Today (5 April) is deadline day for any Brits looking to invest the remains of their £20,000 ISA allowance into shares listed on the Alternative Investment Market (AIM). Savers who invest in and hold AIM-listed shares within the popular wrapper will not be taxed on any dividends paid out by their holdings. Nor will they have to pay capital gains tax on any profits they make.
Comparatively, if an investor holds AIM firms outside a tax-efficient wrapper, they will be taxed on any profits above the annual CGT allowance – currently £11,700. The standard CGT rate is 10pc, while the higher rate is 20pc. Likewise, if dividends paid out by these firms collectively pass the £2,000 annual dividend allowance outside a wrapper, then the holder will be taxed at a rate of 7.5pc if they are a basic-rate taxpayer. Meanwhile, if they are a higher-rate taxpayer, then they can expect to pay 32.5pc. If they are an additional-rate taxpayer, then will be charged a hefty 38.1pc on their dividends beyond £2,000.
The benefits of holding AIM investments within an ISA wrapper sit alongside several other tax advantages associated with the stocks. For example, most AIM stocks are exempt from inheritance tax if they have been held for more than two years. Likewise, in some cases, it may be possible for AIM shareholders to qualify for income tax and capital gains tax relief if they hold through an enterprise investment scheme or a venture capital trust.
With the end of one tax year comes the beginning of another, and many investors are likely looking forward to next Monday when they can begin to invest their new 2019/20 allowance. If you are reading this, then it is likely that you are fully aware of the risks that can be associated with investing in junior companies. You are also presumably switched on to the vast financial rewards that come with managing to invest in the next ‘big thing’.
AIM has been noticeably quiet in recent weeks – just look at today as an example. Could the new financial year, and the renewed willingness to invest that comes with it, prompt management teams to increase their newsflow in the hope of attracting new money? If so, the next few weeks could be an excellent opportunity to take a position in the stocks that you think are due to re-rate on positive newsflow.