Aim for a higher yield

Mark Incledon, CEO quoted in The Times 16th January 2022

Over one fifth (22.5%) of companies on AIM now pay a dividend, with 195 companies from a total of 867 on the junior market regularly paying out cash to investors, says Bowmore Financial Planning.

The average yield of the 195 dividend-paying shares on AIM stands at 2.5%, with over 60 shares (or 7% of the market) on AIM generating a dividend yield of 3% or higher.

Well-known shares on AIM that pay a dividend include premium mixers maker Fevertree Drinks, biotech group Abcam and software house Ideagen.

Bowmore says the fact that almost 200 AIM shares now pay a dividend shows that AIM investment may be more suitable for older investors than previously thought. The rising number of income shares on AIM means investors can benefit from income as well as Inheritance Tax relief on their investment.

Bowmore says the tax relief known as Business Property Relief (BPR) means AIM shares can be an effective way for investors to pass on some of their wealth completely free from Inheritance Tax.

BPR allows people inheriting unlisted shares, as well as those listed on AIM, to claim 100% IHT relief on them provided they have been held for at least two years. The shares can even be held in a tax-free ISA wrapper and still benefit from BPR.

AIM shares are treated as unquoted for tax purposes so long as they are not ‘dual listed’. It is relatively common for AIM companies, especially in the oil & gas and mining sectors, to be listed both on AIM and another overseas exchange, such as Australia’s ASX or Canada’s TSX. This means they are no longer considered ‘unquoted’ by HMRC and wouldn’t qualify for BPR.

Mark Incledon, CEO of Bowmore Wealth Group, says: “The relative lack of dividends among AIM companies used to mean they weren’t a great choice for older investors who want income to play a bigger role in their portfolios. With so many AIM shares now coming with a good yield attached, that is no longer the case.”

“BPR means that AIM shares can be a great way for investors to shield their wealth from the taxman when passing it on to their children. It is a lot easier now for investors to find the right balance between shares that benefit from BPR but still offer the potential for a strong yield.”

“Using a BPR AIM strategy, investors have the potential to get a good income and pass it on inheritance tax free. There is also no upper limit – you can invest £10,000 or £10 million and still attract 100% IHT relief.”