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AIM stocks

Answered by Angus Rigby

4 February 2008 [0 comments]

Q:

My individual savings account (ISA) and personal equity plan (PEP) investments are held in Barclays Stockbrokers’ nominee services. During a recent reshuffle of my bank details, the dividends, which until that time had been paid regularly into my nominated bank account, were not paid and were held within my ISAs and PEPs. The interest thereon, plus the proceeds from an enforced sale, then became subject to a tax charge, as Barclays Stockbrokers said that cash could not be held within ISA/PEP accounts. The sums were not on hold for a long period, only a matter of weeks, and as a tax-free vehicle it seems petulant to impose tax. Had these been reinvested, no tax would have been due, so why should tax have to be paid on interest?

In addition, when I first opened this account I bought shares in three AIM-listed companies. This was done on the internet using Barclays Stockbrokers’ buying ‘engine’, which permitted me to buy these stocks. A few months later I was told that the Treasury does not permit AIM stocks to be held in ISAs. This enforced the sale at a time I would not have chosen to sell. Is this a new regulation? Barclays’ ‘engine’ should surely have been set up not to accept AIM-listed companies. Another stock I held reverted to listing on AIM, forcing me to sell this one too. Surely this is totally restrictive and contrary to the intention of the ISA beast?
Pat Lean, via email

A:

Angus Rigby replies:
Dividends paid within an ISA are free of income tax, but any interest earned on uninvested cash held within an ISA is subject to a 20 per cent tax charge. HM Revenue & Customs (HMRC) rules state that cash can only be held within a stocks and shares ISA for the purpose of investment, and the 20 per cent tax charge is imposed by HMRC to deter investors from holding cash within this product.

With regards to the AIM stocks, HMRC clarified its position on whether shares listed on AIM were a qualifying investment for ISAs and PEPs in April 2006. The general rule is that a share is a qualifying investment for PEPs and ISAs if it is officially listed on a recognised stock exchange, which, for tax purposes, AIM is not. Therefore, for an AIM stock to be a qualifying investment it needs to be listed on another exchange that is recognised.

Basically, this means that some AIM stocks can be held in ISAs, while others cannot. It is also possible that an individual stock will lose its qualifying status over time. It would then need to be sold if it was held within an ISA. This explains why you were able to purchase an AIM stock within your ISA, but had to sell when the stock lost its qualifying status.

HMRC doesn’t publish a list of qualifying investments – they simply produce guidelines that are interpreted by TISA (the Tax Incentivised Savings Association), which, in turn, give brokers advice about the status of individual stocks.

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