AIM IHT 2 year Qualification issues

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30th Jun '18 by Badger1

16 comments 4706 reads

Does the money for 2 year quaification period have to remain in the same share for the whole period? If I sell the first share purchased and use the entire money tobuy a 2nd share do I FORFEIT the time that the 1st share achieved and have to restart the 2 year clock on the purchase of the 2nd share?

Also if I start with a £1000 and at the end of the 2 year period I have £1400 is the extra £400 gained now protected?

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Badger1

Premium Member

16 comments

gus 1065

1st Jul '18

No substitute for getting propr tax advice, but you may find this guide provided by the LSE on the potential tax benefits of AIM listed shares of use.

https://www.londonstockexchange.com/companies-and-advisors/aim/publications/a-guide-to-aim-tax-benefits.pdf

My read is that the answer is “yes” to both of your questions.

Gus.

Badger1

1st Jul '18

Gus-Thank you for your prompt response and the website reference.
You indicate that a single share must be held for 2 years to qualify which was my orinal understanding also.

However, I had seen a statement in the media that 2 or more shares could be combined to provide the continuous 2 year Qualification for the original capital. My motive for seeking clarification is that I have, at times, held a good performing share which then started declining seriously and so wanted to move the capital into another share without forfeiting the original shares already accumulated AIM time.
Unfortunately I was unable to find any reference to it on the LSE website you referred to.
Am hoping that others may contribute to this thread to clarify the matter further
Thank you once again

alterego

2nd Jul '18

That's not my understanding. I believe that if a replacement stock that also qualifies for BPR (IHT relief) is purchased before the original stock has been owned for 2 years, the replacement stock will be treated as if owned from the date on which the original stock was purchased. I also believe, but cannot find a confirmatory reference, that the second purchase does not have to be immediately following the sale of the original stock. Anyone here know if this is true?

There's reference to this at
https://www.taxation.co.uk/Articles/2014/10/07/331821/don-t-quote-me

However, if Ivan’s advisers had contacted him in time, he might have been able to sell his shares in AIM Example Co plc on a date before the secondary listing commences and thereby claim the replacement asset treatment.

In such a case, on the date of acquisition the replacement asset will be deemed to have already been owned for a period equal to the ownership period of the AIM Example Co plc shares for the purposes of the inheritance tax business property relief two-year clock.

Badger1

2nd Jul '18

alterego-tku fr reply
I believe that you have up to3 years after selling a share to buy another to retain yr IHT Qualification
Will now analyze the heart of your response

Badger1

2nd Jul '18

alterego--tku for the example from the Taxation.co.uk website. Although the relevant taxation position is complicated by the example using the secondary listing to disqualify the1st share IHT qualification. My understanding is that if its just an ordinary share without any complications and a valid potential AIM IHT share then the Taxation sites staement applies:
"on the date of acquisition the replacement asset will be deemed to have already been owned for a period equal to the ownership period of the AIM Example Co plc shares for the purposes of the inheritance tax business property relief two-year clock."
My interpretation is that it is valid for a valid IHT share to be replaced by another valid IHT share and used to obtain the 2year Qualification period.

I would welcome others to validate this so that we can all benefit from knowing the IHT tax qualification rules

timarr

5th Jul '18

While it's far from definitive this answer to a Daily Telegraph reader question suggests that the 2 year IHT exemption can be rolled over onto new qualifying shares:

“If you do replace your current holding with another qualifying AIM share you would still qualify for inheritance tax relief, based on the date of your original investment, provided the whole of the sale proceeds are used to purchase the replacement share and the purchase is made within three years of when you sell the original shares.

“It is also worth noting that you also have to be invested in qualifying AIM shares at the point of death.

https://www.telegraph.co.uk/in...

Probably the only way of checking this for sure is via the HRMC, I really wouldn't want to put my children's inheritance on the line of the basis of online hearsay. Although frankly my intention is to spend most of it before they can get their grubby little mitts on it.

You'd also imagine under a Labour government that this type of tax break will be subject to a lot of scrutiny, and I'm looking to cash out of some of my more expensive looking AIM investments prior to the next election. While a lot of these companies are very good they've been looking a bit pricey and the suspicion is that the tax tail may be waving the investment dog. I seem to remember John Lee writing something in the FT to that effect.

timarr

Badger1

5th Jul '18

timarr--many thanks fr supporting what I had deduced from others input
Hoping someone may have the HMRC reference to this issue
I agree that it would be nice to be 100% sure and get it from the Horses mouth

Badger1

7th Jul '18

Have been researching this issue further and this may be of interest for readers:
Spoke to BestInvest and they advised if you had your shares in a Professionally held AIM inheritance (eg Fundamental Asset Manager) then all would be ok but as a private investor they were unsure of the position and only HRMC would be able to clarify the situation.
So here is the most relevant piece of Legislation I have discovered so far which comes fom:
https://www.gov.uk/hmrc-intern...
I copy the relevant text below:
Business relief: Replacement property: Minority holdings of unquoted shares

IHTA84/S107(4), with effect from 6 April 1996, provides that, without prejudice to subsection (1), shares within IHTA84/S105(1)(bb) (i.e. any unquoted shares), which are:

owned by the transferor immediately before the transfer; and
would, under TCGA92/S126 – S136 (capital reorganisation, company reorganisation or amalgamation) be identified with other shares previously owned by them,

will have their period of ownership treated as including the period of ownership of the original shares. So if, for example, there was a capital reorganisation just six months before the transfer, but the earlier shares had been held for five years, the period of ownership of the earlier shares would be taken into account if they themselves would have qualified for the relief.

I welcome any comments or additional suggestions.
Please keep checking back because I hope to get further clarification.

timarr

7th Jul '18

Why doesn't someone just write to the HMRC and ask them?

Just to note that there is a review of IHT and reliefs under way, so this discussion might well end up being moot:

https://assets.publishing.serv...

How, if at all, does the IHT framework, including the related tax considerations set out above, make business decisions challenging? For example, does it affect or distort decisions regarding:

... d) investment in unlisted trading companies (including those traded on the alternative investment market (AIM))?

The response from the AAT was unequivocal:

https://www.aat.org.uk/prod/s3...

3.41. The exemption that permits certain AIM companies to benefit from BPR - making the shares exempt from IHT as long as they are held for at least two years and at death - is an anomaly that should be ended.

3.42. BPR was introduced in 1976 to make sure successful family businesses did not have to pay large tax bills to retain control of the business. BPR was not designed as an avoidance measure or to promote AIM listed shares. There is no sound basis for allowing such an exemption to continue and AAT therefore recommends this also be removed

Accountants, eh?

timarr

Badger1

7th Jul '18

Timarr-very grateful for your input again
Yes I am aware too of theundergoing "review"
and I had heard of the "recommendation" for withdrawal- although I had not seen the document.
There are many Professional fund managers providing Aim IHT protection funds so there should be some push back against this recommendation but the Government seem interested in IHT as its an easy target.

Yes someone needs to write to the HMRC and unless we get someone replying who has a definitive HMRC response to my main question then I will contact them for clarification.

Badger1

9th Jul '18

Ok-I have contacted the HMRC twice today (0300 123 1072)
First attempt they did not seem to know!--referred me to .GOV.uk---documents IHT400,411 and 412.
I spent some considerable time searching through these but got no further than references in IHTM 25131 and IHTM 18333 to the 2year qualification period that we all know and is widely broadcast.
So 2nd call informed me that they only deal with the situation after one has deceased with the executor of the estate and will not offer any advice on the situation.
I explained that it was necessary for people, in implementing an AIM IHT portfolio, to know this information prior to their death! Nothing doing
My original post 8 is the closest to defining the situation that I am able to achieve.
So I hope someone who reads this thread can enlighten us all.
Don't you love Burocracy!

peterg

9th Jul '18

AIM IHT relief is the product of a, probably not very well thought out, move to help small family businesses survive death of an owner. The intention was never to create a means to avoid IHT for private investors portfolios, so HMRC are unlikely to to be very moved by anyone wanting information to make it easier for them to do so.

Peter

Badger1

27th Jul '18

Have been digging away and 2 further refences that might be of interest:

https://www.gov.uk/business-relief-inheritance-tax/what-qualifies-for-business-relief

https://www.telegraph.co.uk/investing/shares/questor-aim-shares-can-allow-avoid-inheritance-tax-firm-leaves/

I hope this thread has helped in clarifying the situation and am grateful to all those who contributed

John

12th Nov '18

Thank you folks, for you help on this. I have a qualifying share worth £33k purchased less than 2 years ago which I'd like to sell and replace it with two different qualifying shares which I can buy with a total of £33k, with a view to preserving the allowance time gained on the original share. Any thoughts on how the revenue might view this?
Joe

Ken Lowes

12th Nov '18

Could I mention that the advice I would always give a client is never do anything simply because it gives you a tax benefit. The current market is not a great place to be and aim shares are likely to suffer more than most. It doesn't necessararly follow that what goes down will come back up again in the near term which means you will need to choose your shares very carefully as the loss could be much greater than the tax saved. Add to this the agressive nature of HMRC and the possibility that legislation may well change you could lose capital and still not benefit from the current legislation. Hopefully you dont plan dying soon so you could always wait a couple of years and see how things work out with the market. If it goes up you are only losing a profit and if it goes down you will be able to buy much cheaper and assuming no changes in legislation pay no CGT and save IHT on a much greater sum.

JohnEustace

12th Nov '18

I think to give your executors a chance of working things out after you're not around any longer it would help to hold AIM shares in a separate trading account or ISA. That way the thread of the deals can be followed to show that the funds have only been invested in AIM shares. I think that's the cleanest DIY alternative to a professionally managed AIM portfolio. I appreciate that may be saying "I wouldn't start from here".

Or buy them in a SIPP in which case the inheritance tax rules are different anyway.

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AIM IHT 2 year Qualification issues

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Badger1

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