Investing in ISAs is one of the cornerstones of any investment portfolio because of their tax-free status . However, assets held within ISAs still form part of the owner's estate so are liable to Inheritance Tax (IHT) on their death.
The birth of the IHT free ISA
This week the Treasury announced new rules that will permit the investment in shares listed on the Alternative Investment Market (AIM) to be included in a Stocks and Shares ISA. The Alternative Investment Market is a sub-market of the London Stock Exchange that permits smaller companies to participate in a market with greater regulatory flexibility than the main market. The shares of companies listed on the AIM are known as AIM shares.
There are a number of tax advantages available for those investing in AIM shares, one of which is IHT exemption for shares held over two years. This tax advantage will still be available if holding AIM shares within an ISA but they are not for the feint hearted.
But beware
Companies listed on the AIM market are small to medium size businesses and the share performance can be quite volatile. Another point to bear in mind is that AIM shares can be quite illiquid and can be hit hard when market goes against them leaving them difficult to sell.
When will you actually be able to hold AIM shares in an ISA?
This move by the Government is planned to commence later in 2013 and is designed to encourage greater investment in smaller companies by small investors. However, investors should understand the level of risk they are prepared to take prior to making any decisions on where to place their hard earned money.
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