Over the last decade, AIM has developed into the most successful growth market in the world.
The Alternative Investment Market opened for trading in 1995 with just 10 companies. Now it comprises over 1,500 companies with a market value of about £80bn.
A key driver for the Alternative Investment Market’s (AIM) growth has been its simplified regulatory environment which allows AIM-listed companies to access public markets with less red tape and lower cost. This helps directors concentrate on growing their businesses and maximising value for shareholders. Once dominated by high-risk micro-cap stocks, the perception and make up of AIM has now changed. Institutional investors now make up over 40% of the market; but it is the private investor who benefits from the unique tax breaks given to stocks traded on London’s junior market.
The tax benefits
HMRC classifies AIM-listed securities as ‘unquoted for tax purposes’ and, provided that the company in question is deemed to be a trading company (i.e. not an investment company), these shares may qualify for Business Property Relief (BPR). If held for not less than two years prior to death the shares will not form part of an individual’s estate for inheritance tax purposes. In addition, BPR will apply if one qualifying stock is sold and replaced with another, provided that the aggregate holding period is two years out of the five years prior to death. This means that an investor can make investment switches without restarting their BPR clock and losing the IHT benefits.
Many AIM stocks also attract Business Asset Taper Relief for CGT purposes. This means that once a share has been held for two years, any profit made in its disposal is subject to only 10% CGT.
Investing in AIM
Whilst AIM has grown in stature and importance, around three quarters of its constituent companies have a market value of less than £50m. Therefore, careful research and a clear investment policy is required to ensure that investors are protected against risk. By investing in a portfolio of the more established well traded stocks, investors are able to gain access to companies with potential for growth whilst the investment risks more commonly associated with AIM can be diversified.
It is also possible to take out life insurance to cover the two-year period prior to the IHT exemption being triggered. Finally, there are ways to hedge against losses and we will shortly be able to offer a capital ‘lock-in’ service for new and existing AIM holdings.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
