Before undertaking any investment or other financial decision, it’s important to be aware of all of the potential advantages and drawbacks. So, let’s have a look at the advantages and disadvantages of investing in AIM shares.
What are AIM Shares?
AIM stands for Alternative Market Investment. It is a submarket of the London Stock Exchange which deals with small and medium size growth companies which are seeking to raise capital through an Initial Public Offering.
The listed companies tend to be smaller and more speculative as regulations are rather relaxed compared to larger exchanges. This type of investment tends to be higher risk with the potential of higher rewards.
Advantage: Potential of High Rewards
One advantage of AIM shares is the potential of reaping high rewards from your investment. The companies listed on AIM are still relatively young and in their growth stage, meaning there is the potential to earn more money off them than the mature companies on the FTSE index.
A prime example of this is ASOS: listed on AIM in October 2001 at the price of 20p a share, these ASOS shares later reached £71 a share by October 2014. You can click here to see their current price per share.
Advantage: Tax Benefits
Tax benefits are one of the main draws of AIM share investment. Some of these tax benefits include:
No stamp duty land tax (SDLT) due on shares traded within AIM
Some AIM companies are inheritance tax (IHT) free if shares are held for longer than two years
Some AIM shareholders may qualify for income tax and capital gains tax (CGT) reliefs when held through an Enterprise Investment Scheme (EIS) or through CGT Entrepreneurs Relief.
You can click here for a more detailed guide to AIM tax benefits.
Disadvantage: High Risk
AIM share investment is best suited to those who are willing to take on a high degree of investment risk. This is because many listed companies on the AIM index are still in their growth stage and aren’t fully established, meaning you don’t know whether they will be as successful as expected.
As stated by Andrew Howe on Interactive Investor, “AIM is the world’s worst-performing major stock market index of 2022.” He continues, “The number of AIM companies worth more than £1 billion has nearly halved over the past year. All the companies that are still valued above that level have lower share prices, some up to three-quarters lower.” This said, he does also note that there is the potential for a rebound this year.
Disadvantage: Illiquid
Listed companies usually have fewer outstanding shares available to be traded, meaning it can be difficult to buy and sell them at the price you want to.
It tends to be harder to sell AIM shares than those of larger companies, meaning you’re essentially more tied into your investment.
Overall, it is up to you to decide whether AIM share investment is right for you. However, before jumping in head-first, make sure you are fully aware of what you are investing in and how it all works.
by Red Star Wealth
One million people in the UK are part of a share save scheme, but what exactly are they?
An Introduction to Share Saves
You may see share save schemes referred to as Save As You Earn (SAYE) or employee share ownership schemes.
Introduced in the UK in 1980, share save schemes help you save towards buying shares in the company you work for.
For a company to participate and offer this scheme to its employees, it must be (or be owned by) a public company listed on a stock exchange.
How do they Work?
You save directly from your wage and then at the end of the savings period you are given the option to buy shares in your company or take your savings in cash.
The company will give you an option price, which is the price you will be able to buy shares for at the end of the scheme.
You can save up to a maximum of £500 a month under the scheme. The amount you opt to save is then fixed every month. So, if for example, you opt to save £50 a month for the duration of the scheme, you can’t then increase this to a contribution of £200.
The company may set an eligibility period wherein to join the scheme, you must have worked for the company for a minimum length of time.
What do you get?
As we noted earlier, you can take your savings as cash or as shares in the company. However, there are a number of options and combinations as to how you can do this:
Take it as cash. Here, the scheme has been used as a savings account of sorts. With this option, you will get back every penny you put away into the scheme. However, the money will not accrue any interest whilst sitting in the scheme, unlike how it would in an ordinary ISA
Buy and sell the shares. For example, you may choose to do this if the share price has risen above the option price given to you at the start of the scheme, so buying and selling the shares allows you to immediately make a profit
Buying and selling some but not all of the shares
Buying some shares and taking the rest as cash
You have 6 months to make this decision, so you don’t need to choose as soon as the scheme comes to an end.
You will pay no income tax or national insurance on the difference between what you paid for the shares and their value, but you may have to pay capital gains tax if you sell the shares.
What Information should my Employer give me?
Your employer will usually extend an invitation for you to join the scheme a couple of months before it begins. They should disclose the following information to you:
The scheme’s length, which will be either 3 years or 5 years
The deadline for signing up to the scheme
How much you can save each month. Under share save schemes, you can save between £5 and £500 a month. However, your employer may have their own rules, where they have increased the minimum payment you must make, lowered the maximum payment you can make, or a combination of the two
The price you can buy shares for at the end of the scheme. This price is set at the start
Is this Right for Me?
Whether share saves are right for you is a personal decision. If you would only want to take the savings as cash at the end of the scheme period, a savings account is probably a better option for you, as you can benefit from savings growth via interest.
Additionally, if you are struggling with debts or need to focus on building an emergency savings fund, it’s probably worth prioritising this over share saves.
However, if you do have a bit of spare income each month and want a low-risk form of investment, share saves may be a good option for you.
by Red Star Wealth
Business Asset Disposal Relief (previously known as Entrepreneur Relief) is a form of tax relief from capital gains tax.
How does it Work?
Business Asset Disposal Relief is when you sell all or part of your business or its assets and pay only 10% capital gains tax (CGT) on profits up to £1 million (the new lifetime limit). Once you surpass the £1 million limit, you will be charged the usual rate of CGT on the remaining taxable gains.
Previously, the lifetime limit was £10 million but at Budget 2020, Rishi Sunak, as Chancellor of the Exchequer, announced that the lifetime limit would be brought down to £1 million for any qualifying disposals made on or after 11th March 2020.
How much can it Save You?
If you’re a basic rate taxpayer, you will pay CGT on the disposal of assets according to the size of profits, your taxable income, and whether the gain is from residential property or not. If your taxable income falls within the basic income tax band, you’ll pay 10% CGT on gains (18% if disposing of residential property).
However, as a higher or additional rate taxpayer, you would pay 20% CGT on taxable gains from any chargeable assets (except for disposal of residential property, on which you’d pay 28%).
Therefore, Business Asset Disposal Relief could save you up to £100,000, because if claiming the tax relief on up to £1 million worth of assets, you’d reduce your tax burden by 10% (£100,000).
How do I Qualify?
Business Asset Disposal Relief covers both shares and business assets. Sole traders and partnerships can claim this relief when selling assets used in the business. Company directors and shareholders can claim the relief when selling shares or assets.
To qualify for tax relief on sale of assets, you must fulfil the following criteria for at least 24 months:
You must be an employee of the company (includes being company director) or a sole trader
You must own at least 5% of company shares if claiming the tax relief on share sales
There are also some extra things to bear in mind:
You can claim relief on share sales if a company stops trading, providing this is done within 3 years
You cannot sell a ‘going concern’, i.e, you cannot claim tax relief on the sale of something that is loss making and not commercially viable
If trying to claim the tax relief on property sales, the property must exclusively be a business asset. It must be owned by the company and used rent free
The 5% Rule
As noted above, you must own at least 5% of company shares in order to qualify for Business Asset Disposal Relief on share sales. If your share in the company is only just above this 5% lower limit, you should keep an eye on it to ensure it doesn’t drop below the threshold if you’re considering selling your shares in the near future. This could happen if your shares became diluted from more shares being allocated or other employees activating share options, meaning more shares in circulation.
If you lent any assets to the business, to claim the tax relief you must have sold at least 5% of your part of the business partnership or shares in a personal company. You must have also owned these assets yourself but let the business use them for a minimum of a year before your sale of the shares or business partnership.
For information about how and when to claim Business Asset Disposal Relief, click here.
by Red Star Wealth
Have you been considering becoming a Buy to Let landlord but don’t know whether its worth the investment? If so, you might want to read on…
Changes in Stamp Duty Land Tax (SDLT)
Since 2016, there has been a stamp duty surcharge on second homes and Buy to Let properties in England, Wales and Northern Ireland.
This means that anyone who owns an existing property and chooses to buy another for £40,000 or more is now subjected to an additional 3% SDLT. In a nutshell, if you own another property, you’re charged for it.
As of 2021, an additional 2% SDLT (on top of the aforementioned 3% surcharge) has been added for overseas buyers purchasing additional properties in the UK, even if this is their first UK property purchase (with their other property being overseas).
What About Tax Relief?
Since April 2017, a new plan has been phased in wherein mortgage interest tax relief for individual landlords is being restricted by the government.
As of April 2020, landlords can no longer deduct mortgage expenses from their rental income to reduce their tax bill. Instead, they receive a tax-credit, based on 20% of their mortgage interest payments. This is far less than the previous system for higher rate taxpayers, wherein landlords effectively received 40% tax relief on their mortgage payments.
Scrapping the Wear and Tear Allowance
Previously, landlords received a wear and tear allowance (a type of tax relief). This was 10% of the “relevant rental amount,” and acted as a flat rate allowance, claimable every year regardless of the actual expenditure of new furnishings.
As of April 2016, this has been replaced by a renewals allowance, wherein landlords of residential properties can only be granted tax relief on the costs they actually pay for replacing furnishings, appliances and kitchenware.
Higher Rate of Capital Gains Tax (CGT)
CGT is a tax on the profit when you sell off an asset that has increased in value.
April 2016 saw the rate of CGT reduced for all chargeable gains except in relation to those on the disposal (selling) of residential property.
This means if you were to dispose of shares or mutual funds, you would be taxed at 10% or 20%, whilst if you were to dispose of residential property, you would face CGT of 18% or 28%.
Lettings Relief
Landlords used to get up to £40,000 per owner if the property was rented out for part of, but not all of, the period of ownership. However, this is now only available if the owner has been living there with the tenant, meaning lettings relief has effectively been abolished.
Final Years Relief
Final years relief is an exemption from CGT. It used to be granted during the last 36 months of ownership, regardless of whether the owner had occupied the property or not during this time.
As of April 2016, this period of relief from CGT has been reduced to 9 months, making it just a quarter of what it used to be.
Electrical Safety Standards
As of June 2020, all landlords must get the electrical installations in their properties inspected and tested at least once every five years. If their tenants or the local authorities request it, they must be able to provide a copy of the electrical safety report.
This is great for keeping tenants safe, but it is one of many things that Buy to Let landlords will have to stay on top of and pay for.
Finding Tenants
Buy to Let property is intrinsically reliant on tenants. You have to find tenants in order to get an income, and you will still be incurring costs regardless of whether the property is empty or not.
Is Buy to Let property investment becoming more hassle than it’s worth? That’s for you to decide. Though this blog has focussed on its decreasing desirability, it can still be a very good source of income and is still a popular asset.
