An introduction to the Alternative Investment Market (AIM)
Inheritance tax solutions, investing in quality companies operating in a structurally growing market and diversification are core principles underpinning our Alternative Investment Market (AIM) strategy, offering a way to spread risk and pass on wealth to the next generation in a tax-efficient way. For many clients a key priority is to provide for their loved ones the means to have the best chance of realising their ambitions and our strategy specifically chooses investments that benefit from 100% inheritance tax relief, if held for over two years at the time of passing.
What is AIM?
AIM is a junior market of the London Stock Exchange, created in 1995 to allow smaller, growth companies an opportunity to publicly list their shares. A more flexible regulatory environment than that of the main market is one of the main attractions for companies seeking external funding to sustain growth and expansion.
The market has experienced rapid growth since its launch with ten companies and a total value of £82m and, as of March 2023, was home to around 807 companies with a total market capitalisation of over £90bn .
Inheritance tax relief
A key part of our investment strategy is purchasing companies that benefit from Business Relief (previously Business Property Relief), which was introduced with the objective of sheltering certain business assets from inheritance tax (IHT). As this is of utmost importance to us, we use KPMG as an external consultant to verify which shares qualify for Business Relief.
If a company qualifies for Business Relief, the shares need to be held for at least two years for them to benefit from 100% IHT relief at the time of the client’s passing (subject to potential restrictions on the value of any expected assets held by the company). Due to the complexities and investment restrictions involved, this style comes with its own risks and without the support of a specialist can be complicated, time consuming and lead to suboptimal investment outcomes.
The primary goal for the AIM Strategy is to shelter the overall value of clients’ portfolios from inheritance tax. This means our investment universe only contains stocks in which we have a high conviction, liquidity, and which qualify for Business Relief. After that, we look to explore unique opportunities for growth and long-term potential performance. As stocks on the AIM market are smaller than most publicly traded companies in the UK, they are not subject to the same level of analyst coverage throughout the industry. We see this as a fantastic opportunity as it means the market is less efficient and therefore more of the stocks trade at levels that do not closely resemble the company’s value.
The number and composition of our current holdings are fairly representative of what could be termed typical for our investment strategy. Presently we hold stakes in 21 companies, with each stock over £200m in market capitalisation and verified by our third-party experts as qualifying for Business Relief. We place a high level of importance on financials and management and also like to look for businesses that operate in growing markets as well as those that have favourable ESG factor characteristics.
The key financial metrics we look for are profitable, cash generative businesses with a strong balance sheet. We look to compare consensus views on earnings with our own internal projected calculations, in order to seek a variant perspective. Keywords Studios is a good example of a stock where our view on earnings has been consistently higher than consensus expectations. We have been proven right, with the firm reporting a pleasing series of beats.
Strong management is central to good long-term performance, and we regularly meet with key management figures to build up, then maintain, a relationship. This access to management can be really helpful in assessing the business’s prospects, providing insight that is just not possible from financial statements and the news.
We are also supported and informed by high quality research, both from our in-house experts and external parties. Responsible Investing has become a prominent theme in recent years and our in-house team assist and guide our coverage of stocks. In many cases, our voting power is greater for AIM companies than for larger firms, meaning that AGM votes can be more impactful.
This material is not tax, legal or accounting advice and should not be relied on for tax, legal or accounting purposes. Quilter Cheviot Limited does not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting adviser(s) before engaging in any transaction.
We understand how important it is for clients to plan and preserve for the next generation and their loved ones. The Quilter Cheviot AIM strategy is designed for estate and inheritance tax (IHT) planning at an accessible entry point of £100,000.