How to claim 100% Inheritance Tax savings after investing for 2 years with full government approval and access to your capital

Aug 15, 2018 | Tony Byrne's View


There are a number of investments available in the UK that qualify for 100% business relief after 2 years meaning they become free of Inheritance Tax at this stage. Such investments include AIM ISAs, Venture Capital Trusts (VCT) Inheritance Tax Solutions (ITS schemes), Enterprise Investment Schemes (EIS) and Seed EIS (SEIS) amongst others.

The two investments for business relief that I most favour are AIM ISAs and VCTs. The main reason for this is because the underlying investments are quoted shares which means they are both liquid and easily tradeable. They also offer wide diversification as they are funds that invest in a number of shares in order to spread the risk.

How VCTs work

Investments in Venture Capital Trusts carry tax relief to encourage you to invest in smaller, higher risk companies.

By pooling your investments with those of other investors, VCTs allow you to spread the risk over a number of small companies.

You can invest by subscribing to new shares when a trust is launched or by buying shares from other investors when the trust has been established.

You will get Income Tax relief when you buy newly issued VCTs, currently at the rate of 30% on investments of up to £200,000 per tax year. This relief is provided as a tax credit to set against your total Income Tax liability and, therefore, cannot exceed your total tax liability for the tax year. You won’t get this tax relief if you buy existing Venture Capital Trust shares.
You have to hold shares in a VCT for at least five years to keep the Income Tax relief – if you have to sell them before then, you’ll lose this benefit.
You won’t pay any Capital Gains Tax on profits from selling your VCT shares, no matter how short a period you have held them provided the company maintains its VCT status.

There are very strict rules on how Venture Capital Trusts can invest your pooled money in order to qualify as VCTs.

Key benefits of an AIM Inheritance tax ISA

The key benefits of using an AIM Inheritance Tax ISA are:

Most ISAs form part of your estate when you die. An AIM Inheritance Tax ISA is designed to give you full relief from IHT, instead of leaving your beneficiaries with an IHT bill of 40% of the investment.

Most forms of estate planning (such as gifts or simple trusts) take seven years to become fully exempt from IHT. An AIM IHT ISA takes just two (although you must be still holding the investments when you die).

No complex legal structures, no underwriting and no medical questionnaires to complete.

Access withdrawals whenever you want. There’s an option to set up regular withdrawals if you ever need to supplement your income. Although, remember, that if you have already used your ISA allowance for the current tax year, you won’t be able to put any money you withdraw back into your ISA, and any amounts you withdraw, if they’re not spent, will form part of your estate for IHT purposes.

Potential for tax-free growth and dividends – as you’ll be investing in an ISA, you’ll pay no Income Tax on the dividends paid by the companies in your portfolio. You’ll also pay no Capital Gains Tax (CGT) on your returns and you do not have to declare ISAs on your tax return.

So if you are interested in simple ways to save Inheritance Tax which involve higher risk investments but with wide diversification then do consider Venture Capital Trusts and AIM ISAs. Of course you should always take advice from a professional before investing in higher risk investments. Why not contact us for an Inheritance Tax review? You know it makes sense.

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