12 August 2013
Unsophisticated investors could get their fingers burnt chasing AIM tax breaks after the decision to allow these stocks in ISAs. Our general advice is that not many investors should consider putting the benefits built up in their ISAs at risk in AIM.
AIM stocks offer inheritance tax breaks, making them attractive to those coming up to retirement. However, Nick Fitzgerald, Head of Financial Planning at Brewin Dolphin, warned investors to be aware of the risks before rushing to transfer their ISA savings onto the AIM market.
“The decision to allow them in ISAs legitimises AIM stocks like never before. However, the AIM tax breaks were traditionally designed for big and experienced investors; older savers who are trying to protect their money from inheritance tax could end up taking big risks with the savings they have built up in ISAs.”
Nick added that AIM stocks are often unsuitable for retired people despite the tax advantages, because they are volatile and provide low levels of income. The AIM index has lost 63.7pc since the turn of the millennium.
He said: “Carefully selected AIM stocks could provide a good outcome for the right investor but getting quality financial advice is key and remember don’t let the IHT tail wag the investment dog. Better to let IHT planning using AIM stocks to take place in other parts of a portfolio. (If an ISA is the only investment you have – dangerous to risk it in AIM in the latter part of life).”
“Our other concern about a rush into AIM by older ISA investors, is that this could push up share prices to artificial levels, see liquidity tightening and then possibly a sell off in a narrower market – none of which is particularly conducive to ISAs.”
If thought suitable for a client to use their ISA in IHT planning – the stocks we might recommend will depend on the following in order:
Market cap (min £250k)
- Management team
- Pedigree of Advisers
- Sector
- Dividend
- Minimum 2 year view
-ENDS-
Disclaimers
The value of investments can fall and you may get back less than you invested.
Past performance is not a guide to future performance.
The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin Ltd. No Director, representative or employee of Brewin Dolphin Ltd accepts liability for any direct or consequential loss arising from the use of this document or its contents.
Any tax allowances or thresholds mentioned are based on personal circumstances and current legislation which is subject to change.