For many years, investing in AIM shares has been a staple in the IHT planning armoury, almost a magic bullet one might say.
This is because historically, AIM shares have qualified for Business Property Relief (BPR), providing 100% IHT relief and after only two years of qualifying ownership – much faster that making a gift and waiting and hoping seven years. In addition, investments in AIM shares would continue to generate an income, and (usually) involve a lot less work (and potentially risk) than setting up your own business, but with essentially the same IHT benefits.
Upcoming changes to IHT Relief on AIM shares
The Government have clearly realised that this is all too easy, and as part of the recent Budget announcements, from 6th April 2026 the IHT relief will be restricted to 50%. This means that after that date, an AIM portfolio worth £1 million, which currently will pass IHT free, will attract an IHT bill of up to £200,000. And, unlike completely unlisted shares, AIM shares will not benefit from the newly introduced £1 million BPR/APR tax free allowance at all.
Potentially Exempt Transfers (PET) rules
Whilst PET rules apply (and there is no suggestion that these will be changed) it will still be possible to make a lifetime gift of AIM-listed shares IHT free, providing you survive seven years from the date of the gift. If not, IHT will need to be considered on death, although insuring against this may still be an option.
However, the beauty of investing in AIM shares for IHT purposes when compared to making an outright gift was the ability to retain ownership as a safety net, and potentially to generate an ongoing income. Giving the AIM shares away will result in the loss of both of those benefits, and so the decision will come down to whether a 20% IHT liability is a fair price to pay for the privileged of that.
Will this make AIM shares less attractive?
It is hard to say at this point.
On the basis that it is less than two years before the new legislation comes into force, any new purchases of AIM listed shares now will never qualify for the current 100% relief, because even if they become liable to IHT before 6th April 2026, they will not be able to meet the two-year ownership test. Our colleagues in the Financial Planning space may therefore be able to answer that question sooner rather than later.
However, with 50% relief against Inheritance Tax still being on the table, AIM listed shares may still remain one of the more tax efficient investment options for those who are not minded to buy a farm or start a new business (or leave the country).
But there is no denying that it is a blow for both taxpayers, and potentially for AIM listed businesses, who may rely on these benefits for attracting investors.
Next steps
For tailored advice on what the changes to IHT mean for you and your AIM investments, speak to Tax Partner, Michaela Lamb
