One dodge much-loved by financial advisers is investing in shares listed on London’s junior market which, under a few conditions, do not attract death duties.
As a result, thousands of small investors have piled into the Alternative Investment Market (Aim), largely for tax reasons, rather than because the companies themselves are particularly attractive investments.
The IFS says this tax break “distorts investment choices towards these types of shares, particularly for older people seeking to minimise their inheritance tax liability” and argues that scrapping it would raise £1.1bn this tax year, and £1.6bn a year by 2029-30.
These shares don’t attract inheritance tax because they qualify for “business property relief”, a tax break introduced in the 1970s to prevent family-owned businesses from being broken up or sold to pay a tax bill.
But as inheritance tax has caught more families, fund managers such as Octopus Investments have peddled special ready-made portfolios designed to be free of tax on death. Some of the biggest positions include Renew Holdings, an engineering firm, video game company Keywords Studios and anti-fraud software company GB Group plc.