Investing in Alternative Investment Market (AIM) companies to mitigate against inheritance tax (IHT) is not a new phenomenon, it has been possible for decades. However when the rules changed in August 2013 to allow investors to hold AIM stocks through an ISA, investment within the space gathered pace.

With over £500bn invested across 22 million ISA accounts today, the rule changes opened up the market for providers to raise assets from a previously inaccessible marketplace.

Driven by the ever growing IHT problem for UK investors – IHT receipts have increased 60% in the last five years –  the number of AIM IHT products in the space has risen dramatically over the last few years, with well over 20 different providers now offering AIM-based solutions.

As valuations rise to new heights there has been concern over the potential for a bubble driven by IHT money flooding into the market.

Although there are over 1,100 companies listed on AIM, not all of them qualify for Business Relief, the government legislation which allows IHT mitigation. This has led to a concern that a wall of money is chasing a limited basket of stocks and should the rules surrounding Business Relief change, it could have implications for investors.

So could a potential bubble appear in certain stocks driven by investors seeking to avoid IHT?

Although a significant amount of money has been invested in AIM for the purposes of IHT planning, broadly somewhere in the region of £500m, it needs to be looked at in context of the wider investment landscape for AIM.

There have been a number of other factors driving increased interest and investment within AIM, that have nothing to do with IHT planning. For instance the abolishment of stamp duty on AIM shares in 2014 also had a positive impact, making investment within AIM even more attractive to a wide range of investors.

The market itself has changed and matured considerably over the years. Now in its 21^st year the AIM Index has a combined market capitalisation of circa £75bn offering access for investors to a huge range of businesses in over 40 different sectors.

Many of the businesses listed on AIM are attractive to a wide range of investors who are investing in AIM purely on its investment merit, not related to IHT mitigation. If you look at the top 20 shareholders in the largest 50 companies on AIM you will find a broad range of around 400 different asset managers and investment managers invested.

As you might expect with these larger, quality businesses valuations can look more expensive than the rest of the index. The average Price/Earnings for the AIM All Share Index is 20.9 times, compared with 28.1x for those companies with a market cap of between £500m and £1bn and 43.6x for those over £1bn. However within a market such as AIM, with over 1,000 constituents, that is hardly surprising.

Chris Hutchinson, director at Unicorn Asset Management, suggests that despite high valuations, the longevity and durability of many of these businesses provide reassurance that he is not investing in bubble stocks. Stocks such as James Halstead, a favourite with many IHT investors, is a great example. A family run business over 100 years old, it has a track record of paying a growing dividend for the last 40 years. It’s a good cash generative business that is attractive to a wide range of investors, not just those investing for IHT purposes.

As for any changes to the rules surrounding Business Relief, it is impossible to say with any certainty how things will unfold in the future. With a Conservative government in power for the foreseeable future it seems improbable that things will change anytime soon.

However, should changes occur in the future, businesses such as James Halstead that were there before the existence of BPR will no doubt continue to flourish with the support of a wide range of investors.

Jack Rose is head of tax products at LGBR Capital