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The future of the AIM market may face uncertainty if Business Relief (BR) is eliminated from shares listed on the junior market in the upcoming Budget, according to a warning from Julia Hoggett, the head of the London Stock Exchange Group PLC (LSE:LSEG). In a letter addressed to City Minister Tulip Siddiq, which was obtained by Sky News, Hoggett highlighted the fragile state of the small company sector and cautioned that removing this crucial source of capital could jeopardize the market's stability in the short to medium term.
Business Relief allows investments in qualifying assets, including AIM-listed shares, to be passed on without incurring inheritance tax. This measure is reportedly being considered as a key target for Chancellor Rachel Reeves, who aims to generate revenue for a new round of public spending.
Hoggett indicated that the announcement of BR's removal could lead to significant market volatility, as individual shareholders and inheritance tax funds might rush to liquidate their holdings in companies that have long benefited from BR. She expressed concern that this volatility could disproportionately affect share prices across the market, particularly given the illiquid nature of smaller companies.
The number of companies listed on AIM has been declining steadily in recent years, with approximately 704 companies currently valued at around £76 billion. Hoggett stressed the importance of maintaining a supportive funding environment, particularly in light of initiatives like PISCES aimed at bolstering the market.
AIM's challenges reflect broader issues facing the London Stock Exchange, with many companies opting to list abroad or move their quotes away from the City. Hoggett pointed out that AIM-listed companies contributed significantly to the UK economy, generating substantial gross value added and supporting hundreds of thousands of jobs.
She noted that the package of fiscal incentives, including EIS, VCT, and BR, was designed to address longstanding market failures, enabling companies to transition to the public market, raise capital, and grow within the UK. The removal of these measures could lead to a shift in focus toward larger, more liquid companies, restricting growth companies' access to vital equity capital in public markets.
Currently, over 660 AIM-listed companies with a combined market capitalization of approximately £73 billion are eligible for Business Relief, which has been a consistent feature of the AIM market. The potential removal of this relief raises serious concerns about the future viability and attractiveness of AIM for smaller enterprises.
