British expat taxpayers can now invest in London Alternative Investment Market (AIM) shares in an ISA.
The new facility is available to anyone who is a UK resident taxpayer – which includes many expat workers who are temporarily out of the country.
ISAs offer no capital gains tax on growth and no income tax on earnings to UK taxpayers.
The change of mind by The Treasury is another step to encourage small investors to put their money as equity finance into firms seeking start up or expansion finance.
Investment tax breaks
A clear strategy of investment has emerged over the past two Budgets by Chancellor George Osborne.
- Seed Enterprise Investment Scheme (SEIS) – Offers tax breaks of up to 50% income tax reduction and capital gains reliefs on investments of up to £100,000 in fresh start firms
- Enterprise Investment Scheme (EIS) – The next step up from SEIS for firms looking to raise more money to expand. EIS also comes with tax breaks for investors
- Venture Capital Trusts – Tax-relieved investments for business angels
- Stocks and shares ISAs – For tax-free investment in companies up to a maximum of £11,520 per investor per tax year.
Fund managers agree investing in AIM shares can be good for ISA investors.
Ben Yearsley, head of investment research at Charles Stanley Direct, said: “AIM lists some progressive and dynamic companies with the potential for some terrific growth that will reflect in the value of shares.
“But like any high return investment, AIM is a little more risky as the stars of some AIM companies burn brightly for a while, then they dim and fade away. That means someone could lose all or some of their investment if they do not get out at the right time.”
Combatting risk
One point to watch about ISA investing is that although any gains are free of capital gains tax, unlike SEIS or other corporate equity investments, capital losses cannot be set off against other gains.
One way of reducing the risk in a London AIM ISA is to spread the risk by investing through a managed fund.
Funds can cut the risk by investing across a broader portfolio, reducing the exposure of any one investor to a specific company or sector.
London AIM shares are not limited to UK businesses – many offshore tech and energy resource companies are also listed.
According to Stuart Welch of TD Direct Investing, two of the current most popular buys are satellite operator Avanti Communications and Africa’s low-cost airline FastJet.
