I am completing IHT400 for a client. They held lots of AIM portfolios but these portfolios also held a small element of cash. I have spoken to a number of IFA’s and reviewed IHT400 guidance and no-one knows whether the cash is declared separately to the portfolio? It appears the IHT400 form would indicate that cash should be separated (and therefore liable to IHT at 40%) but this is only from the structure of the form itself, not from any guidance anywhere. Some IFAs have indicated that as it’s within the ‘fund’ the cash element of the portfolio should be IHT free. In my view this leaves a bit of a grey area though and can’t be right, but I would love to hear other professional’s comments, and how they are declaring the cash elements of the AIM portfolios?
I don’t categorically know the answer but I’d expect HMRC to only allow a small amount/portion of cash, if any, in such portfolios to be IHT Exempt. Otherwise, what would stop people dumping cash in an ‘AIM Portfolio’ or just allowing it to build up? HMRC may treat any cash in the portfolio it as they do with cash in a business for BPR i.e., as Excepted Assets. IFAs can be guilty of promising the earth to clients in my experience.
As for declaring it, you could simply try it within the AIM exemption but separate it out so its declared on its own. Then, using ‘Additional Info’ clarify the split. The worst will be that HMRC will say its not exempt and charge IHT.
Thank you Karl, that was what I thought too. I think legally it doesn’t make sense otherwise as you say, people could just keep cash in an AIM portfolio, risk free, and it would be IHT free.
I think the answer is that it is the individual shareholdings that qualify for BPR and not the portfolio and on that basis I would not expect cash to qualify. Each shareholding should be checked to make sure it meets the criteria for BPR as not all AIM shares do I believe (eg those traded on a recognised stock exchange abroad or those in property investment)
The cash cannot have any relief. The shares themselves qualify as unquoted shares but the cash would have to be part of a business which qualifies for relief. Holding unquoted shares is an investment business which is not eligible for BPR.
Thank you for your replies. I thought this seemed the case but the IFAs were making me question it. So helpful to have this forum!
The portfolio is not itself an asset, just a bundle of different assets each of which requires analysis for relief. Cash will not be relieved and there is no equivalent of the “excepted assets” rule that applies where part of the value of a business asset (such as a shareholding) is attributable to assets not used for business purposes or needed for the future of the business.
In theory, it is also possible that some of the AIM shareholdings within the portfolio will qualify for BPR and some will not (although presumably the portfolio manager has selected them carefully to ensure BPR is available)