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New research reveals tax efficiency tops bill for advisers when considering AIM investment criteria

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82 per cent of advisers expect more clients to invest in AIM during this year’s ISA season compared to last year, a new study among advisers and wealth managers conducted by TIME Investments reveals. The research also revealed the most important factors advisers look for when recommending AIM investments to their clients. 

Tax efficiency 

The appeal of AIM lies not just in its ability to generate attractive investment returns; some companies listed on AIM also qualify for Business Relief, which can offer Inheritance Tax (IHT) relief to investors. 

To encourage investors to support growth businesses, the Government offers a tax relief called Business Relief (formerly known as Business Property Relief). Many companies can qualify for this tax relief, including some companies listed on AIM. Once shares in qualifying companies have been owned for a minimum of two years and at point of death, the shares are free from IHT. 

Over half of advisers (54 per cent) cited the IHT benefit AIM investments can offer as one of the most important factors. Only 4 per cent of advisers said that an IHT benefit was not important when making their recommendation, showing that it is a key driver for investing in AIM for many advisers. 

The Government also continues to incentivise investment in AIM: since 2013, AIM shares can be held in ISAs which means that investors can enjoy tax free growth and dividends. This means that investors holding BR-qualifying AIM shares within an ISA can create a tax-efficient investment with no Income Tax, Capital Gains Tax or Inheritance Tax. 

Risk and volatility 

AIM is the junior market on the London Stock Exchange and is often perceived to be more volatile than the main market. Just over half of advisers (52 per cent) said they look for an investment process which delivers lower volatility.  

AIM listed companies do not have to adhere to a minimum trading period, which means they may have only been around for a short period of time. There are also particular sectors such as mining and exploration that historically have proved very volatile and experienced significant company failure rates. But it is also home to companies operating in thriving areas of the global economy, like healthcare, clean energy, and technology. 

Many AIM fund managers seek to reduce this volatility by using data-driven screening processes or traditional fund manager stock picking strategies. 

50 per cent of advisers look for AIM managers that invest in larger and more established companies. Nearly half of advisers (48 per cent) look for portfolios with diversification, to reduce specific company and sector risks. 48 per cent of advisers also look for the inclusion of profitable, dividend paying companies.  

Investment growth 

Surprisingly, the lowest scoring factor advisers consider is long-term growth. Only 44 per cent of advisers cited this as one of the most important factors when recommending an AIM investment. Indeed, 8 per cent of advisers said this was not an important factor at all. 

Sam Jermy, Business Development Director, TIME Investments, comments: “Investors looking for tax-efficient growth are increasingly considering investing in AIM companies. Investors could create their own portfolio of AIM listed shares or they could choose to invest with a fund manager with professional expertise investing in AIM. Not all AIM shares qualify for BR, therefore investors seeking IHT relief would be wise to focus on managers with specific experience in these types of investments and a long track record of achieving BR for investors.” 

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