3 shares to buy yielding as much as 7% to lower your IHT bill

Chris Boxall of Fundamental Asset Management highlights three high-yielding shares to buy that could help lower your IHT bill.

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If you're looking for shares to buy today, it might be worth considering investments on London's AIM market, notes Chris Boxall of Fundamental Asset Management.

Not only do these stocks offer highly attractive levels of income, but they’re also currently cheap and may help you lower your Inheritance Tax (IHT) bill.

How AIM shares can lower your IHT bill

Having performed spectacularly well over the peak of the pandemic, significantly outperforming the Main Market, London’s AIM market had a torrid 2022, but the dramatic fall in share prices of cash-generative AIM companies could present an opportunity for investors.

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Indeed, as equity prices have fallen, the dividend yields of some well-established AIM companies have jumped substantially. Many stocks now offer yields in excess of 4% while some go as high as 10%.

Another attraction for owning AIM-quoted companies is the potential to save future IHT. AIM shares can provide 100% relief from IHT, through business property relief, although investing for this reason alone is not going to be sensible for everyone.

Still, with the yields on offer from AIM shares today, coupled with their growth potential, there’s scope for investors to make attractive returns, while potentially reducing future tax liabilities as well.

Here are examples of three high-yielding AIM shares to buy, all of which could qualify for IHT reliefs.

3 shares to buy for income and growth

A builder’s merchant with a 6.4% yield

Alumasc Group (AIM:ALU), a supplier of sustainable building products, systems and solutions, benefited from the post-lockdown construction boom.

In the fiscal year to the end of June 2022, revenues climbed 15% to £89.4m while underlying operating profit jumped 27% higher at £13.3m

Most of Alumasc’s sales are driven by building regulations and specifications (architects and structural engineers) because of the performance characteristics offered. It operates across three business segments of Water Management, Building Envelope and Housebuilding Products. The smallest Housebuilding Products division called Timloc looks particularly interesting with growth continuing into the first half of the current financial year and operating margins of 24%.

At present, the company is projected to pay out 10.3p per share in the current year, which gives a dividend yield of 6.4%.

The building materials sector has sold off significantly on recession and interest rate worries, but Alumasc has suffered more than others, with the shares trading at a discount to its peer group.

Income and growth

Iomart Group (AIM:IOM) is a cloud computing company which provides managed services from data centres across the UK.

It was founded in 1998 by Angus MacSween, who moved from CEO to a non-executive role in 2020 and still holds a 15.45% stake.

Iomart provides cloud and managed hosting services from its data centres, delivering the computing power, storage, and network capability. Larger customers tend to have multi-year contracts for complex cloud solutions, which are invoiced and paid monthly, while many smaller customers pay in advance. A significant proportion of revenue is therefore recurring and the combination of multi-year contracts and payment in advance provides the group with strong revenue visibility.

While revenues declined 8% in the company’s last fiscal year, this reflected a return to normality for the group from the pandemic bump. In other words, sales have returned to normal after a bumper couple of years.

Cash flow is generally excellent, supporting further investment in its data centres and an attractive dividend, with a forecast payment of 5.55p per share equating to a yield of 4.5% at the current share price. That’s why it makes it on the list of the best AIM shares to buy for income and IHT protection.

Fund manager offers income of 7%

In many respects, fund management companies like Premier Miton Group (AIM: PMI) are just supercharged plays on the general performance of the stock market. If markets rise, and their funds do well, fee income grows. On the other hand, if markets fall, Premier Miton is likely to see fee income decline.

The group's assets under management ended 2022 at £11.1bn, an increase of 5% year-on-year. That looks like a pretty good result, considering the state of the markets last year.

Encouragingly, 82% of its funds were in the top 25% or 50% of their respective sectors, implying its managers know what they’re doing.

Overall, the company generated £17.1m of cash last year, more than enough to support its £14.7m dividend outlay. Even though it’s paying out the majority of its cash flow to investors, the firm has still managed to build a large cash reserve on the balance sheet. Its bank accounts are stuffed with £45.8m, nearly a quarter of its current market capitalisation.

The forecast full-year dividend of 9p for the current year equates to a yield of 7% at the current share price.

Rupert Hargreaves

Rupert was the former Deputy Digital Editor of MoneyWeek. He's an active investor and has always been fascinated by the world of business and investing. 

His style has been heavily influenced by US investors Warren Buffett and Philip Carret. He is always looking for high-quality growth opportunities trading at a reasonable price, preferring cash generative businesses with strong balance sheets over blue-sky growth stocks. 

Rupert has freelanced as a financial journalist for 10 years, writing for several UK and international publications aimed at a range of readers, from the first timer to experienced high net wealth individuals and fund managers. During this time he had developed a deep understanding of the financial markets and the factors that influence them. 

He has written for the Motley Fool, Gurufocus and ValueWalk among others. Rupert has also founded and managed several businesses, including New York-based hedge fund newsletter, Hidden Value Stocks, written over 20 ebooks and appeared as an expert commentator on the BBC World Service. 

He has achieved the CFA UK Certificate in Investment Management, Chartered Institute for Securities & Investment Investment Advice Diploma and Chartered Institute for Securities & Investment Private Client Investment Advice & Management (PCIAM) qualification.