AIM shares, ISAs and Inheritance Tax

AIM shares, ISAs and Inheritance Tax

Following recent changes in the taxation benefits of ISAs and Inheritance Tax, we wanted to expand on certain AIM shares which benefit from Business Property Relief or BPR and can now be held within an ISA account. Qualifying AIM shares benefit from BRP once they have been held by an investor for a minimum of two years, after this period they are exempt from inheritance tax. This mean for investors holding these shares in their ISA account for the two-year qualifying period should benefit from virtually no taxes while they hold the share, and no potential inheritance tax liability, which is currently charged at 40%.

Please remember the value of tax shelters will depend on individual circumstances, and tax rules can change over time.

Following the introduction of new ISA rules many investors are now looking to transfer their AIM shares into an ISA account, typically using a Bed & ISA service. The good news is that this doesn’t affect the qualifying period so, for example, if you transfer AIM shares you have already held for two years this inheritance tax benefit will be retained within the ISA, without them needing to be held for a further two years.

So which AIM stocks qualify?

There is no definitive list of which AIM stocks qualify for business property relief. This is largely because the qualification status of a company or businesses can change over time. The latest HMRC guidance is available at

Please bear in mind AIM stocks typically involve taking greater investment risk, make sure you understand all the consequences. We always recommend you seek professional advice. Your portfolio could fall in value and be worth less than your originally invested.

Inheritance Tax: main residence nil-rate band

Inheritance Tax: main residence nil-rate band

A quick recap thanks to HMRC…

Who is likely to be affected

Individuals with direct descendants who have an estate (including a main residence) with total assets above the Inheritance Tax (IHT) threshold (or nil-rate band) of £325,000 and personal representatives of deceased persons.

General description of the measure

This measure introduces an additional nil-rate band when a residence is passed on death to a direct descendant.

This will be:

  • £100,000 in 2017 to 2018
  • £125,000 in 2018 to 2019
  • £150,000 in 2019 to 2020
  • £175,000 in 2020 to 2021

It will then increase in line with Consumer Prices Index (CPI) from 2021 to 2022 onwards. Any unused nil-rate band will be able to be transferred to a surviving spouse or civil partner.

The additional nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.

There will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

The existing nil-rate band will remain at £325,000 from 2018 to 2019 until the end of 2020 to 2021.

HMRC Allowable Gifts for Inheritance Tax

HMRC Allowable Gifts for Inheritance Tax

There’s usually no Inheritance Tax to pay on small gifts you make out of your normal income, such as Christmas or birthday presents. These are known as ‘exempted gifts’.  There’s also no Inheritance Tax to pay on gifts between spouses or civil partners. You can give them as much as you like during your lifetime – as long as they live in the UK permanently. Other gifts count towards the value of your estate. There may be Inheritance Tax to pay if you’ve given away more than £325,000, but only if you die within 7 years.

What counts as a gift

A gift can be:

  • Anything that has a value, such as money, property, possessions
  • A loss in value when something’s transferred, for example if you sell your house to your child for less than it is worth, the difference in value counts as a gift.

Exempted gifts

You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is known as your ‘annual exemption’. You can carry any unused annual exemption forward to the next year – but only for one year.

Each tax year, you can also give away:

  • wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great grandchild, £5,000 for a child)
  • normal gifts out of your income, for example Christmas or birthday presents – you must still be able to maintain your standard of living after making the gift
  • payments to help with another person’s living costs, such as an elderly relative or a child under 18
  • gifts to charities and political parties

Small gifts up to £250

You can give as many gifts of up to £250 per person as you want during the tax year as long as you haven’t used another exemption on the same person.

The 7 year rule

If there’s Inheritance Tax to pay, it’s charged at 40% on gifts given in the 3 years before you die.

Gifts made 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.


Remember – Gifts are not counted towards the value of your estate after 7 years.

Please note this article is for information purposes only.

End of Tax Year Checklist

End of Tax Year Checklist

Make the most of the tax year end with these helpful tax allowance tips. Please note tax rules are subject to change over time and the benefits of these tax wrappers depend on individual circumstances.

  • Open an ISA (Individual Savings Account) – You can shelter upto £15,240 from income and capital gains tax this year. Remember if you dont lose your ISA allowance for the tax year, you lose it!
  • Open a Junior ISA – The junior ISA allowance is currently £4,080 and offer similar tax benefits to adult ISAs. All children are now eligible for these new tax wrappers.
  • Use your Personal Allowance – Reports are suggested that the Chancellor is considering cutting tax relief in an effort to reduce costs, this could mean higher rate and additional rate tax payers lose out.
  • Use your Capital Gains Tax Allowance (CGT) – This tax year you can realise £11,100 without paying tax, if you hold shares or funds outside of a tax wrapper it could be a good time to sell some.
  • Reduce your Inheritance Tax (IHT) – Make gifts of upto £3,000 from capital each tax year, which will be exempt from inheritance tax. You can also carry forward any unused allowance from last tax year.
  • Seek advice – if you need help in making the most of your tax shelters and allowances, speak to an Independent Financial Adviser who can assist you.
Family Home Allowance

Family Home Allowance

Inheritance Tax what’s changing?

Everyone is currently entitled to pass on £325,000 of wealth tax free (allowance is transferable for married couples to the survivor), regardless of whether or not they own a residence. Commonly known as the tax-free threshold, or “nil-rate band”. Any assets in an estate above this amount incur an IHT charge of 40%.

However, from April 2017 the Government is introducing a new, additional tax-free allowance for people who own a home. This is going to be called the “family home allowance”. It will eventually be worth an additional £175,000 per person. Added to the existing allowance of £325,000 that everyone gets, resulting in a new allowance for property owners of £500,000 – or £1m for couples.

This additional IHT perk will also be transferable between married couples and civil partners, even if one partner dies before its introduction in 2017.

Family Home Allowance

The Family Home Allowance will be introduced gradually over four years, with the allowance worth £100,000 in 2017-18, £125,000 in 2018-19, £150,000 in 2019-20 and £175,000 in 2020-21. Estates that are worth more than £2m will lose some or all of the family home allowance, which will be tapered at a rate of £1 for every £2 over the £2m threshold, resulting in more Inheritance Tax to pay.

The family home allowance and the taper threshold will increase in line with inflation as measured by the consumer prices index (CPI) from 2021-22. The existing £325,000 nil-rate IHT band will remain frozen until at least the end of 2020-21.

To qualify for the family home allowance, the property must have been the main home at some point and must be left to one or more direct descendants. This includes children, stepchildren, adopted children and foster children, and grandchildren, but not other relatives such as a nieces and nephews. If there is more than one property in the estate, only one will qualify for the family home allowance.

If a home is sold or downsized on or after July 8 2015, the family home allowance will still be available as long as assets of an equivalent value are passed to direct descendants.

In a valuable quirk, if one partner dies before April 2017 the survivor will be able to use both of their family home allowances when he or she dies to help offset Inheritance Tax. This is regardless of other factors such as whether the first spouse owned a share in the property or had already passed a share to children.

Please note this article is intended for information purposes only and should not be taken as advice. Always seek professional help with your Inheritance tax (IHT) planning needs

Should you invest in a Pension or an NISA?

Should you invest in a Pension or an NISA?

Determining whether to invest within an NISA or a pension has been distorted due to the drastic changes that have been made to these investment wrappers recently.

Therefore, establishing the right place to save for your retirement can be difficult to decide.

If we begin with pensions, the new rules will allow individuals aged 55 and over to take income from their pension pot whenever they want, and how ever much they wish, whilst still retaining the 25% tax free allowance.

The New ISA rules have allowed individuals to increase the annual allowance to £15,000 and now individuals can invest as much cash into their ISA as they want. The NISA now allows transfer from Stocks & Shares to Cash, enabling clients to reduce risk from asset backed to deposit based.

Considering these changes the main benefits investing within a pension includes:

  • Pension contributions can take advantage of tax relief. For example, if you make monthly pension contributions of £500 and are a basic rate tax payer, you will gain an extra £125 per month from tax relief, taking your gross monthly contribution to £625. Higher and Additional rate tax payers can claim a further 20% or 25% via tax return.
  • When taking income from your pension pot, 25% of this can be taken out tax free.
  • If you die before age 75, your pension can be passed on to your spouse free from IHT tax.

The main benefits investing within an NISA:

  • All withdrawals from an NISA are completely tax free.
  • The benefits within a NISA can be accessed at any age, whereas the minimum age for accessing your pension benefits is currently 55.
  • In the event of your death, your NISA benefits will be able to be passed on to your spouse in the form of an additional NISA allowance.

Therefore, having a range of investment options allows you to take advantage of the different benefits provided by different saving vehicles. Seeking professional help from Independent Financial Advisers can enable you to receive the best investment options in order to provide you with a more efficient saving method either for your retirement or even just for a rainy day.

This is intended for information only and shouldn’t be taken as advice.

Pension Reforms in April 2015

Pension Reforms in April 2015

PENSION REFORMS – It’s All Changing

As many of you may already know the Government have recently proposed the biggest changes surrounding pensions that have been seen for many decades. These changes aim to provide people with the freedom and flexibility to choose how they access their pensions from April 2015.

Previously, the Government attempted to steer most people to purchase annuities (income for life contracts) with their retirement pots however, historically annuities often provide a low annual income and the pension pot is potentially lost after an individual dies. Therefore, the changes supply people with more choice with the money they have worked hard to save.

Prior to the Transition Rules the pension pot options were:

Pension unlocking in AprilSource:

The Government in March 2014 announced some transitional rules until the new pension rules are launched in April 2015, which allowed the following:

  • Trivia Commutation increased to £30k from age 55.
  • Capped drawdown increased to 150% of GAD
  • Flexible drawdown only required a secure income of £12,000.
  • Small pension pot increased from £2k to £10k


With these changes, the Government is determined to offer individuals more flexibility in regards to how they take their pension. Irrelevant of the size of your pension pot, individuals aged 55 or over in April 2015, will have absolute freedom in regards to how much they can draw out of their pension, and when they choose. There are no limits or restrictions set by the Government and individuals will only pay their marginal rate of income tax, whilst still benefiting from taking up to 25% of your pension pot tax free.


These changes will generate several benefits including Inheritance Tax. Previously, once you started taking money from a pension pot it became part of your estate, consequently beneficiaries could end up paying 40% IHT tax. Now, if an individual dies before reaching age 75, their pension pot can be passed on completely tax free and therefore, does not fall into your estate.

TAX CONSIDERATIONS – it’s not all free

However, there are tax implications that need to be considered. If you take out your pension pot as a lump sum, or empty your pension pot in the first few years, although you will receive 25% tax free, you will have to pay a marginal rate of income tax on it depending on the amount, either 0%, 20%, 40% or 45% which could amount to more tax paid than if you gradually paid yourself an income over 20 years.

Therefore, it is essential that you obtain professional advice from a financial adviser to establish the most appropriate method of obtaining your retirement income; as it will help you to take an income that doesn’t drain your pension pot whilst also determining the best route to take in regards to tax planning.

Although the flexibility and freedom these changes are bringing to pensions can benefit you, it is also important to be aware that if you spend all your pension pot too quickly and find that you are then living off the state pension, you may have to contemplate going back to work. Therefore, it is necessary to plan ahead with your retirement income as with life expectancy rising, you may find that you are working or going back to work for much longer than anticipated.

STATE PENSIONS – A Flat rate Credit

Seeking help from a financial adviser is crucial with helping with your financial planning. If you have reached your state pension age and are still currently working or are not in desperate need of it, you could benefit in the long term from deferring it.

Currently, if you were to defer your state pension for just one year, your pension would increase by 10%, and after this year, you could request that any deferred pension is given as a lump sum. Therefore, if you are in good health or want to continue working for a little longer, you would benefit considerably from deferring your state pension. However, with the new flat-rate state pension being introduced in 2016, deferring your state pension will only increase by 5.8%. In order to qualify for this new flat-rate state pension, you must have contributed 35 years’ worth of National Insurance contributions, which would provide you with £152 per week.

According to Government figures, only 45% of new pensioners will be entitled to the new flat-rate state pension. Therefore, it seems the majority might benefit greatly from deferring their state pension.

To find out more or to speak to a financial adviser call Heritage Financial Solutions Ltd on 01352 770 845, or email us at

The Basics of Business Property Relief

The Basics of Business Property Relief

The Basics of Business Property Relief (BPR)

Business Property Relief or BPR is an area of tax planning that has become increasingly popular in recent years in the mitigation of inheritance tax (IHT) liabilities. Originally designed for entrepreneurs passing on family firms, BPR gives full relief from IHT on assets held for a minimum of two years. But of possibly greater significance is the fact that investors in assets such as portfolios of Alternative Investment Market (AIM) stocks retain access to their investments.

Investments that qualify for BPR include agricultural land, plant, machinery, forestry and suitably qualifying companies listed on AIM and the Enterprise Investment Scheme (EIS). Specifically, AIM stocks must be ‘trading companies’ to qualify for BPR, so things like resources stocks and most property companies do not qualify. Importantly AIM shares can now be held within an ISA wrapper, further sheltering the investment from Income Tax and Capital Gains Tax.

It is also worth noting that investments that use BPR are generally regarding by tax planners as the final stop, after the basic IHT reliefs and trust options have been used, or where the need to retain control of assets is paramount. BPR schemes are typically high risk.

This table summarises what qualifies for business relief & the rate of relief that can be obtained.

Type Rate of relief
A business or an interest in a business. 100%
Unquoted securities which on their own or combined with other unquoted shares or securities give control of an unquoted company 100%
Unquoted shares 100%
Quoted shares which give control of the company 50%
Land or buildings, machinery or plant used wholly or mainly for the purposes of the business carried on by a company or partnership 50%
Land or buildings, machinery or plant available under a life interest and used in a business carried on by the individual 50%

The investment within property/shares must be kept for 2 years in order to qualify for relief.

It is important to be aware that there are many situations where relief is not achievable, for example when:

  • the business mainly deals with stocks, shares or securities, land/buildings or in the making or holding investments;
  • the business is subject to a contract for sale or being wound up;
  • the business is a not-for-profit organisation;
  • the business generates investment income only;
  • the business asset is already qualifying for agricultural relief;
  • the business asset was not used for mainly business purpose within the immediate 2 years from passing it on from wills/gifts;
  • the business asset is not intended for future use within the business and;
  • Loans are made to a business.

It is possible to acquire some relief if a part of a non-qualifying asset is used within your business. 

Important also seek professional advice before considering any tax schemes.

What is Inheritance Tax

What is Inheritance Tax

Inheritance Tax (IHT) is the tax on an estate when an individual dies. Although many individuals express a valid argument that tax has already been paid on those assets; its main purpose is to redistribute income across the economy.

Individuals have an allowance of £325,000, whereby they are free from IHT. If an individual’s estate overtakes this allowance, the remaining value will be taxed at 40%. Married couples can benefit from a joint tax free sum of £650,000 (upto 100% of the surviving spouses allowance).

Methods to Reduce / Mitigate IHT

• Trusts – placing cash/investments/property into trusts automatically moves those assets out of your estate and after 7 years, no IHT can be charged. Growth from any of these assets fall outside of the estate immediately.

• Charity – donating at least 10% of your assets to charity can help reduce your inheritance tax charge to 36% instead of 40%.

• Whole of Life (WOL) policies – these protection policies take regular contributions of your income and guarantee you a sum assured, if placed into a trust; it puts that money outside of your estate, reducing your inheritance tax by spending regular excess income. The sum assured could also be used to pay any Inheritance tax payable.

Gifts – gifts can be made, after seven years, this gift no longer falls within your estate, (if you no longer receive the benefits) therefore this money/investment/property will be free from IHT. However, certain gifts can be made which immediately falls outside of your estate such as:

Exempt gifts

Some gifts made during your lifetime are exempt from Inheritance Tax because of the type of gift or the reason for making it. Wedding or civil partnership ceremony gifts are exempt from Inheritance Tax, subject to certain limits:

• parents can each give cash or gifts worth £5,000
• grandparents and great grandparents can each give cash or gifts worth £2,500
• anyone else can give cash or gifts worth £1,000

You have to make the gift on or shortly before the date of the wedding or civil partnership ceremony. If the ceremony is called off and you still make the gift this exemption won’t apply.

Small gifts

You can make small gifts up to the value of £250 to as many individuals as you like in any one tax year. However, you can’t give more than £250 and claim that the first £250 is a small gift. If you give an amount greater than £250 the exemption is lost altogether. You also can’t use your small gifts allowance together with any other exemption when giving to the same person.

A to Z of Trusts


Trusts are legal arrangements where one or more trustees are made legally responsible for holding assets. These assets are placed into a trust for the benefit of one or more beneficiaries.

There are many purposes to a trust:

  • Protect & control family assets;
  • Reduce IHT and to;
  • Protect assets for vulnerable individuals (children, individuals who are incapacitated)

A trust consists of a:

  • Settlor (Puts the assets into the trust);
  • Trustee (Legal owners of the assets held in the trust, they manage the assets and decide how its distributed- however it must be in line with the type of trust made) and a;
  • Beneficiary (Individuals who benefit from the assets and the income gained in the trust)

Different Types of Trusts

Bare Trust

These trusts ensure that the assets set aside, will go directly to the beneficiaries stated. The beneficiary holds the absolute right to the assets within the trust and at the age of 18 can legally demand that the assets are transferred to them. Income tax is charged on the interest gained and the income received through any stocks & shares invested. The stated beneficiary is liable for the income tax charged on the income of the trust.

Loan Trusts

These trusts are established by individuals who wish to give themselves an interest free loan, which can be paid back at any time. After 7 years, that trust automatically falls outside of your estate, which means less inheritance tax is paid. The capital and growth is still legally for the beneficiaries but the settlor can choose to take withdrawals to supplement their income. In the event of the death of the settlor, the capital to repay that loan is taken out of the estate, which initially reduces the amount of IHT to be paid also.

Discretionary/Accumulation Trust

Discretionary trusts are those which the legal ownership of the assets is of the trustee, whereby they run the trust with the hindsight of benefitting the beneficiary. Likewise, they have the freedom to decide how to use the trust’s income and how to distribute that income.

Accumulation trusts are when trustees accumulate the income gained and add it to the existing capital in the trust until the beneficiary reaches the legal age in which they are entitled to receive their income/capital from the trust.

In both discretionary trusts and accumulation trusts, income is taxed at the special trust rates, apart from the first £1,000 of trust income, which is known as the ‘standard rate band’. Income that falls within the standard rate band is taxed at lower rates, depending on the nature of the income – as shown in the tables below.

However, if the person who put the assets into the trust (the settlor) has more than one trust, the £1,000 standard rate band is divided by the number of trusts they have. If the settlor has more than 5 trusts, the standard rate band is £200 for each trust.

Trust Income up to £1,000:

Type of Income Tax Rate 2014 to 2015 Tax Year
Rent, trading & savings 20% (Basic Rate)
UK dividends (such as income from stocks & shares) 10% (dividend ordinary rate)

Trust Income over £1,000:

Type of Income Tax Rate 2014 to 2015 Tax Year
Dividends & distributions 37.5% (dividend trust rate)
Other income 45% (trust rate)

Interest in Possession Trust

These trusts give the beneficiary direct ownership of the income received through the trust, less any expenses. Therefore, although the beneficiary receives all the income gained from the trust, they are not entitled to the capital held.

Trustees are responsible for declaring and paying Income Tax on income received by the trust. They do this on a Trust and Estate Tax Return each year.

There are different tax rates depending on the type of income:

Type of Income Tax Rate 2014 to 2015 Tax Year
Rent, trading & savings 20% (Basic Rate)
UK dividends (such as income from stocks & shares) 10% (dividend ordinary rate)

Interest in possession trusts aren’t normally taxed at the special trust rates of tax that apply to non-interest in possession trusts. However some items that are capital in trust law are treated as income for tax purposes when received by trusts. Depending on the type of item they’re either taxed at the trust rate of 45% or the dividend trust rate of 37.5%.

Settlor-Interested Trusts

This trust exists when the settlor benefits from the income/gains held within the trust. These trusts are not types of trust in themselves, but can be any of the above trusts. The settlor is responsible for all the income tax charged but if the trustees receive an income, they must pay the tax on that income.

Chargeable Lifetime Transfers Vs Potentially Exempt Transfers

Depending on the amount gifted/transferred into a trust during the last 7 years, you may have to pay Inheritance Tax (IHT) immediately. If this amount exceeds £325,000, (£650,000 for a married/long term couple) you will have a 20% tax rate to pay, with an additional 6% of the value of trust every 10 years.

Potentially exempt transfers are only liable for tax if the individual making the gift/transfer dies within the 7 years of setting up the trust.