Should you hold AIM shares in an ISA? However, until 5 August they had one significant disadvantage: Such a surge in interest is not surprising, since the revised rules make AIM shares a very tax-efficient investment. Most AIM-listed companies are already exempt from Inheritance Tax as long as they have been held for at least two years, unlike shares listed on the main exchange the main exceptions are companies in a few ineligible business sectors and those that are also listed on some overseas stock exchanges.

The ability to hold AIM shares in an ISA means that no income tax will be payable on dividends from those shares, regardless of the shareholder's tax status, while proceeds from selling will be free of capital gains tax. In general, AIM shares tend to be riskier than those with a full stock market listing. The requirements for joining AIM are less stringent than for the main market. In addition, a higher proportion of AIM stocks belong to riskier sectors such as energy and natural resources.

Of course, small companies can offer the potential for large capital gains if all goes well, and investors will benefit from being able to avoid tax on these gains in future. However, such holdings should only form a small part of a diversified portfolio. Having said this, it is worth remembering that there are a number of established, profitable companies that grew up on AIM and have continued to be traded there rather than transferring their listings to the main market.

In the past, the AIM status of these stocks has made them less appealing, since they could not be held in the most tax-efficient way. Now that the rules have changed, you may wish to consider whether they could make better alternatives for your ISA than some of the more famous shares on the main market.

Among the more established AIM companies, the most famous is arguably ASOS LN: ASC , the online fashion retailer. Please note however that past performance is not a guide to future performance. Luxury goods retailer Mulberry LN: MUL is another household name that has chosen to stay on the junior market for now. These may be more attractive for conservative investors looking to maximise their tax breaks.

Such firms include wine and spirits retailer Majestic Wine LN: MJW , which has been listed since It offers a forecast dividend yield of 3. Commercial flooring manufacturer James Halstead LN: JHD may not sound very exciting, but it has a remarkable record of raising its dividend every year for 36 years. It trades on a forecast yield of 3. Ceramics manufacturer Portmeirion Group LN: PMP is smaller, but controls strong brands — apart from the eponymous line, it also owns Royal Worcestor and Spode.

It currently yields a forecast 3. Remember that investments can fall as well as rise and you may get back less than you invested.

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Investing Ideas Should you hold AIM shares in an ISA? Should you jump on the AIM bandwagon? What to do next and how Barclays can help Among the more established AIM companies, the most famous is arguably ASOS LN: Close We use cookies to help provide you with the best possible online experience. By using this site, you agree that we may store and access cookies on your device. Find out more in our Cookie Policy and change your Cookie Settings.