AIM shares and replacement property rules
Wildparaplanner
Member
Hi all,
What are the rules on switching out of one AIM stock and into another, when the holding of the stock to be switched hasn't been held for the full 2 years? Does it reset the 2 year clock as it hasn't been held for the full 2 years, or is it rolled over into the new stock that it is switched into?
Thanks
Comments
Hi,
As I understand it, BR status is only retained on assets that have qualified. But I don't have a link to an HMRC source for that!
https://techzone.abrdn.com/anon/public/iht-est-plan/IHT-business-relief-guide#anchor_3
Hope this link works. If not C&P of the relevant bit below:
Replacement property
If an asset which qualifies for business relief is sold, the relief can be maintained if the asset is replaced by the purchase of a new business asset. The two year ownership period is not reset if the sale proceeds are used to purchase a replacement asset within three years of the sale of the original asset.
Business relief continues to be available if the combined ownership period of the original property and any replacement property covers at least two out of the five years immediately before transfer/death. If the individual dies before the replacement asset is purchased business property relief will be lost.
Where one or more replacements have been made during the five years period, the amount of relief cannot be more than what it would have been had the replacement property not been made.
HMRC take the view that if the value of the original asset is lower than the value of the replacement asset, the excess won't be automatically eligible for relief and a new two year period will start on the excess. This is an anti-avoidance provision and its purpose is to prevent a person who has qualified for relief from purchasing a more expensive business asset shortly before death or making a transfer.
I'm going to bring my original thread back as I have a new question which relates.
Does there need to be a direct journey from the sale proceeds of a qualifying investment into a new qualifying investment for it to qualify?
I have a case where the client has £400k in an AIM ISA portfolio which they are looking to sell and reinvest into a BR scheme (the unwrapped, lower volatility/risk option) that would qualify for 100% relief from April 2026. However, the client also has £500k of cash in the bank.
Is it or is it not possible to switch the AIM ISA portfolio into a cash ISA, and then use £400k of the cash in the bank to purchase the BR scheme and still qualify for the replacement relief? That way, the ISA wrapper is preserved and not lost.
Or does the physical sale proceeds of the AIM ISA have to be what finds its way into the BR scheme (and thus losing the ISA status entirely).
Just be careful on whether moving from AIM to BR would still retain the 100% relief.
Section107(2) IHTA 1984 sub clause 2 seems to be causing some confusion on whether with the proposed changes full relief will be retained.
Time Investments have taken legal advice on it and this is what they have said
Looking at four scenarios:
• Transfer from AIM to unquoted shares on or after 6 April 2026, with death also on or after 6 April 2026 - In this scenario, replacement relief of 50% would be available, as with the new rules in place, AIM is restricted to 50% BR.
• Transfer from AIM to unquoted shares before 6 April 2026, with death also before 6 April 2026 - In this scenario, replacement relief of 100% would be available, as the old rules would still be in place, such that AIM gets 100% BR
• Transfer from AIM to unquoted shares before 6 April 2026, with death on or after 6 April 2026 but less than two years after the transfer took place - In this scenario, replacement relief of only 50% would be available, despite the transfer taking place when the BR rate on AIM shares was 100%. This is because, at the point of death, if the AIM shares were still held, they would have only received 50% BR. Therefore, the received BR cannot exceed this amount.
• Transfer from AIM to unquoted shares before 6 April 2026, with death on or after 6 April 2026 and more than two years after the transfer took place - In this scenario, the new unquoted shares would have built up their own two year clock, so 100% BR would be received again.
This subclause in the replacement relief rules has always been there so there is no change in the regulation, and based on this and the guidance from our legal consultants our view is to take a prudent stance and expect there to be a need to wait 2 years until the replaced investment has in itself qualified for the 100% relief.
Hi
I believe there needs to be an "audit trail" i.e. a tangible link between the two investments.
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm25311
I think you should get tax advice as if the ISA is still intact I don't know how you could claim the property was replaced.
Thanks Les, probably too close to the tax advice angle, but surely the audit trail is in relation to the invested asset only and not the ISA tax wrapper? I.e. the individually invested AIM stock to the invested BR stock?
That is a way to look at it but there are other ways to look at it. I think that if what was the AIM ISA still exists albeit in non AIM stock then you may not be able to argue you replaced the AIM ISA as the proceeds of the sale of the AIM stock clearly haven't been used.