Aim companies warn over inheritance tax relief changes in the budget

More than 140 companies listed on London’s junior stock exchange have warned the chancellor that uncertainty over business relief for inheritance tax is harming investor confidence ahead of this month’s budget, according to reports.
Businesses including YouGov, Jet2 and Fevertree Drinks have written a joint letter to Rachel Reeves to urge the government to offer “clear support” for business relief from inheritance tax, to help support confidence in Aim, the alternative investment market.
The letter said the junior exchange had given innovative businesses the ability to access patient capital since it was established 30 years ago, according to a report by Sky News.
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The companies, which also included Arbuthnot Banking Group, Cake Box Holdings and Virgin Wines, said: “While there are a small number of specialist funds investing in companies listed on Aim, a significant percentage of our shareholder base is made up of individual investors.
“[Business relief] compensates those investors for some of the additional risks associated with investing in growing companies. This investment forms the foundation of Aim as a critical growth platform for smaller companies.”
Inheritance tax is levied at a rate of 40 per cent on an individual’s estate, including property, savings and investments, excluding pensions. There are, however, many allowances, including business relief.
Since 1996 most companies listed on Aim have qualified for this relief, which means that their shares can be passed down free of inheritance tax upon the death of the investor, provided they have been owned for at least two years at that time.
The Aim market could fall by 20 to 30 per cent if the tax relief is removed, according to analysis by the broker Peel Hunt, wiping out between £14 billion to £21 billion in shareholder value.
Octopus Investments, the investment subsidiary of Octopus Group which also owns the household energy provider, suggested the organisation of the letter to the chancellor, Sky News reported. The company has a big portfolio of Aim stocks through its inheritance tax service.
The investment bank Cavendish, which acts on behalf of around a quarter of Aim-listed companies, also encouraged many of the businesses to sign the letter, according to Sky News. The letter has been sent to other ministers at the Treasury, as well as the business secretary Jonathan Reynolds, according to the report.
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It comes as estimates suggest Reeves might have to raise an extra £25 billion from tax rises in order to honour Labour’s pledge not to return Britain to austerity. Abolishing business relief on inheritance tax could raise £1.1 billion for the Treasury, the Institute for Fiscal Studies, a think tank, has calculated.
The relief has been criticised for allowing wealthy individuals to minimise their inheritance tax bills by allocating a greater share of their estate to Aim-listed equities. While this means that their portfolio faces greater volatility, their Aim investments would have to fall by 40 per cent to match the inheritance tax levy.
Octopus Investments declined to comment. The Treasury and Cavendish were approached for comment.