AIM stocks in your ISA
The Treasury introduced new ISA rules on 5 August 2013 to allow investors to hold shares in small companies listed on the Alternative Investment Market.
Investors can now buy up to £11,520 of individual AIM shares (in the 2013-14 tax year) within a self-select ISA – meaning there is no additional tax to pay on future dividends or capital growth.
In many cases investors in AIM shares will now get a double tax break.
ISA investments are tax-free for as long as they are held, but are normally counted as part of the investor’s estate on death and may generate an inheritance tax liability. Many AIM shares qualify for business property relief, which takes them out of the inheritance tax net if they have been held for at least two years. (Please note that property development and investment business AIM companies do not typically qualify for business property relief.)
One potential tax downside for AIM holders, if they choose to transfer their investments to an ISA, though, is that losses made within ISA accounts can’t be offset against other profits for capital gains tax purposes.
It should also be noted that AIM stocks can be notoriously volatile and investors should not choose investments based solely on their tax benefits. Please note, tax treatment depends on your individual circumstances and may be subject to change. If in any doubt, please seek advice.
Investing within your Interactive Investor ISA
If you are making new investments you can invest in AIM shares within an Interactive Investor ISA. Existing trading account customers can add an ISA account for free.
If you already hold AIM shares within your trading account you may want to transfer them to into an ISA account to take advantage of its tax-efficient benefits.
Unfortunately, due to current ISA regulations, you cannot transfer existing holdings directly into your ISA, so will need to sell them in one transaction and then buy them back in a tax-efficient ISA. This process is known as Bed & ISA. You should be aware, however, that selling your investments will realise any gains or losses on your existing holdings.
Interactive Investor clients can use our automated Bed & ISA functionality.
Please be aware of the risks involved. The price and value of investments and their income fluctuates and you may get back less than you invested. Past performance is no guarantee of future performance. If in any doubt, please consult a financial adviser.
For more information on the government’s decision and whether to consider AIM stocks as part of your ISA strategy, you can read our recent articles:
These linked articles are for information and discussion purposes only and do not form recommendations to invest or otherwise. The value of an investment may fall. The investments referred to in the articles may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Background to the decision
The decision to allow AIM investment within an ISA is part of an overall drive to encourage investment in small and medium-sized businesses, and nearly 1,000 additional AIM stocks have been made ISA eligible.
Some AIM stocks, such as Xcite Energy and Range Resources, had previously been ISA eligible by having a full listing on another Recognised Stock Exchange. All AIM stocks (including companies such as Gulf Keystone Petroleum, Sirius Minerals and ASOS which had previously not made the cut) are now ISA eligible.
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Please be aware of the risks involved. The value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. Past performance is no guarantee of future performance. Tax treatment depends on your individual circumstances and may be subject to change. If in any doubt, please seek advice.
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