An AIM portfolio worth £1 million would have passed to your family completely free of inheritance tax under the old rules, provided you'd held the shares for at least two years. Since 6 April 2026, that same portfolio triggers a £200,000 tax bill instead. If you built an ISA around AIM stocks specifically for their inheritance tax treatment, this is the change that quietly rewrote your estate plan — and a lot of investors still haven't worked out what to do about it.
What actually changed
Business Property Relief, the mechanism that let AIM shares held for two years pass free of the 40% inheritance tax charge, dropped from 100% relief to 50% relief from 6 April 2026. Chancellor Rachel Reeves announced the change in the 2024 Autumn Budget, giving investors roughly seventeen months' notice before it took effect. Fifty per cent relief on a 40% tax charge works out to an effective inheritance tax rate of 20% on qualifying AIM holdings — not the full 40% investors initially feared when the reform was first floated, but a meaningful bite out of anything left to heirs.
The two-year holding period hasn't moved. You still need to have owned the shares for two years at the time of death for any relief to apply at all, and that qualifying clock doesn't reset when you switch between AIM stocks within the same portfolio — it's the aggregate BPR-qualifying holding that matters, not any single stock's individual purchase date. What has changed is the ceiling on how generous that relief can be, and it's worth being precise about the comparison: private company shares and agricultural property retain their full 100% relief, but only up to a combined cap of £2.5 million per person (transferable between spouses, so up to £5 million for a couple). AIM shares get no such 100% tier at all, regardless of the total held — every pound of qualifying AIM stock now sits at the 50% rate, cap or no cap.
The market already priced it in — mostly
Markets don't wait for legislation to take effect before reacting, and AIM didn't. Between the October 2024 Budget announcement and April 2025, the AIM index fell 18%, against a 6% dip on the FTSE 100 over the same window. Some of that was investors rotating out of AIM funds designed specifically around the old IHT exemption, no longer needed once the tax advantage was cut in half. HMRC expects the change to raise an extra £110 million a year in inheritance tax receipts — a figure that gives you a rough sense of how much wealth was previously sitting in AIM purely for the tax wrapper rather than the underlying investment case.
What this means if you're already holding AIM in an ISA
Selling everything and walking away isn't the right move for most people, and I'd push back hard on anyone telling you it is. A 20% effective inheritance tax rate on AIM holdings is still meaningfully better than the 40% rate that applies to most other assets outside a spouse exemption or the nil-rate band — it's a reduced relief, not an abolished one. The calculation that's actually changed is whether AIM's IHT advantage alone justifies the extra volatility and lower liquidity that comes with small-cap stocks, once that advantage has been cut in half.
Work out the number that matters to your own estate: take your AIM holding, apply 20% instead of the 0% you were expecting, and compare that tax bill against what you'd have paid holding the same money in a FTSE 100 tracker with no BPR relief at all (a flat 40% above your nil-rate band, once other exemptions are used up). For most portfolios under roughly £300,000 in AIM stock specifically, the maths still tilts toward keeping the holding — the 20-point advantage over standard assets outweighs the diversification you'd gain by selling into large-caps. Above that, especially if AIM makes up a large share of a wider estate already close to the nil-rate band threshold, it's worth running the numbers with an accountant rather than assuming the old logic still holds.
Where the £2.5 million cap changes the calculation
Anyone also holding unquoted trading company shares or agricultural land needs to look at the interaction, not just the AIM change in isolation. Because private company and agricultural assets keep 100% relief up to that combined £2.5 million cap, stacking large amounts of both alongside AIM shares can leave the AIM portion effectively “crowded out” of the best relief tier even though AIM was never eligible for the 100% rate to begin with — the cap applies to the other assets, not AIM, but a well-structured estate plan increasingly treats all BPR-qualifying assets as one pool to sequence correctly.
Practical steps for the next tax year
- Check the two-year clock on every AIM holding individually — shares bought after 6 April 2024 won't have qualified for relief at all until their own two-year anniversary, cap or no cap.
- Recalculate your estate's exposure using the 20% effective rate rather than 0%, and compare it honestly against a standard large-cap ISA held outside any BPR wrapper.
- If AIM was your only inheritance tax strategy, it's worth asking whether a mix of AIM shares, a pension (still largely outside the estate for IHT purposes, subject to its own 2027 changes), and gifting within the seven-year rule now does more work than AIM alone ever did.
- Don't assume every AIM-focused fund still qualifies for even the reduced relief — some AIM funds hold a mix of qualifying and non-qualifying stock, so check the fund factsheet rather than the index it tracks.
The AIM market itself hasn't collapsed — plenty of the underlying businesses are unaffected by a tax rule that only ever mattered to shareholders' estates, not to company fundamentals. What's changed is that AIM stopped being a near-automatic answer to inheritance tax planning and became one option among several, each worth pricing properly rather than assumed.