two years at the time of death. Unsurprisingly, investment in AIM companies has therefore become a valid and popular option for anyone looking to reduce the impact of IHT on their estate.

The Progeny AIM Portfolio

Progeny’s AIM portfolio is a discretionary, managed service which chooses investments from this alternative market and offers clients a number of obvious and attractive benefits. It allows them to easily invest in the smaller companies traded on AIM by researching and selecting the stocks for them, while offering additional features like diversification through a wider portfolio than they might construct themselves. As shares qualify for 100% relief after only two years, they offer a far more immediate option than many other forms of estate planning. (As we’ve explained, distributing sums of money to relatives as gifts or via simple trusts can mean having to wait seven years until these gifts are fully exempt from IHT).

Investing in businesses traded on the Alternative Investment Market is also made simple and accessible by our AIM portfolio. Entering the market involves a simple share purchase, and investors can sell their shares whenever they like and their money will be returned (although IHT relief will be lost on money removed from the portfolio).

AIM is an exciting market full of dynamic businesses offering great potential for capital gains and dividends. There is good capacity for investors to see healthy growth. We thoroughly research all the companies we recommend to investors and all have to pass through our strict, four-step selection process before we include them in a portfolio. And identifying suitable investments isn’t the end of the process. We constantly monitor all the companies we recommend for investment, in case of any changes. If they lose their eligibility for Business Relief then so do our investors, so it’s important that we follow their direction and progress closely.

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Aiming for an Award

Growth Investor Awards 2018 Finalist – Best AIM Portfolio ServiceOur AIM portfolio has not only been a success with clients who are seeking to reduce their IHT exposure, we’re proud to report that it has gained industry-wide recognition too. It has been named as a ‘Best AIM Portfolio Service’ finalist in the Growth Investor Awards 2018. The award recognises ‘tax-efficient investment managers who champion AIM with advisers and investors and can demonstrate both outstanding performance and real commitment to the market.’

Guy Tolhurst, managing director of the award organisers, said: “The Growth Investor Awards have rightly become a major focal point in the UK’s SME investment community calendar. During one evening of the year, we come together to celebrate a whole year of vibrant energy, dedication and ground-breaking stories. We’ll celebrate the inspiring individuals and truly leading organisations as winners for their ability, bravery and commitment in helping UK entrepreneurs power Britain’s economic growth.”

Final Thoughts

If you would like more information about our AIM portfolio, or to talk to us about any other aspect of your estate planning, please get in touch. As you’ve seen in this article, Progeny’s AIM portfolio offers an enticing opportunity for investors looking to mitigate Inheritance Tax, but it’s not the only option. At Progeny, our expert asset managers, financial planners and lawyers have the unique ability to look at your situation from a holistic perspective and put solutions into place to ensure that you can keep as much of your wealth within your family as possible. We’d love to hear from you, with no obligations, if you’d like to discuss how we might be able to help.

In the final part of Progeny’s Guide to Inheritance Tax Planning, we look at the issues around IHT from a business owner’s perspective. How can owner-managers and company Directors ensure that their business is best structured to reduce their personal Inheritance Tax liability? Click here to find out!

This article does not constitute Investment advice. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your Investment Manager to take into account your particular investment objectives, financial situation and individual needs. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested, therefore your capital is always at risk.

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This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and the value of investments can fall as well as rise. No representation is made that the stated results will be replicated.

Ian Hooper

Chief Investment Officer

Ian joined Progeny Asset Management as a founding director in 2016 and provides strategic oversight to the business.

Learn more about Ian Hooper