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New Legislation allows IHT efficient ISAs


Some may think that ISAs are completely tax-free; however, they are only exempt from income and capital gains tax, not inheritance tax.

Like your remaining assets, any cash ISAs and stocks & shares ISAs you have will be added to the value of your estate when you die. This means that the value of your ISAs must be considered in any calculations that determine whether your estate is over the IHT threshold of £325,000.

However, recent rule changes confirmed by the Government mean investors will be able to take advantage of the tax-benefits of ISAs and mitigate their IHT liability, by investing in small businesses on AIM (Alternative Investment Market).  The Government is keen to encourage investment within growing companies and in an effort to stimulate this, will allow investors to not only benefit from the income and capital gains tax exemptions that ISAs already provide, but also any returns from AIM investments will become exempt from Inheritance Tax after two years, when the shares qualify for Business Property Relief.

Like any investment, it is important to consider the risk factor involved. Investing in AIM stocks can be more volatile than buying stocks and shares in larger more established organisations.

Investors should choose stocks or funds which are suitable for their objectives and not just for the tax benefits. When considering investments, it is sensible to take appropriate financial advice to help you understand the different tax liabilities associated with different investment options. What is tax-free during your lifetime might not necessarily be exempt from tax when you die.

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