Individual Savings Accounts (ISAs) were launched nearly twenty years ago and have been a favourite with investors ever since as they offer valuable tax benefits during the lifetime of the investor.
Over 6 million of the UK`s 23 million ISA investors are aged over 65* and of these, many may be contemplating how they might be able to pass on their wealth to their children in a tax efficient manner.
ISA investors may face a quandary: whilst they can retain their existing ISAs - whether they are in stocks and shares ISAs or cash ISAs, and to continue with their tax-free growth and income, if they do, they realise that when they die their estate may be liable for inheritance tax on their ISA investments. Alternatively, they may cash-in their ISAs and use this money to make gifts to their family. They then hope to live a further 7 years and reduce any inheritance tax liability. That said, this option is not without its drawbacks, including not having ownership of this money.
There is a possible solution to this quandary.
This is in the form of a special type of ISA, one that invests investors’ money in a portfolio of companies listed on the Alternative Investment Market (AIM). Importantly, it invests in shares that qualify for Business Relief. Qualifying for Business Relief means that once an investor has held the investment for at least two years, when they die their estate can pass on the value of the investment to their beneficiaries free of inheritance tax.
Importantly, as far as existing ISA investments are concerned, these must follow the ISA transfer process if their ISA status is not to be lost.
AIM ISAs are not like ordinary stocks and shares or cash ISAs, they are different in that whilst they offer the same tax-free growth and income as stocks and shares and cash ISAs, they also offer the full 40% relief from inheritance tax. In addition, using AIM ISAs, like all other types of business relief schemes, take only two years to mitigate inheritance tax liability planning, provided you are still holding the investment when you die. Finally, as you always retain access to your AIM ISA, should you need any of your money, you can always access it.
Please contact your Dentons Wealth adviser for further information.
* Source: HMRC report on Individual Savings Account (ISA) statistics, August 2017.