An inheritance tax free ISA?

Year Published: 2013

Did you know that ISAs are free from income and capital gains tax? However, contrary to the beliefs of a large number of people, cash or shares held within ISAs do form part of an individual’s estate on death to calculate liability for inheritance tax.

Investment in shares in companies listed on the Alternative Investment Market (AIM shares) may qualify for relief from inheritance tax and the treasury has recently announced that AIM shares are to be allowed in ISAs as from Autumn 2013. This means that investors will be able to hold AIM shares which qualify for relief in a way that is free from income, capital gains and inheritance taxes. Ordinary quoted shares do not qualify for relief from inheritance tax, even those held in an ISA.

On death, the ISA wrapper which confers tax free status comes to an end; you cannot leave the ISA as such, only the underlying cash or shares held within it would pass to your beneficiaries. However, qualifying AIM shares held within an ISA, the income and gains from which will have been enjoyed tax free during the ISA owner’s lifetime, will be passed inheritance tax free to the deceased ISA owner’s beneficiaries.

Investment in AIM shares usually carries a higher degree of risk than in shares listed on the ordinary stock market and should not be taken up simply for the tax benefits. If you wish to explore investment in AIM shares we would recommend approaching this only after obtaining advice from a suitably qualified independent financial adviser or broker.

To hear more about AIM shares, inheritance tax reliefs, exemptions and estate planning, please contact a member of our Wills & Wealth Planning team on 01625 442100.

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