ISAs That Offer Inheritance Tax Exemption

Is this you?

• Your house is worth more than £325,000
• Your children will have to pay 40% inheritance tax (IHT) on a significant amount of your estate when you die
• This includes the ISA investments you have been building up over the years
• You would like to save into an ISA (or transfer in other ISAs) so that the money is free from inheritance tax after 2 years
• You still want to have access to the money, should you need it in future years

If this is you, please contact us now or see below for further details.

Inheritance Tax (IHT) is a tax on the money or possessions you leave behind when you die. It also applies to some gifts you may make while you are still alive. A certain amount can be passed to your inheritors without being taxed at the current 40% tax rate; this is known as your ‘tax-free allowance’. Since 2011, the allowance has been frozen at £325,000 until 2017 at the earliest. With house prices increasingly steadily, more and more people are being caught up in IHT planning, just because they own a property in the South of England. If you own your own home in this part of the country, it is likely that IHT will be payable on your estate, regardless of your other assets and savings.

For more information on who pays the bill, exemptions and a handy IHT Calculator, please visit our previous blog on Inheritance Tax Planning.

The Alternative Investment Market (AIM) and Business Property Relief

One way of reducing the amount of IHT to be paid may be to invest in AIM shares via an ISA, allowing the transfer of existing ISAs and also new ISA allowances into AIM share portfolios. Once held within an ISA, gains and income from such shares are effectively exempt from income and capital gains tax.

AIM is a sub-market of the London Stock Exchange, allowing smaller companies to float shares in their business. Investing in these kinds of companies can be more risky than investing in established companies, but qualifying AIM shares are considered to be business property, so, if they are held within a qualifying ISA for a minimum of 2 years, they become eligible for IHT Business Property Relief (BPR) at 100%, i.e. the ISA containing such shares is removed completely from your estate for the purposes of calculating IHT.

Not all AIM companies’ shares qualify for BPR, however.

Next steps
If you feel that inheritance tax (IHT) planning is something that you or your family need you should make sure that you consult an expert in the field. There are a number of pitfalls, complexities, and tax mitigation opportunities to consider. If you would like to find out more about the financial decisions you should take now to reduce a possible IHT bill, please contact IHT planning expert, Richard Smith, at Marchwood IFA.