The UK’s Alternative Investment Market (Aim) has shrunk to its smallest size in 23 years as business owners and investors anticipate an abolition of inheritance tax relief in the budget this week.
The accountancy group UHY Hacker Young calculated that 92 companies have delisted from Aim, London’s junior stock market, in the past year, reducing the total number of companies on Aim to 695.
Twenty-six companies have delisted from Aim since the general election in July, taking the total below 700 for first time since 2001.
UHY Hacker Young said the possibility that the chancellor, Rachel Reeves, would scrap inheritance tax (IHT) relief on Aim shares was hurting the index, with only 10 companies floating on the market in the last year.
The value of the Aim market has fallen by 6% since Labour’s election win on 4 July, while the blue-chip FTSE 100 index has been flat over the same period. Aim has fallen by more than 10% since Rishi Sunak called the election in May.
Under current rules, Aim shares qualify for business property relief, meaning they avoid IHT if they have been held for more than two years at the time of death. This has made them attractive to wealthier families, looking for ways to pass on more of their money untaxed to their descendants.
Colin Wright, a partner and the group chair at UHY Hacker Young, said: “As Aim experiences a further glut of companies leaving the exchange, the government needs to urgently address how it can help. Cutting IHT relief on Aim shares would do the opposite.”
He added: “With fewer companies now listed on Aim, and with fewer companies looking to join, the government should be looking at maximising incentives for both companies and investors in small caps.”
According to Dominic Tayler, the UK managing director at Oakglen Wealth, 15% of Aim shares are held through business relief-based funds for inheritance tax purposes.
Tayler says that Aim has been hit by a fall in liquidity in recent years, as investors have switched to passive, or tracker, funds that track the main market moves, and as pension funds have ignored smaller companies.
“Speculation around the removal of business relief for Aim in the forthcoming budget has compounded this. Not only is this bad for business, it also harms long-term savers who are the life blood of private investment,” Tayler said.
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This month, the British online retailer N Brown joined the ranks of companies leaving Aim, by accepting a takeover bid by Joshua Alliance, whose family control the company.
Alliance said N Brown was not benefiting from being listed on the Aim market, and would have to bear “significant costs” associated with its listing.
Research commissioned by the London Stock Exchange Group (LSEG) found that Aim companies contributed £68bn in gross value added to the UK economy last year, and paid £5.4bn in corporation tax.
In September, Marcus Stuttard, the head of Aim and UK primary markets at LSEG, wrote that Aim had helped more than 4,000 companies to raise nearly £135bn from investors since it was created in 1995.
Stuttard argued that Aim had made an important contribution to the UK economy through company tax contributions, creating jobs and expanding supply chains.
“As Aim turns 30, we should celebrate the success of companies past and present who have made such an important contribution to our economy. But it is vital that we protect the market and its structures so that companies in the future can continue to support this positive legacy of economic growth and deliver returns for investors and savers,” he added.