| In March this year, the Chancellor stunned many by announcing that trusts would be subject to a 20 per cent set-up tax charge on assets above the nil rate band (currently £285,000), as well as a 6 per cent tax charge every ten years.
One option to minimise the impact of these changes could be to set up trusts using shares listed on the Alternative Investment Market (AIM). If implemented correctly, this could allow them to bypass the 20 per cent tax set-up charge on these trusts. Once the trusts have been set up, the AIM shares could then be sold and the proceeds moved into less volatile assets such as cash.
Careful asset allocation might even allow investors to avoid the 6 per cent tax levied on every 10-year anniversary of trusts. Provided eligible AIM shares are held in the trust for at least two years ahead of the ten-year anniversary, this additional tax charge could be avoided as well.
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These apply to ‘accumulation and maintenance’ trusts, often used for school fees planning, as well as ‘interest in possession’ trusts, which are used to pass wealth between generations.
AIM shares are likely to become more attractive for inheritance tax planning for a number of reasons, with the tax environment for trusts now more difficult.
The reason for these generous exemptions is down to the fact that the new tax charges are not levied on assets that are already exempt from inheritance tax. Certain AIM shares qualify for ‘business property relief’ and effectively become exempt from inheritance tax if held for at least two years. Forestry and agricultural land attract similar reliefs from inheritance tax.
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