Investors abandon small businesses over fears of inheritance tax

Investors have sold their shares in Britain’s Aim Stock Market due to fears of an IHT raid.

Aim shares, which are intended to encourage small business investment, are exempted from inheritance tax if the owner holds them for at least two years prior to their death.

Rachel Reeves, the chancellor of the UK, is thought to have plans to cut or scrape this perk entirely in Wednesday’s Budget.

Since the election, the Aim index is down 11.5%. This represents a loss of £5.9billion in value for the companies listed on the Aim. The FTSE 100 index, which represents the largest companies, has remained flat during the same time period. However, the FTSE 250 index is down 4.2 percent.

Simon French, Chief Economist at Panmure Liberum said that the anticipated change in IHT for Aim shares has already pushed down the prices on the junior market. The junior market was created in 1995 in order to allow smaller companies to list their shares with less restrictive rules than the main London Stock Exchange market.

The increase in capital gains tax is also a warning to entrepreneurs who face a higher tax rate when they sell shares and will discourage investors.

Ben Thompson, the deputy chief executive at the Aim-listed Mortgage Advice Bureau said: “Any raid by the Government on Aim could suppress investment in some the UK’s entrepreneurial companies.”

Tim Warrillow is the founder and CEO of Aim-listed Fever-Tree drinks. He said that, while investors have stuck with Aim, the lack of clarity about the government’s plans for IHT relief has undermined confidence in Aim. This is the exact business and investor trust that Aim had been so keen to assure us that they were aiming to restore.

Ami Daniel is the founder of Windward, a shipping software company that is also listed on Aim. He said he was aware of people selling or preparing shares. Daniel said that the potential tax changes have thrown Aim off the rails. He also added that he has heard wealthy entrepreneurs discussing moving their money outside of the UK.

Charles Hall, the head of research for broker Peel Hunt said that shares in Aim fell more quickly than other larger stocks. This was “largely due to inheritance tax concerns”.

Reeves was also warned by nondoms, those who don’t pay taxes on their foreign assets. Her reforms would cause an exodus for wealthy people now facing unexpected IHT bills.

A collection of Scotch Whisky in Edinburgh. A trade association warns against any further increase in alcohol duty

Entrepreneurs can also pay capital gains at a 10% rate for the first £1,000,000 of gains. The previous Conservative government reduced this from £10m, but an influential group found that it would be more beneficial to increase the amount. According to a survey by the entrepreneur group Helm of 400 business owners, 50% would hire more employees if relief was increased.

Just days before the Budget, other industries have intensified their warnings regarding the potential impact of tax increases. Former British Airways chief executive, Willie Walsh, said that an inflation-busting rise in air passenger duty would undermine Britain’s competitive position. The British government needs to understand that they are in a race against other countries for investment in aviation, said Willie Walsh who is the chair of the industry lobby group International Air Transport Association.

The Scotch Whisky Association has also warned against any further increases in alcohol duty, after former chancellor Jeremy Hunt imposed a 10.1% increase last year.

A Treasury spokesperson said: “We are committed to supporting businesses including Scotch Whisky producers by capping corporation taxes at 25% and publishing a roadmap for business tax so that future investment can be planned in confidence.”

We do not comment on tax speculation outside of fiscal events.