Aim shares rally as tax fears are eased

Shares in companies trading on the Alternative Investment Market (Aim) rallied after the chancellor decided to halve the rate of inheritance tax (IHT) relief, rather than scrapping it. This means the effective rate of IHT on the disposal of shares held for longer than two years will be 20 per cent.

Expectations that the relief would be abolished in its entirety had led to a sell-off in shares in recent weeks, with the Aim All-Share index dropping 7 per cent since July's general election, compared with a flat performance for the FTSE All-Share index and a 1 per cent gain for the FTSE Small Cap index.

The relief has been in place since 1996 and broker Peel Hunt expected a “material loss” in shareholder value if it were scrapped. It estimated that Aim shares could fall by 20-30 per cent, equating to a destruction in value of between £14bn and £21bn.

However, the retention of 50 per cent relief was deemed positive, with the Aim index rallying by 4 per cent in the wake of the chancellor’s announcement. Some shares witnessed material gains, with software company Craneware (CRW) climbing 24 per cent, cybersecurity firm GB Group (GBG) by 11 per cent and flooring manufacturer James Halstead (JHD) 8 per cent.

Clifford Gross, chief executive of university spin-out investor Tekcapital (TEK), said fears about the fate of the market “have proved overblown”.

“With this hurdle now mostly cleared, and interest rates beginning to fall, there is a clear runway for growth for these smaller companies,” said Amisha Chohan, head of small-cap strategy at Quilter Cheviot.

Yet although the government “did not quite throw in the hand grenade” that Aim investors expected, the halving of relief would still make investing in Aim shares less attractive, said Abby Glennie, manager of Abrdn’s UK Smaller Companies Fund.

James Ashton, chief executive of the Quoted Companies Alliance, added that it would “do nothing to reverse the recent trend of outflows”.

“Increasing capital gains tax on the profit from shares is another blow to stock market investment, as is freezing ISA limits for another five years," he added.