HMRC set to raise £110m annually by cutting IHT relief on AIM shares

HMRC has confirmed that it expects to raise at least an additional £110m* in Inheritance Tax (IHT) per year by reducing the IHT relief currently available on AIM shares, according to TWM Solicitors, the leading private wealth and family law firm.

At present, qualifying AIM shares attract 100% relief from IHT, but this will be halved to 50% relief in April 2026.

Laura Walkley, Partner and Head of Private Client at TWM Solicitors explains:

“The IHT relief on AIM shares made them one of the more popular investment vehicles for reducing IHT. This change significantly impacts that strategy.”

The reduction in IHT relief on AIM shares is viewed by many as a setback for UK growth companies that have relied on the AIM market to raise capital, often from private investors attracted to AIM by its IHT advantages. Since the Chancellor’s Budget on 30 October, the FTSE AIM 100 Index has fallen 18% (from 3,620 to 2,952 as of 7 April). This compares to the FTSE 100 decrease of 6% (from 8,159 to 7,703 as of 7 April).

Laura Walkley says:

“AIM has traditionally attracted a high proportion of retail investors – often older individuals – buying shares in high-growth but risker companies, with the added appeal of full IHT exemption after two years of ownership.”

This exemption made them particularly attractive to those concerned they would not survive the seven-year period required to make the gifts they gave to their heirs IHT-free. TWM Solicitors suggests that, in light of the upcoming changes. gifting may now become a more viable and tax-efficient alternative. Gifts made out of income, for example, are immediately IHT-free.

Laura Walkley says:

“Gifts made from genuine extra income are exempt, but you will need to keep accurate records and be able to demonstrate that the gifts were made from surplus income. HMRC does also require detailed year-by-year figures showing that these gifts out of income have not impacted your standard of living.”

Other exempt gifts include payments to a spouse or registered charity.

Laura Walkley says:

“Setting up an educational trust for grandchildren is worth considering, as it ensures the funds are used according to your wishes and in the best interests of the beneficiaries. This may become an increasingly attractive option, in light of the introduction of VAT on private school fees.”

Additionally, one-off gifts of cash or valuable items, such as jewellery and antiques, are tax-free if made at least seven years before death. Gifts to charities written into a Will can also reduce IHT from 40% to 36%, provided they amount to at least 10% of the ‘net estate’.

*HMRC Freedom of Information request – extra tax from IHT on estates using AIM shares only. Another £28 a year is expected to be collected from estates using AIM shares and other types of BPR.