AIM, IHT and ISAs – The Autumn Budget Acronyms and How They Impact London’s Stock Exchanges

The end result, after months of speculation, was something of an anticlimax. Instead of removing the relief in its entirety, Rachel Reeves halved the relief. This means that, while AIM-traded shares previously attracted no inheritance tax, they will now attract a rate of 20% (assuming they are held for at least two years), instead of the full rate of 40%. This is in addition to the exemption of AIM-traded stock from the stamp duty regime (as is also the case for shares traded on the Aquis Growth Market).

In fact, the AIM FTSE 100 reacted positively to the news, jumping 132 points and negating the losses that had accrued during the period of Budget uncertainty. The market had priced in an expectation of IHT relief being removed entirely, so this correction represented a sigh of relief that there remained at least some relief to help promote AIM as an option for tax-planning purposes. A much worse scenario, where a huge potion of AIM’s value would likely have been wiped out, had been predicted if the IHT exemption had been scrapped entirely. Whether the post-Budget gains can be maintained remains to be seen.

The freeze on the cap for ISAs – Individual Savings Accounts where interest accrues tax-free – for another five years will also provoke a mix of comfort and frustration for investors. While there had been fears that the cap would be reduced from the current amount for adults of £20,000, or a lifetime limit imposed, the status quo has instead been maintained. This sounds sensible on paper, but in the same way that inflation means that more people are dragged into higher income tax brackets when thresholds are frozen, so too will frozen ISA caps make saving into ISAs less attractive without any inflation-busting mechanism attached to them. As shares can be held in ISAs as part of an individual’s annual ISA allowance, making them less attractive has a direct impact on whether investors choose to invest in shares as a tax-effective option.

James Ashton, Chief Executive of The Quoted Companies Alliance, has referred to the Budget as “a missed opportunity to do more for the small and midcap stocks”, criticising increased capital gains tax rates on profits from shares and frozen ISA limits as “another blow to stock market investment”. It is clear that the government needed to raise a huge amount of money to fund public services, and that it has tried to find ways to do this that do not have a direct impact on “working people”; but it is just as clear that the indirect effects of the tax hikes will pack a punch on businesses and employees for years to come. For businesses, including those trading on London’s stock markets, more needs to be done to encourage investment, stemming the trend of outflow to other jurisdictions. Reducing incentives, increasing taxes and capping ISA limits may be necessary for the sake of the public purse, but it won’t do anything to actively encourage investment in the UK’s listed companies without introducing further incentives for investors.

There may, however, still be green shoots. We are seeing an increasing number of companies looking at London for new listings. As a Corporate team, we have advised clients on five AIM secondary fundraisings over the past 6 months, raising on average £10 million each. Despite the noise and the challenging environment, good companies are still finding an appetite for investment, and we do expect to see this trend increasing in the new year. It will be interesting to see whether the Budget has any impact, or whether, after all those months of waiting and wondering, it remains business as usual.