It is unlikely business property relief (BPR) will be removed from Aim shares in the upcoming Budget, according to Amisha Chohan, head of small cap strategy at Quilter Cheviot.
Assets which come with business property relief are exempt from inheritance tax if owned for more than two years at the time of the owner's death.
Business property relief was originally introduced to protect family businesses such as farms from being sold away from family members faced with a tax bill.
The rationale for including Aim shares was that such companies are often earlier stage and most in need of capital, but higher risk so the investor is rewarded with the inheritance tax break for incurring the extra risk.
But, unlike with Venture Capital Trust (VCT) or Enterprise Investment Scheme (EIS) tax reliefs, any company can list on Aim and receive the tax relief. There is no obligation for it to be innovative or higher risk, or earlier stage.
Chohan said: “The Institute for Fiscal Studies earlier this year estimated the removal could raise around £1.1bn in the current tax year, however, Grant Thornton recently reported that Aim companies contributed £35.7bn in gross added value in 2023, supporting 410,000 jobs.”
She believes that removing the tax break is unlikely, adding: “The looming Budget has kept the brakes on share prices of late and the snapback we expected earlier this year has been put on the back burner.
“We don’t believe an outright removal of business relief is likely. As such, the Budget will be the last hurdle to clear. If the tax environment remains in place, we should see liquidity return quickly and a relief rally take shape given the cash that has been parked on the sidelines of late."
She added: “Aim makes a significant contribution to GDP, tax revenues, the jobs market and international trade. Given the riskier nature of the businesses it needs an incentive for investors and with the struggles it and wider UK capital markets have faced of late, it would certainly be a bold decision to cut off a supply of investors to fledgling companies.”
Chohan believes that, in Aim companies, around 12 per cent of all the shareholders own the stock to capitalise on inheritance tax breaks, while the remaining 88 per cent of shareholders own the stock, in her view, for investment reasons.
She said abolishing business property relief on Aim shares would be immaterial for those shareholders and they would have no reason to sell.
James Baker runs the Chelverton UK Equity Growth fund, which is the absolute top performer in the IA UK All Companies sector over the past decade, and has some exposure to Aim shares.
He said many of the company management teams with whom he has spoken are “contemplating” exiting Aim and moving their company to the main London Stock Exchange.
Such a move would not restore the inheritance tax relief, but it would increase the liquidity of the shares as they would be listed on a mainstream exchange.
