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Highlights
London Stock Exchange's junior market faces company departures amid tax changes
Reduction in inheritance tax relief seen as a key driver of outflows
Calls for UK pension funds to increase support for domestic firms
The FTSE AIM UK 50 INDEX has come under focus as concerns mount over the declining number of companies maintaining listings on the London Stock Exchange’s Alternative Investment Market (LON:AIM). The sector, known for supporting small and mid-sized enterprises, is grappling with a shift away from the domestic market, driven partly by policy changes.
Impact of Tax Policy on Market Sentiment
A recent government decision to reduce inheritance tax relief on shares listed on AIM has raised concerns across the market. Previously, full relief applied, but the new approach will halve this from next April. Industry voices have highlighted this change as a key reason for companies reevaluating their presence on the junior market.
The appeal of AIM-listed shares had previously included inheritance tax efficiency, which is now being eroded. The change is expected to influence shareholder sentiment and reduce incentives for long-term holding of AIM securities.
Decline in Listings Across the Junior Market
Market data indicates a trend of delistings and exits by companies on the AIM board. Firms have increasingly chosen to either migrate to the main market, opt for foreign exchanges, or accept acquisition offers, particularly from international entities. Over the past couple of years, there has been a noticeable imbalance, with fewer new listings than those exiting.
This downward shift raises questions about the competitiveness of the London market relative to its global counterparts. Stakeholders have pointed to structural changes, corporate activity patterns, and now tax policy as compounding factors.
Call for Government Intervention and Investor Support
Officials from the London Stock Exchange, including leadership of AIM and UK primary markets, have called for the reinstatement of financial incentives to bolster AIM’s attractiveness. They emphasise the role of consistent and supportive policy in enabling smaller firms to raise capital and grow within the domestic economy.
In addition to tax adjustments, market leaders have endorsed the government’s intention to channel more domestic pension fund capital into UK-listed companies. There is a shared view that institutional capital can play a pivotal role in supporting innovation, employment, and business expansion across the FTSE AIM 100 Index.
Sector’s Role in the Broader Market Ecosystem
Since its inception, AIM has provided a crucial avenue for businesses seeking funding without the scale requirements of the FTSE 100 or FTSE 350. The flexibility and regulatory framework have traditionally appealed to entrepreneurial firms, though that position is increasingly being challenged.
Stakeholders believe that without renewed government backing and investor engagement, the UK's reputation for supporting emerging businesses could diminish. The reduction in inheritance tax relief marks a significant shift, altering long-held assumptions about the benefits of AIM participation.
The London Stock Exchange’s junior market remains a vital component of the UK’s financial landscape, but recent developments underscore the need for policy clarity and consistent support to maintain its viability.
