It’s crunch time for Aim. As Budget day draws near, the debate over the junior market's tax status has grown more vocal and more vociferous. Think tanks have called for the scrapping of reliefs; brokers have defended their turf. As it stands, it looks like the former might win the day.
Under the microscope is the inheritance tax (IHT) exemption given to Aim stocks that qualify for business property relief and have been held for over two years. There’s an irony in the fact this could be withdrawn, or reduced, right after one of the worst periods of performance in the index’s history. Anyone who bought Aim shares three years ago with an eye on tax efficiency has, on average, come out worse off. Over the period, the Aim 100 has fallen 41 per cent – there goes that IHT saving.
The bulk of these falls came in 2022, when base rates started rising sharply. But it’s reasonable to think Budget fears are one reason the market has failed to keep pace with other domestic indices’ recovery this year. The FTSE 250 and Small Cap indices are both up 8 per cent, whereas the Aim 100 benchmark has dipped a further 2.5 per cent. A lack of clarity over which shares qualify for business relief – property businesses and “investment companies” are excluded, while HMRC confirms that a company is still eligible at the point of assessing the estate – may add to the confusion for worried investors.