Which ISAs are exempt from Inheritance Tax?

Posted by rachaelbean on Monday 12th of February 2018.

Tax treatment depends on individual circumstances.
Tax treatment rates and allowances are subject to change.
The value of an investment, and the income it produces can go down as well as up, and you may not get back as much as you put in.
Estate planning is not regulated by the Financial Conduct Authority.
The FCA do not regulate inheritance tax planning.

Certain ISAs are exempt from inheritance tax (IHT), providing they have been held for at least two years and are still held when the investor dies. These ISAs are invested in shares in qualifying organisations within the Alternative Investment Market (AIM).

The standard tax benefits of the ISA wrapper still apply – freedom from dividend and capital gains tax. So do the risks and rewards balance?

There’s always the risk of tax rules changing in the future and, as with every investment, there’s no guarantee of growth.

AIM is a sub-market within the London Stock Exchange. Company entry requirements aren’t as demanding as in the mainstream stock market, so you might view them as higher risk than shares within the FTSE 100 or FTSE 250.

It’s important to note that not all AIM shares qualify, and there’s no guarantee that companies will still be within the AIM at the time of the investment holder’s death. However, ISAs can be reinvested in qualifying AIM shares on a regular basis. Providing the investor remains invested in ISAs based on AIM shares, current tax rules allow investments to be altered without restarting the two-year ISA holding period, and they will still be exempt from IHT.

Exemption from a 40% IHT rate (above each individual’s current £325,000 allowance) is an attractive prospect for most people, but needs to be weighed up. For more information and professional advice, please contact us to speak with a specialist.

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