Call for Aim shares to be stripped of inheritance tax break

The Association of Accounting Technicians has called for several inheritance tax exemptions to be scrapped.

The Association of Accounting Technicians (AAT) has called for shares issued by companies listed on the Alternative Investment Market (Aim) to lose their inheritance tax (IHT) exemption, arguing that it is ‘an anomaly that should be ended’.

The AAT adds that business property tax relief, which certain Aim-listed shares benefit from, was ‘not designed as an avoidance measure or to promote Aim-listed shares.’ In order to secure the IHT tax break, stocks must be held for at least two years and at death.

It adds: ‘Business property tax relief was introduced in 1976 to make sure successful family businesses did not have to pay large tax bills to retain control of the business. There is no sound basis for allowing such an exemption to continue and AAT therefore recommends this also be removed.’

Taking away entirely or reforming the Aim tax break would be a big blow for the market, and likely lead to a short-term correction. According to Investor’s Champion, which has a service that screens for stocks qualifying for IHT relief, around a third of all the money invested in Aim is from wealth managers using IHT planning. 

In an interview in Money Observer’s June edition, small-cap investor Harry Nimmo expressed concerns that under a future government, possibly led by Jeremy Corbyn, the tax break’s days could be numbered. ‘You would hope it would be retained as the tax incentives help new businesses grow, which is good for the UK economy. But if Corbyn is ever elected, it could be taken away,’ says Nimmo.

Other IHT exemptions that should be scrapped

The call is one of several inheritance tax exemptions that the AAT argues should be overhauled. The comments come in its response to the Office of Tax Simplification, which has asked for views from the industry and the public as part of its wider review of IHT.

Exemptions for small gifts such as wedding presents, charitable donations and regular gifts should be scrapped, according to the AAT. It argues the public are largely unaware of the reliefs unless professional advice is taken.

The AAT also argues that the £325,000 nil rate band (NRB) should remain frozen.

While the latest figures from HM Revenue & Customs (HMRC) show IHT takings at a record high, only 4 per cent of estates pay IHT, notes the AAT. 

Phil Hall, head of public affairs and public policy at the AAT, adds: ‘For the majority, the £325,000 threshold (£650,000 for a married couple) is more than sufficient, especially when property allowances are factored in. Unlike many commentators, the AAT therefore recommends that the NRB be maintained rather than increased.’

Earlier this year Chancellor Phillip Hammond called for an IHT review, stating that the system is ‘particularly complex’ and needs simplification. The review, he wrote, should focus on the technical and administrative issues with IHT, as well as practical issues around routine estate planning and disclosure.