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I asked my chum, Alan Miller of SCM Private, who runs index tracker funds, as to what he does for IHT avoidance through AIM stocks. He swiftly replied that he did not get involved – even though a number of his clients must like to avail themselves of such a service.
The problem is that these funds incur annual expenses of the order of 3% inclusive of Vat. This is acceptable for a couple of years (the minimum to achieve IHT avoidance status). But it impinges pretty heavily after, say, five years.
The economics are that the investor/testator has, say, £1 million. If he sits on this non IHT avoidance portfolio the IHT is £400,000. And there is no escape. However, if he invests the same sum in AIM stocks (by no means all are eligible) the IHT is zero. After ten years the cost is 30% or £300,000. I could go on. But it’s all rather obvious.
There is no evidence that such AIM fund managers may reasonably be expected to outperform the market. Indeed, the expectation is that they will underperform.
So I reckon it is worth constructing one’s own IHT avoidance portfolio. This is not easy. But one avoids the 3% p.a., thereby achieving some sort of chance of justifying the exercise.
Should one wish to sell such an AIM holding one faces the usual CGT rules but for IHT purposes one can and indeed must reinvest.
Say Jeremy Corbyn were to come to power it is all too possible that this relief might be withdrawn. Certainly, it does not provide any benefit to the economy. So that is a risk.
The risk would be not just the loss of the relief but a sharp decline in the share prices of solid AIM stocks or, if not that, AIM stocks that are seen as solid. Indeed, one wonders as to what extent ASOS (LON:ASC) is held up by IHT avoidance portfolio buyers. There must be a distortion.
Finally, glancing through Shore Capital’s figures the other day I noted that their IHT avoidance fund outperformed indices in general. So, someone may have chanced upon a happy result. But I would be cautious before betting on it.