Shares traded on the alternative investment market (AIM) will be brought inside the inheritance tax (IHT) net from April 2026, raising the question of whether London’s junior market is worth the risk.
AIM is home to smaller companies that might not meet the listing requirements of the main market. Some offer high-growth opportunities, but not every company will be a success story. AIM is generally less liquid and more volatile than the main market.
Historically, investors in AIM shares have benefitted from business property relief meaning no IHT was due upon death, provided the original owner had held the investment for at least two years. This acted as a valuable incentive for investors.
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However, from April 2026, business property relief will be halved from 100% to 50% after changes announced in the Autumn Budget. This means families will pay IHT at the reduced rate of 20% (half of the full 40% rate).
“Investing in such companies, given how fledgling some are, is a risk, and one some investors might have been prepared to take [historically] given that IHT wasn’t due on such portfolios,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
“This small change might have big repercussions when it comes to creating a nurturing environment for entrepreneurial businesses, which may be counterproductive to the chancellor’s growth agenda.”
AIM shares have had a tough time in recent years. Over the past five years, the FTSE AIM 100 has lost almost 20% (as of market close on 17 April). The FTSE 100 has risen almost 38% over the same period. London’s junior market has also suffered an exodus of companies thanks to takeovers and companies moving to the main market.
“The total number of companies on AIM at the end of 2024 hit the lowest level since the end of 2001 at 688 stocks, a far cry from the 1,700 seen at its peak in 2007. Furthermore, 2024 saw the second-lowest number of IPOs since AIM launched 30 years ago in 1995,” said Dan Coatsworth, investment analyst at AJ Bell.
Are AIM shares worth it?
AIM shares will still offer an IHT break, even once the new rules kick in next April. Business property relief will be halved from 100% to 50%, meaning families will pay IHT at the reduced rate of 20% (half of the full 40% rate).
Whether or not this offers an attractive proposition will depend on your tax position and risk tolerance. Those with a smaller estate might not need to look at ways to reduce their IHT liability, as IHT is only due once your tax-free allowances have been used up.
Everyone is entitled to pass on up to £325,000 tax-free (known as the nil-rate band). You may qualify for an additional £175,000 allowance if you leave the family home to a direct descendant.
Married couples and civil partners can combine their nil-rate bands to theoretically pass on an estate worth up to £1 million tax-free (£325,000 + £175,000 + £325,000 + £175,000). This is a considerable sum, and part of the reason less than 5% of deaths result in an IHT charge.
If your estate does not exceed these thresholds today, and is unlikely to by the time you pass away, do not factor IHT into your decision when deciding whether or not to invest in AIM shares. Of course, you can still invest in AIM companies if you think they offer a compelling investment opportunity, but there will be no tax advantages in doing so.
Meanwhile, if your estate is likely to generate an IHT bill and you are willing to accept the additional risk and volatility that comes with investing in London’s junior market, AIM shares could be worth a look. Make sure your portfolio is still suitably diversified – you should only allocate a small portion to AIM stocks. Also remember that any losses could quickly outweigh the benefits of the tax saving.
“It’s been a difficult couple of years for AIM, and smaller companies more widely. Not only have UK smaller companies underperformed, but changes to IHT tax relief announced in the Autumn Budget have only piled on the problems for AIM,” said Ellie Sawkins, investment analyst at Wealth Club.
“The result is that AIM valuations are close to 10-year lows. This could make AIM attractive to experienced investors comfortable with the higher risks.” Some long-term investors will be hoping to bag a bargain.
Of course, a recovery could take time, so you should also consider how long you and your beneficiaries are likely to keep the money invested. If your loved ones plan to sell the shares as soon as they inherit them (perhaps to help pay the IHT bill), it is possible they will exit the market at an inopportune time.
How much will the IHT crackdown raise?
The crackdown on AIM shares will generate £110 million for the government annually, according to figures shared by HMRC in response to a Freedom of Information request from private wealth and family law firm TWM Solicitors.
The £110 million sum equates to around 1.3% of total inheritance tax receipts, based on the £8.3 billion forecast to be collected in 2024/25.
This is small fry when you consider IHT already accounts for less than 1% of the government’s overall tax take. As such, the Treasury could be looking at a 0.01% boost to its coffers overall as a result of the policy (1% of 1%).
The Institute for Fiscal Studies (IFS) had previously forecast that an AIM crackdown would raise much more – between £1.1 and £1.6 billion annually. It is worth pointing out that these estimates were based on IHT being charged at the full rate (40%). Ultimately, the government decided to introduce it at a rate of 20%.
Although the changes won’t raise much money, they could create headwinds for London’s junior market. The FTSE AIM 100 has fallen by around 11% since the Autumn Budget, as of market close on 17 April. This compares to the FTSE 100’s 1.4% increase.
Small cap companies traded on AIM are more vulnerable to recessionary risks than their large-cap counterparts, and these have ramped up in recent weeks as a result of Donald Trump’s tariffs. That said, the rollback of tax incentives won’t have helped.
How to reduce your IHT bill
“The IHT relief on AIM shares made them one of the more popular investment vehicles for reducing inheritance tax. This change significantly impacts that strategy,” said Laura Walkley, partner at TWM Solicitors.
Under IHT rules, you can give assets away during your lifetime but you need to outlive the gift by seven years in order to avoid an IHT bill, unless the gifts are counted within the inheritance tax gifting allowances. For this reason, older investors often bought AIM shares for IHT purposes.
In light of recent changes, families may look to other strategies instead. This could include taking advantage of a loophole in gifting rules which allows you to give away as much as you want, provided it is taken from regular income rather than capital.
“You will need to keep accurate records and be able to demonstrate that the gifts were made from surplus income,” Walkley said. “HMRC does also require detailed year-by-year figures showing that these gifts out of income have not impacted your standard of living.”
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