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BPR on AIM shares - will it survive the election?

14 November 2019 | 3 minute watch

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BPR on AIM shares - will it survive the election?
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BPR on AIM shares - will it survive the election?

Note: We have provided a transcript of the video if you are unable to listen to the audio. This transcript is generated using a combination of speech recognition software and human transcribers and may contain errors.

There's been a lot of talk recently in relation to the tax policies of the major political parties in the run-up to the general election and we're preparing updates on these as further information becomes available. In this video though, I'll be talking about business property relief from inheritance tax and what changes there might be to the current rules and, in particular, in relation to shares listed on the Alternative Investment Market, or AIM. Business Property Relief, or BPR, is a topic that's been considered for amendment by all of the major parties and the so-called Office of Tax Simplification has also made non-party political recommendations which will be considered by whichever party, or parties, come to power after the election. The current rules exempt all AIM shares from the 40% inheritance tax charge once they've been held for 2 years. The original policy purpose for this was to support smaller companies which provide employment to UK workers and to help boost the economy by encouraging investment into emerging industries. However, the nature of companies listed on AIM has arguably changed since the relief first applied and this may make AIM shares in particular more vulnerable to attack.

So what can be done to plan ahead for such changes in order to take advantage of the relief that currently applies? Let's take an example of father Tom, considering passing his AIM shares on to his son, James. Making an outright gift to James would be one option, but this will trigger a capital gains tax charge which will need to be paid immediately by Tom. The current rules also mean that if Tom dies within 7 years, then there would still be IHT to pay if James no longer owns the shares or if they don't qualify for BPR then. An alternative option is for Tom to transfer the shares into a trust for James and the benefit of his family. The benefit of this is that it's possible to postpone the capital gains tax charge that would apply on an outright gift, so there's no CGT payable immediately. There is also no IHT payable on Tom transferring the shares into trust, as the BPR is 'banked' at this point. The rules are even more beneficial if Tom dies within 7 years of creating the trust. A potential downside of the trust option is that, at the moment, if Tom died owning the shares then James would receive the shares at their market value, free of capital gains tax - a free uplift that James would lose out on if the shares went into the trust. However, this CGT treatment on death is also being reviewed by the Labour party in particular, so it may be that it is also removed in due course. The important point is that there are a number of options for taking advantage of the current tax treatment of AIM shares, and these would also apply to other assets which currently qualify for BPR. So it's important that you think about the potential implications of changes to tax policy before it's too late. And we're here and ready to help you with that.

In this video, Claire Harris talks about business property relief (BPR) from inheritance tax and what changes there might be to the current rules, and in particular in relation to shares listed on AIM.

A topic that has been considered for amendment by all of the major parties, the Office of Tax Simplification has also made non-party political recommendations, which will be considered by whichever party, or parties, comes to power.

There are a number of options for taking advantage of the current tax treatment of AIM shares – and these would also apply to other assets which currently qualify for BPR, so it is important that people think about the potential implications of changes to tax policy before it's too late.

If you have any questions regarding the UK General Election 2019, please contact your usual Withers contact.

Note: We have provided a transcript of the video if you are unable to listen to the audio. This transcript is generated using a combination of speech recognition software and human transcribers and may contain errors.

There's been a lot of talk recently in relation to the tax policies of the major political parties in the run-up to the general election and we're preparing updates on these as further information becomes available. In this video though, I'll be talking about business property relief from inheritance tax and what changes there might be to the current rules and, in particular, in relation to shares listed on the Alternative Investment Market, or AIM. Business Property Relief, or BPR, is a topic that's been considered for amendment by all of the major parties and the so-called Office of Tax Simplification has also made non-party political recommendations which will be considered by whichever party, or parties, come to power after the election. The current rules exempt all AIM shares from the 40% inheritance tax charge once they've been held for 2 years. The original policy purpose for this was to support smaller companies which provide employment to UK workers and to help boost the economy by encouraging investment into emerging industries. However, the nature of companies listed on AIM has arguably changed since the relief first applied and this may make AIM shares in particular more vulnerable to attack.

So what can be done to plan ahead for such changes in order to take advantage of the relief that currently applies? Let's take an example of father Tom, considering passing his AIM shares on to his son, James. Making an outright gift to James would be one option, but this will trigger a capital gains tax charge which will need to be paid immediately by Tom. The current rules also mean that if Tom dies within 7 years, then there would still be IHT to pay if James no longer owns the shares or if they don't qualify for BPR then. An alternative option is for Tom to transfer the shares into a trust for James and the benefit of his family. The benefit of this is that it's possible to postpone the capital gains tax charge that would apply on an outright gift, so there's no CGT payable immediately. There is also no IHT payable on Tom transferring the shares into trust, as the BPR is 'banked' at this point. The rules are even more beneficial if Tom dies within 7 years of creating the trust. A potential downside of the trust option is that, at the moment, if Tom died owning the shares then James would receive the shares at their market value, free of capital gains tax - a free uplift that James would lose out on if the shares went into the trust. However, this CGT treatment on death is also being reviewed by the Labour party in particular, so it may be that it is also removed in due course. The important point is that there are a number of options for taking advantage of the current tax treatment of AIM shares, and these would also apply to other assets which currently qualify for BPR. So it's important that you think about the potential implications of changes to tax policy before it's too late. And we're here and ready to help you with that.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.

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