Five AIM shares for your ISA

If you want to invest without paying any tax, shares in the AIM index could be the best place to look

The Alternative Investment Market (AIM) has been a happy hunting ground for many private investors over the years.

The index is mainly comprised of relatively young, small(ish) companies that hope to grow fast in the future. Indeed, if you pick the right AIM share, you can make massive profits. For example, you could have bought shares in the online retailer, Asos, for as little as 5p ten years ago, yet the share price is now £48!

However, one problem has been that investors have not been allowed to stick any AIM share investments in their Stocks and Shares ISAs. So if an AIM share performs well, you might be liable for Capital Gains Tax.

The good news is that the rules have changed this month, and AIM shares can now go into an ISA.

That now means that AIM investments can be extremely tax-efficient. The ISA wrapper means you won’t have to pay any Capital Gains Tax or Income Tax while most AIM shares aren’t liable for Inheritance Tax as long as they’ve been held for at least two years when the shareholder dies.

And on top of all that, investors won’t have to pay any Stamp Duty on AIM share transactions from next year.

Don’t go mad

That said, I’m not suggesting that you go mad and shift all your savings into various AIM investments. Although some AIM shares have done spectacularly well, the AIM index overall is high-risk. Some businesses do very well, others go bust.

It’s also important to note that the regulation of the AIM index is lighter than for London’s ‘main market’ where all the big investment names are to be found, as well as plenty of smaller stocks.

There are plenty of companies on AIM where the bosses pay themselves a lot of money to achieve very little. Lighter regulation makes life easier for lazy or dodgy directors.

Still, the chance of big profits is attractive, so if you’re tempted to buy a few AIM stocks, here are five for you to consider:

New river retail

This is a well-run property company that invests in shops and small shopping centres.

The majority of tenants are either food stores – such as Sainsbury’s – or ‘value’ retailers such as Wilkinsons or TK Maxx.

The share price has risen a fair bit recently, but even at the current price of 240p, they still look attractive for the long-term. Last year, New river paid a dividend of 16p a share so that works out at a yield of almost 7%. Way better than a savings account!

I can only see one significant potential downside here. The number of empty shops could start to rise if online retailers kill off any more high street chains.

That said, New River’s experienced and savvy management team will probably be able to cope, and remember, the valuation of the company still looks fairly cheap.

Monitise

This is a fast-growing AIM stock that provides mobile banking and payments technology. More than 350 banks worldwide are customers and that includes a third of the top 50 banks in North America.

The business is growing fast and revenue almost doubled last year to £70 million.

At the current share price of 47p, Monitise is valued at around £725 million, so you could argue that the company is over-valued, especially as it’s not even profitable yet. Risky too.

However, we should see profits by 2015 at the latest, and if the business continues to grow at the current rate, the share price could go much higher.

Cello Group

Cello is a marketing company that primarily services the pharmaceutical and health sector.

It can help customers with market research and brand management among other things.

The current share price is 60p and the forecast dividend for this year is 2.1p a share, so if you buy now, you’ll be set to get a 3.5% yield. Growth prospects for the next few years also look good.

That’s because media companies often perform especially well in an economic recovery – as businesses become more confident, they’re often prepared to spend a lot more on marketing.

So if you think that the UK’s nascent economic recovery will continue, Cello Group could prove to be a good investment.

Motivcom

Motivcom operates in two areas – it can manage incentive schemes for a company’s customers or employees. And it also has an events management business.

It’s a particular favourite of one well-known fund manager, Mark Slater, who is the son of Jim Slater, one of the most famous British investors in the post-war era.

Slater likes the fact that the company generates plenty of cash and has a good management team. Dividends have also grown by 17% a year over the last five years.

Christie Group

My final AIM share is another property-related business. It’s involved in all aspects of commercial property including valuation, surveying, consultancy and finance.

Christie also has a non-property division which can help firms with stock control and the management of inventories.

The important point about Christie is that even after recent share price rises, it still looks fairly cheap. With a 75p share price, the company is valued at £19 million yet revenue is expected to be around £60 million this year. What’s more, the dividend will probably be around 2.1p a share which means shareholders will get a yield of just under 3%.

As the commercial property market revives, Christie should get more business, so this share could be a nice way to benefit from higher property values.

Be careful!

Please don’t rush to buy all five shares in one go. Take your time and find out more about these business. And if you decide to buy, just invest small amounts. Any share on AIM is pretty risky, and you should never make an investment purely because the tax situation looks good.