None of the information provided is investment or tax advice. You should always read the associated risks before deciding whether to invest. These can be found on the product pages as well as in our risks overview. Please confirm you have read the information above.
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Following the recent Budget announcement, some of the initial uncertainty has been alleviated. Yet the implications for AIM (formerly the Alternative Investment Market) are worth reflecting on. AIM has long served as a valuable platform for smaller, dynamic businesses seeking access to capital and growth opportunities. Periodic challenges – such as fiscal changes and shifts in regulation – have tested its resilience many times since its inception, but AIM remains committed to providing essential opportunities for small businesses.
Indeed, it is important to recognise that AIM’s value lies far beyond the influence of political shifts. AIM supports small and medium-sized enterprises (SMEs) that play a vital role in the economy, providing them with the capital they need to grow, create jobs and drive balanced development. At Downing, our approach is centred on this long-term potential. We use active management to uncover opportunities in businesses with durable fundamentals that can provide real, inflation-adjusted growth – particularly when temporary market fluctuations can make it easy to overlook their value.
When looking at AIM IHT solutions, it's worth noting that not all are created equal. Just as in discussions around active management, there’s a tendency to speak about AIM IHT options as if they were a single, homogenous strategy. In reality, our approach at Downing is distinctly targeted: we seek quality and growth at sensible prices in parts of the market that others overlook, aiming to navigate volatility with a commitment to fundamental strength. Through our ability to uncover opportunities earlier, we believe we can capture a broader and more lasting value for our clients.
In this context, and despite some legislative changes, we believe our AIM Estate Planning Service remains an attractive and distinctive vehicle for estate planning – offering a combination of capital growth and lower inheritance tax liabilities, all with our unique Wealth Guard protection. And there are some strong arguments why investing early can help maximise this opportunity.
Historical resilience and differentiated approach
While market behaviour can be unpredictable, the returns achieved through active management tell a different story. Our own example demonstrates that well-structured investments within AIM have the capacity not only to weather economic storms but also to significantly outperform market indices and peers over time.
Many AIM-focused strategies rely on larger, high-beta companies – often with lofty price-to-earnings (P/E) ratios. Our approach is deliberately more tempered. We seek fundamentally strong businesses at fair prices, which may mean we don’t capture every spike in upside, but it also spares us the more punishing declines when sentiment turns.
Our reasoning around this is quite simple. Under stable and perfect market conditions, paying a high valuation can work as growth is not interrupted; these businesses are ‘priced for perfection’. Our preference is to have some margin of safety in what we pay, knowing that the future is inherently uncertain - perfection is difficult to achieve, and it’s even harder to sustain. We have seen this dynamic play out since the end of 2021, as many stocks with high valuations, underpinned by growth that hasn't materialised, have started to fall.
For us, investing successfully over the long term and through the market cycles is as much about managing the downside as capturing the upside – there is little use in doubling your money in 5 years only for it to half in year 6. By remaining disciplined about valuation, we aim to balance the rewards of growth with a resilient approach to risk. Our aim is clear: to grow capital in real terms, steadily and sustainably through the cycles, capturing enduring value rather than fleeting highs.
Investing for lasting legacy
As at September 2024, our Service has generated a cumulative return of 177.3% over the 12 years since launch. This means that if you have invested £50,000 with us in 2012, your investment would be worth £138,6501 today net of fees alongside the added benefit of tax relief and being protected from 20% drop in net asset value of your investment2 – at no extra cost and while maintaining full access to your capital (subject to liquidity). Although past performance is not indicative of future results, our track record illustrates how long-term wealth creation through compounding can produce real growth, not just preservation.
What shouldn’t go amiss is that our solution is designed to be competitive not only within the AIM IHT space, but also across the broader UK smaller companies' equity market. We have not only performed above the 25 years annualised total return of UK listed smaller companies3, despite the challenging backdrop. When compared to traditional funds, our performance stands alongside some of the leading UK smaller companies OEICs4, with the added advantages of estate planning benefits and the 20% downside protection of the Wealth Guard. In other words, and while considering the volatility of AIM, we aim to deliver greater overall value for those seeking both growth and a tax-efficient pathway for wealth transfer.
As with all investments, the greatest benefits are earned through compounding, and it is best to start early. Estate planning solutions are often considered later in life, typically by those in their late 70s. However, investing earlier can allow for significant wealth compounding over the coming decades, making a significant difference in the long term. In light of the recent Budget, removing IHT relief on pensions, there may be an added incentive to explore reallocating assets from traditional pension funds into AIM IHT vehicles that offer similar growth potential along with a tax-efficient benefit for legacy planning. For those looking to enhance returns further, regularly committing part of their annual ISA allowance could help build real, inflation-adjusted returns over time, as these investments grow tax free.
Conclusion
Not all AIM IHT offerings are created equal. The challenge for advisers lies in selecting those that not only align with clients’ ambitions but also deliver lasting value. We believe that our approach stands competitively apart, combining active management, tax-efficient wealth transfer, and downside protection to create a thoughtful pathway towards enduring value. For those seeking both growth and legacy, we’re here to help navigate this journey. In doing so, we’re proud to support British businesses.
1 Cumulative return is the total percentage of gain or loss, assuming that all earnings are reinvested. It represents the overall growth of an investment from the beginning to the end of a period. Future value = £50,000 x (1+177.3/100) = £138,650
2 The Wealth Guard is designed to reduce the impact of any drop in the value of your investment. Should you pass away before age 90, your investment is automatically covered for any fall in value up to 20% on your net initial investment (i.e. the amount invested after charges). T&Cs apply.
3 As per the New Financial report, over 25 years the annualised total return of UK listed smaller companies (including AIM) has been 7.4%.
4 Top 5 best performing funds as per IA UK Smaller Companies equity sector classification generated 60.8%, 53.4%, 51.7%, 45.8% and 43.3% cumulative return respectively over the past 5 years. Our Service delivered 45.6% return over that same time period.
Risk warning: Capital is at risk. The value of investments and any income derived may go down as well as up and investors may not get back the full amount invested. We recommend investors seek professional advice before deciding to invest. Any investment should only be made based on the Brochure and T&Cs; your attention is drawn to the risk, fees and taxation factors contained therein. Tax treatment depends on the individual circumstances of each investor and may be subject to change. The availability of tax reliefs depends on investee companies maintaining their qualifying status. Investments in smaller companies quoted on the Alternative Investment Market (AIM) can be more volatile and less liquid than those in larger, more established companies listed on the London Stock Exchange. Return is the value of investments, plus cash, including income, after deducting all charges, excluding any initial fee. Please note that past performance is not a guide to future performance.
Downing does not offer investment or tax advice or make recommendations regarding investments. This document contains information and analysis that is believed to be accurate at the time of publication but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Downing LLP as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
This article has been approved and issued as a financial promotion under section 21 of the Financial Services and Markets Act 2000 by Downing LLP. Downing is a trading name of Downing LLP. Downing LLP is authorised and regulated by the Financial Conduct Authority (Firm Reference No. 545025). Registered in England and Wales (No. OC341575). Registered Office: 10 Lower Thames Street London EC3R 6AF.
