The Alternative Investment Market (Aim) is going through some fantastic times at present with more and more UK investors turning to the Aim market to diversify their investment portfolio.
One added benefit that is not that well known to a large proportion of investors involved in the market is a tax break called business property relief (BPR) which certain Aim-listed shares benefit from.
What is business property relief (BPR)?
BPR is probably one of the most successful tax reliefs no one knows about.
A Labour government initiative brought in way back in 1976 to help successful family business pay less inheritance tax when passing their holdings to their heirs, as long as they have been a share holder for two years or more.
BPR allows a private trading business to be passed down through the family via tax relief of up to 100 per cent.
This tax relief is also available to the majority of private businesses, many of which also benefit from similar tax reliefs such as Enterprise Investment Schemes (EIS).
It is has now been 4 years since the rule change which allowed Aim-listed shares to be held within a stocks and shares Isa.
With certain type of shares within the Aim market investors can receive tax free capital gains and dividends within the Isa wrapper while they are alive and (providing they satisfy the two year rule) pass them on free of inheritance tax when they die.
Hargreaves Lansdown, the UK’s biggest retail stockbroker, says almost 13 per cent of investors who hold a stocks and shares Isa on its platform have at least one Aim share.
“The IHT benefits have definitely driven demand,” says Mark Dampier, research director. “However, the highest-profile Aim stocks such as Fever-Tree, the upmarket tonic maker, and Purplebricks, the online estate agent, have been bought heavily by investors and are momentum led.”
Aim typically come in two types — income-based structures paying a dividend of as much as 3 per cent a year; or a straight capital growth vehicle.
The Aim 100 index has increased by 37 per cent in the last year alone, over three years, it is up by 52 per cent.
Marcus Stuttard, head of Aim & UK primary markets at the London Stock Exchange Group observes that “UK incorporated Aim companies alone are providing a direct £15bn annual contribution to GDP and approximately 430,000 jobs. Aim is an additional choice to Isa investors seeking growth opportunities, connecting dynamic companies with long-term patient equity capital.”
Aim-listed companies are getting bigger. In May 2017, the average market capitalisation reached an all-time high of £99m — a 35 per cent increase year-on-year.
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