For those of you that have fallen foul of costly inheritance tax rules in the past, a recent ruling by the UK Treasury will be of great interest.

There are more than 1,000 companies listed on AIM (Alternative Investment Market) and all will now be eligible for direct ISA investment. The changes provide savers with a tax-efficient way to hold shares in SMEs that trade on AIM.

Many of shares listed on the London exchange for smaller stocks can be exempt from IHT subject to certain qualifying criteria being met.

Although ISAs have always effectively been tax-free, assets within them form part of their owner’s estate. On death, therefore, they may still liable for inheritance tax (IHT).

The Treasury recently announced that AIM shares will now be allowable assets within ISAs.

This means that investors will be able to hold such shares in a way that is free from income, capital gains and potentially inheritance taxes.

The benefits of this new rule for ISAs are clear. Inheritance tax planning involves reducing the taxable value of an estate by either giving away some capital, or putting it in trust.

By investing in AIM stocks, it should be possible to create a virtually tax-free ISA which is exempt from inheritance tax.

As ever, good advice around such a strategy is imperative, always consider the investment merits first and look at the tax benefits as an added bonus, not a reason to invest.

AIM shares in particular can be very volatile, investors need to be comfortable with this and look upon these assets as a long-term hold.

Don’t forget there are other ways to reduce inheritance tax. The key thing is to get the right advice.