ISAs and Inheritance Tax

Without doubt ISAs are a great place to put your money. 

Any investment return inside an ISA is free of capital gains tax and income tax. 

However, where they can fall down is they are can be subject to inheritance tax (IHT), which is taxed at 40%, in the event of your death – see avoid inheritance tax for more details.

This means any tax savings you had made previously could be wiped out on death.

 

Call one of our advisers today on 01793 686393 to find out how you can use ISAs to save on Inheritance Tax. 

IHT Free ISAs

There are some stocks and shares ISAs that invest in shares that should be exempt from inheritance tax after two years. This is done by investing in a portfolio of AIM shares (which is a stock market which the London Stock Exchange describes it as the “market for small and medium size growth companies”. 

Some of the shares on the AIM market qualify to be invested in an ISA, and some also qualify for what is called Business Property Relief, and it is these shares that can be used to create an AIM ISA. 

After two years of owning such assets, they should be excluded from Inheritance Tax because they qualify for Business Property Relief.  See avoiding inheritance tax in two years for more information. 

Remember too, unlike say a trust, you continue to own and have access to the funds, and you can change it or spend it as you choose. 

If you were a cautious investor then an AIM ISA would probably not be suitable as it is a higher risk product, as it is invested in shares in small, higher risk companies. An inheritance tax service might be more suited to your needs. 

Aim ISA Risks

Although an AIM ISA grows tax-free, is not subject to income tax, and avoids inheritance tax, there are still a number of disadvantages and risks:

  • Investing in an AIM ISA shares is higher risk than many other stocks and shares ISAs, and you could lose money. 
  • The value is likely to be more volatile (rise or fall more quickly) than more mainstream stocks and shares ISAs
  • The tax treatment might change in the future and is not guaranteed
  • Business Property Relief is judged on a case-by-case basis after death. It is only known then if it qualifies for BPR.
  • The shares can be more difficult to sell.
 

They are a number of different providers in this market, so it is important to choose the right one for you. If you want to know more then contact us for more information. 

If you have a question about reducing your tax, or how you can reduce or avoid inheritance tax, or just want to have a chat about it with a UK Qualified Independent Financial Adviser, then  phone now on 01793 686393 or contact us online. 

X