In the fast-paced world of business and finance, tax policy plays a crucial role in shaping the growth of industries and individual companies.
Unsurprisingly, we don’t have a crystal ball to predict what’s coming in the Autumn Budget. But from media reports, we know that one policy firmly in the spotlight is the inheritance tax (IHT) relief on AIM-listed shares. And while abolishing this relief could raise an estimated £1.1 billion for the Treasury, it also potentially risks slowing down the growth of Britain’s high-potential businesses.
If Rachel Reeves announces changes to IHT relief, as many suspect she will, there could be a major negative impact on AIM-listed companies, investors, and the UK economy. Preserving this relief might be key to fostering innovation and productivity, especially when the UK needs it most.
Impact on High-Growth Companies
AIM, the Alternative Investment Market, has long been a critical platform for small and medium-sized enterprises (SMEs) in the UK. It offers a flexible and less regulated environment for companies seeking to raise capital. Companies like ASOS, Fever-Tree, and Hotel Chocolat have grown their brands through AIM, benefiting from investor confidence.
The prospect of abolishing IHT relief on AIM shares raises concerns among industry experts. Some suggest that scrapping the relief could lead to lower valuations for AIM-quoted stocks. In turn, this could make it more expensive for UK companies to raise funds, discouraging future listings and potentially driving businesses overseas.
With AIM already facing challenges such as a decrease in flotations and a wave of delisting, removing IHT relief could further stifle this crucial engine for growth.
Potential Setback for the UK’s Growth Agenda
The UK government’s primary mission is to deliver higher sustainable growth. However, removing IHT relief on AIM-listed shares could inadvertently counteract this goal. Warnings of such a move would undermine the growth prospects of UK companies at precisely the time the government is seeking to stimulate economic progress.
AIM has historically been a vehicle for channelling capital into smaller, innovative businesses, firms that drive productivity and innovation. By raising the cost of capital for these companies, the UK risks slowing down the very innovation it aims to foster, jeopardising its global competitiveness.
Balancing Policy with Market Realities
Critics of the IHT relief argue that it leads to “distortionary” behaviour, with wealthy individuals using AIM shares to minimise their inheritance tax liabilities.
However, it’s important to recognise the purpose behind this tax relief—to incentivise investment in early-stage businesses that often face funding challenges.
The question policymakers must grapple with is whether the £1.1 billion potential gain from abolishing the relief outweighs the risk of discouraging investment in the UK’s start-up ecosystem. While reforms may be necessary to prevent misuse, a complete abolition could be a step too far, curbing the growth of businesses that will define the future of the UK economy.
Preserving AIM’s Role in UK Innovation
At its core, the debate over IHT relief for AIM-listed shares isn’t just about taxation; it’s about the future of the UK’s most innovative businesses. The Alternative Investment Market has been a springboard for high-growth companies, driving productivity and economic progress.
Scrapping the inheritance tax relief would raise much-needed revenue, but it could come at the cost of stifling the growth of businesses critical to the UK’s innovation pipeline.
As AIM faces the combined pressures of market volatility and changes in investor behaviour. Given AIM’s role in supporting Britain’s growing enterprises, policymakers may want to consider a balanced approach. This could involve preserving the incentives for investment while also addressing concerns surrounding the potential misuse of relief.
By keeping AIM strong, we keep the UK’s economic future on track.
