The head of London’s junior stock market, the Alternative Investment Market (AIM), has urged the Government to take urgent action to halt a growing exodus of firms listing in the City, highlighting the damaging impact of the recent decision to cut inheritance tax relief on AIM shares. Marcus Stuttard, who leads AIM and UK primary markets at the London Stock Exchange, called on ministers to reinstate or at least provide clarity on financial incentives for AIM investors, as the change is seen as undermining the market’s appeal and long-term sustainability.
Stuttard highlighted that the Government’s plan to slash inheritance tax relief on AIM shares from 100% to 50%, effective from April next year, has already dealt a “major blow” to the market’s attractiveness for investors. The relief had been a key incentive, allowing investors to pass on AIM shares free of inheritance tax if held for at least two years. With this incentive halved, investors could face a 20% inheritance tax bill, up from no tax under the previous rules, creating concerns over potential sell-offs and reduced valuations.
The consequences are already reflected in the market’s shrinking numbers. AIM, launched 30 years ago to give smaller companies access to capital, has seen firm numbers dwindle dramatically—from about 1,700 companies in 2007 to fewer than 700 now. In the past year alone, 92 companies delisted, bringing AIM to its smallest size since the early 2000s. More than 60 firms with a combined market capitalisation exceeding £12 billion have announced their intention to leave AIM in 2025, moving to the main market, delisting, or being acquired by foreign investors. This trend underlines a worrying broader shift away from London’s junior market as companies seek alternatives amid rising costs and regulatory burdens.
The anticipated inheritance tax change also appears to have already depressed market performance. Between the Chancellor’s October Budget announcement and early April, AIM dropped 18%, significantly outpacing a 6% dip in the FTSE 100, underscoring a loss of investor confidence. Analysts warn that removing or reducing the tax relief could lead to irrecoverable damage, estimating a potential 20-30% drop in the junior market’s value and a loss of £14 billion to £20 billion in investor wealth. The chilling effect on valuations might deter small and medium-sized enterprises (SMEs) from seeking capital on AIM, pushing some overseas or into private hands earlier than they might otherwise have wished.
In response to these concerns, Stuttard emphasised the critical role AIM plays in the UK economy, providing companies a path from start-up stages to global business without having to sell out too early. He underscored a need for a “range of financing options” and warned of “more companies leaving than joining” in recent years, urging the Government to ensure “certainty” and reinstate financial incentives to bolster the market’s appeal. AIM’s function as a flexible and vital platform for growing businesses is further threatened by the combination of costs, regulatory complexity, and diminished investor incentives.
Stuttard also threw his weight behind the Government’s plans to increase pension fund investments in UK equities, stressing that domestic pension funds must back the UK economy. He said international investors recognise the quality of British SMEs, but it is crucial that domestic investors, including pension schemes, support these firms’ growth and fundraising efforts.
Industry voices, including investment bankers and analysts, warn of a looming “cliff edge” for UK small-cap stocks if the inheritance tax relief is further curtailed or abolished. Given AIM's historical role in raising over £136 billion and its contribution to broadening capital access, these developments have raised alarm bells about the future vibrancy of London's junior market. The market is now considering how it might evolve; discussions are underway without ruling out radical changes to aim to reverse or accommodate the current challenges.
The Government’s handling of AIM and associated tax policy adjustments will be pivotal in determining whether London's junior market can maintain its historic role as a vital financing hub for UK's smaller companies or if continued decline will accelerate firms’ migration towards larger markets or overseas alternatives.
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Source: Noah Wire Services