Adrian Murphy

It is difficult to say AIM has been a massive success, either in terms of its purpose of creating an incubator for the main market or as a way for investors to gain exposure to high-growth UK companies, with the reward of reduced inheritance tax liabilities for taking the associated risk.

With a few exceptions, there haven’t been many stories of household names developing out of the index. At the same time, AIM itself has been shrinking – the index had nearly 1,700 constituents at its peak, but today that has fewer than 700. 

Returns have also been poor – the FTSE AIM 100 sits far below its 2007 and 2021 peaks, and has delivered paltry returns over most timeframes. This has all but negated the IHT benefits offered to investors – in the majority of cases, you would have been better off investing elsewhere for a higher return and paying any IHT due.

While small-cap companies have tended to outperform their larger peers over the long term, there are other fund and ETF options which can provide that type of exposure without the risks that come with AIM – whether specifically in the UK or globally. Even the FTSE Small Cap could prove a more suitable choice, with superior historical returns – although these are no guide to future performance – and more diligence over the companies of which it comprises.

For investors with an eye on passing down wealth, capital preservation and income should be front of mind. And there are businesses that invest in infrastructure, renewable energy, and smart metering that may not have the allure of fast-growing companies, but have similar tax advantages and provide stable levels of income without the downside risk.

If you’re investing with IHT in mind, there are more sustainable alternatives to AIM. Weigh up your options and remember that the tax tail shouldn’t wave the investment dog – don’t let the opportunity to reduce a tax bill sway you away from a more suitable choice for your circumstances, which would ultimately more than likely deliver better post-tax returns in the long term.

Adrian Murphy is CEO of Glasgow-based Murphy Wealth