5 min read 11 Feb 21
The information contained in this page is for professional Financial Adviser use only.
For those less acquainted with the world of AIM IHT portfolios, it’s a relatively simple concept. It’s a portfolio of AIM-listed shares that should qualify for Business Relief. Once qualifying shares have been held for two years there is no IHT liability and if you invest via an ISA, any growth and income are tax free along the way - based on current tax legislation. The obvious benefit is the two year period is markedly shorter than the usual seven years for gifting and simple trust based solutions.
To provide some background, as a source of IHT relief, Business Relief is nothing new and was introduced in the 1976 Finance Act (as Business Property Relief as it was then called). But as a platform based solution, it took another 40 years to manifest itself.
Up to that point, these strategies would have been accessed by advisers either directly with DFMs and managed on their own custody or via almost ‘packaged’ products and services.
Demand for AIM IHT portfolios has steadily grown for us, and there’s been a notable uptick in interest in the last couple of years. There’s also been an increase in the number of DFMs making AIM IHT portfolio services available and a handful of other platforms have also started offering them. As you can imagine, the main limiting factor for platform availability is the ability to trade AIM stocks and hold them in model portfolios. Even if it can be done on platform, the next obstacle is whether AIM stocks can be traded cost effectively.
The advantages of AIM IHT portfolios combined with the basic benefits of using a platform – like, consolidation of client holdings, transparency, ease of access and clarity of the adviser/client relationship can be hard to beat. In addition, packaged product providers and private client DFMs may not necessarily be able to deliver the same level of service for the portfolios in isolation.
As mentioned earlier, there’s only a small subset of the platform market that can support these particular portfolio services so it naturally raises the question of “Why M&G Wealth?” specifically.
The table below provides a summary of the costs associated with the different ways of accessing AIM IHT services and is based on the total cost of running a £100k investment for two years. I’ve used two years as that’s standard for examples in this space.
Working through the examples left to right, you can see the impact of multiple charging points and expensive fees:
Firstly it looks at a typical ‘packaged’ product providers – there’s no platform or custody fee, but an initial charge of 2.5%, and AMC of 1.8% and dealing fees of £2,000 to open and close the account take the total cost over two years to £8302. This is an annual cost of 4.15%.
Next is a traditional DFM own custody service with an overall annual running cost of 2.93%, which is markedly cheaper but still expensive.
Now onto a typical AIM MPS provider on our Platform charging 1% plus VAT for theirs each year. There are no other fees due because we don’t charge dealing fees and the DFMs don’t charge initial fees. It roughly halves the cost of the DFM own custody solution at 1.5%.
In the far right hand columns, we have the cheapest AIM MPS and bespoke services on the platform at 0.30% plus VAT for MPS and 0.70% plus VAT for bespoke. You can see the impact that has on the overall cost 0.66% and 1.14% respectively. In short, it’s extremely cost effective. These services are available exclusively through M&G Wealth.
Naturally, I think there’s a pretty compelling reason to consider accessing AIM IHT services through M&G Wealth. If you’d like to find out more just get in contact with me or your Business Development Manager.
|100k Investment in first 2 years|
|Typical 'packaged' AIM IHT Product||Traditional DFM AIM portfolio||M&G Wealth + Typical AIM MPS||M&G Wealth + Cheapest AIM MPS||M&G Wealth + Cheapest AIM Bespoke|
|Platform/custody fee||£0.00||£152.60||£600 (0.30% p.a)||£600 (0.30% p.a)||£600 (0.30% p.a)|
|AMC||£3,600.00 (1.5% + VAT p.a.)||£2,400.00 (1% + VAT p.a.)||£2,400.00 (1% + VAT p.a.)||£720.00 (0.30% + VAT p.a.)||£1,680.00 (0.7% + VAT p.a.)|
|Initial Charge||£2,500.00 (2.5%)||£0.00||£0.00||£0.00||£0.00|
|Initial dealing fee||£1,000.00 (1%)||£1,650.00 (1.65%)||£0.00||£0.00||£0.00|
|Ongoing dealing fees in first 2 years||£202.00||uncertain||£0.00||£0.00||£0.00|
|Dealing fees on closure||£1,000.00 (1%)||£1,650.00 (1.65%)||£0.00||£0.00||£0.00|
|Annual BPS equivalent||
2.93% (plus ongoing dealing charges)
* Figures based on provider websites – details available on request. No portfolio growth rate assumed.
This financial promotion is issued by IFDL. The value of investments can fall as well as rise and investors may not get back the original amount invested.
The information contained in this page is for professional Financial Adviser use only. If you are a private investor, please visit the Private Investor section or contact your Financial Adviser for more information.