Enterprise investment scheme changes: how could they affect AIM?

In November 2017, the UK budget hinted at changes to the enterprise investment scheme and venture capital trusts. We discuss what this could mean for AIM investors, with Chris Boxall, from Fundamental Asset Management.

The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results

What could EIS changes mean for the investment landscape?

The biggest concern here is that business property relief could come under fire, as well as the rules governing the Enterprise Investment Scheme (EIS) and the venture capital trusts (VCT).

Many have worried for a while that the business relief rules are perhaps becoming overgenerous. For example, you can now benefit from relief when investing in a company the size of ASOS — a business with a market cap in excess of £4 billion — because it qualifies and is listed on the alternative investment market (AIM).

These worries are valid, and we may now be in a position where business property relief is being used in investments that it was never designed for.

Will this change investors’ attitude towards AIM?

Over £100 billion has been raised by AIM since its inception in 1995, and £5.5 billion has been raised in 2017 alone. Undoubtedly, the business property relief rules have attracted a lot of that investment, especially now that you can invest in AIM stocks within your ISA.

Ultimately, AIM has massively improved in quality in recent years. This has raised the question of whether it is right that all qualifying companies on the exchange have equal business property relief.

On the other hand, new measures could hurt investors who bought, what is now, a huge company early. If you bought ASOS ten years ago, when it was a high—risk stock, should you be punished just because your investment has turned into a multi—billion pound business?

What should AIM investors do?

If you are invested in a qualifying AIM stock, you should be keeping a close eye on its status anyway. The qualifying status of AIM companies changes regularly — if a company hoards excess cash, or starts making passive investments, for instance, it may no longer wholly qualify for business property relief. All that these potential changes mean is that you should be even more vigilant.

Take a look at the video above for our full interview with Chris, including how the government might proceed with changes to the enterprise investment scheme, venture capital trusts and business property relief. Also how some companies might not be using tax relief in the way the HMRC originally intended.

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