AIMing for quality: tax benefits help drive a boom in the AIM stock market

The records are tumbling on London’s junior stock market, AIM. There are increasing numbers of billion-pound companies and dividends are increasingly common. Tax benefits are just one reason for AIM’s success.

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There are now a record 17 AIM-listed companies that individually have a market capitalisation in excess of £1 billion. Other recent records for London’s burgeoning AIM junior stock market include one in three listed companies now paying a dividend and a record amount is now invested in stocks on the exchange under an inheritance tax reduction scheme.

When AIM was launched as the Alternative Investment Market in June 1995, it would have been unthinkable that there would have been billion-pound companies that would be happy still being listed on the exchange, let alone a business that paid a dividend. But this is at the very centre as to why AIM, as it is now called, has been such a success.

At that start date there were ten companies listed and the sum total of the market capitalisation was £82 million. It was an unregulated market for small start-up businesses and, while that reputation remains, the rules have been reclassified under MiFID (Markets in Financial Instruments Directive).

Most of the original tax perks also remain for the founders of AIM-listed businesses. Those who retain an interest in their businesses by owning shares are reluctant to move that business onto the main market of the London Stock Exchange (LSE).

The first company to reach the billion pound mark was e-commerce fashion retailer ASOS. While it remains the biggest listing on the market, it has since been joined by 16 others.

Another tax perk is an exemption from inheritance tax for a sizable majority of shares on AIM. This is because they are counted as being unquoted and under the Business Property Relief (BPR) rules, shares in unquoted businesses are exempt from inheritance tax (IHT). The holdings qualify as long as they are held in the estate for two years at the time of death.

A recent review by the Chancellor of the Exchequer, Philip Hammond, into how IHT can be restructured or simplified did look at the tax rules around AIM shares, although the Treasury has confirmed that IHT exemptions will remain.

This will go a long way to encourage more people to reduce their IHT bills. A record £710 million was shielded from IHT in 2017/2018 through investments made in unlisted companies and other business assets on AIM. Latest figures show that taxpayers paid £5.3 billion in inheritance tax in 2017/2018, up from £4.7 billion in 2016/2017. This suggests that there is scope to use BPR to further lessen tax bills.

So AIM’s positioning as a market for larger, more mature businesses continues and, undoubtedly, more and more records will be achieved. The only worry is that its very success may cause the authorities to take another look at the regulation and tax advantages available.

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