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Collins Stewart Aims for trust alternative

Stockbroking firm Collins Stewart has established the Aim Portfolio Service which aims to reduce potential inheritance tax liability and provide capital growth.

The company believes there will be a demand for simple alternatives to trusts in IHT planning, given that it is likely that the majority of trusts will become taxable as a result of legislation introduced in the 2006 budget.

The service will invest in a portfolio of Aim-listed stocks for each client. Most Aim stocks qualify for business property relief and if held for at least two years, the investment does not form part of an estate for IHT purposes. Most Aim shares also qualify for accelerated taper relief on capital gains tax that is also an advantage.

The stocks will be selected by investment manager Sean O’Flanagan. He started his investment career at BWD Rensburg in 1998 and joined Unicorn in 2002, where he was involved in its Aim VCT.

O’Flanagan says there is a misconception that Aim companies are early stage and points out that many companies are established and profitable leaders in their markets. It is these stocks, at the lower risk end of a relatively high-risk market, that he is looking for. He will look at factors such as string balance sheets, dividend payments and barriers to entry.

O’Flanagan’s strategy will be to buy and hold as this keeps transaction costs to a minimum. Each client’s portfolio will contain at least 15 Aim stocks but no more than 35. He believes this range enables stock-specific risk to be reduced without diluting the returns through too many holdings.

O’Flanagan has two lists of stocks as part of his selection process. One is a shortlist of stocks to include in portfolios, while the other is a reserve list that he monitors and uses to replace stocks on the shortlist when necessary.
This product may be suitable for clients with a potential IHT liability who would welcome some capital growth. However, Aim companies can be more volatile than quoted investments and illiquid, which makes them relatively high risk. For those investing mainly for IHT planning, the main risk will be that IHT rules could change in the future.

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