The London Stock Exchange has warned that removing inheritance tax (IHT) relief from AIM is “likely to result in significant market volatility.
That pain would be felt by large swathes of UK investors, not just those investing in AIM for IHT relief.
Research by Wealth Club shows that, as at the end of June 2024, £8.3 billion is invested in AIM by UK funds, accounting for around 16.5% of the AIM All-Share Index.
Of the 321 funds reviewed; 209 held at least one AIM quoted stock, 41 funds had more than 25% of the fund in AIM quoted stocks, twelve funds had more than 50% invested in AIM quoted stocks and the most exposed funds include many popular smaller companies funds.
Nicholas Hyett, Investment Manager at Wealth Club said, “There is a perception that pulling inheritance tax relief from AIM might be painful, but would only hit a handful of mega-wealthy investors looking to minimize their IHT bill.
“That view fails to appreciate the important role AIM plays in the wider UK investing landscape.
“AIM companies are young and high risk, but also innovative and fast growing. These businesses can be attractive investments in their own right – with around 17% of the AIM All Share owned by UK investment funds that do not qualify for IHT relief. Unsurprisingly, they are particularly popular with smaller company funds.
“In the event that pulling IHT relief from AIM caused significant volailtity and saw declines in valuation, these funds, including popular funds from managers like Liontrust and Marlborough, would not escape unscathed.
“A tax relief driven AIM-pocalypse would have far reaching consequences.
“Reputational scarring for the UK smaller companies sector, together with permanently lower valuations on AIM, could make it more expensive for UK small companies to raise capital from public markets. That not only makes UK companies less competitive, but increases the chances that our most ambitious companies will look abroad for funding.
“For a government that has set out to deliver growth a ‘growth agenda,’ that is not a good look.”
