Investors flock to risky stocks – to avoid paying inheritance tax
It will cost families an additional £1billion and cause total death tax revenue to rise to a record £6.6billion by 2026.
The threshold has not increased since 2009. It would be over £460,000 today if it had increased with inflation every year since then.
Alex Davies of the Wealth Club said more people were looking to cut their bills and take advantage of legal relief to avoid paying more.
“With inheritance tax thresholds frozen until 2026, the amount families lose to IHT is only going one way and it’s rising,” he said.
Of particular concern is the money that has accumulated in Isas over the years and will be subject to death tax. Unlike pensions, which are exempt from death tax, Isas, which protect savers from any other form of taxation, are not.
However, by filling an Isa with tax-relief-eligible Aim shares, families can protect the money they have accumulated over years of diligent saving.
“Many of these actions will be eligible for something called Business Property Relief, which was originally introduced to help family businesses be passed down from generation to generation and has since been extended,” Mr Davies said. “If you hold these shares in your Isa and do so on your death, provided you have held them for at least two years, they should be free of inheritance tax.”
Married couples can pass on up to £1m tax-free by combining their IHT allowances of £325,000, plus their ‘Family Household Allowance’ of £175,000 each – further tax relief for those leaving the family home to a direct descendant. Anything more than that will be taxed at 40 pc.
A couple paying £20,000 a year each into a portfolio of Aim shares using their annual Isa allowance would have a tax-free 100pc pot of over £1.5m after 20 years, assuming an annual management fee of 1.25 pc and an annual growth in investments of 7 pc.
Aim stocks without IHT favored by Questor, the Telegraph’s stock-picking column, include liquor retailers Naked Wines; Boohoo, the online fashion site; and wealth management consultancy Brooks Macdonald.
Targeted companies tend to be smaller, making them a riskier investment. When markets crashed at the start of the pandemic, the FTSE 100 index of Britain’s biggest companies fell by a third, while the Aim market fell by almost 40%, although both have recovered well since.