The government has been urged to support the alternative investment market (AIM) following changes to the inheritance tax (IHT) treatment of AIM shares.

In the Autumn Budget, the government announced that AIM shares would lose their 100 per cent business relief status, with a new business relief being put in place that would subject AIM shares to 50 per cent of the normal IHT rate from April 2026.

As a result, UK stocks listed on AIM will have a 20 per cent IHT applied to them as the government seeks to raise up to £2bn.

While the changes were not as drastic as some feared they might be, Quilter Cheviot said the government must now support the market to help drive positive sentiment in UK growth companies.

The wealth manager said it had identified three ways, ahead of the Spring Statement, the government could improve sentiment in UK smaller companies and benefit wider capital markets.

“Firstly, the government should commit to maintaining the new tax position on AIM for at least a decade, as it has done with the enterprise investment scheme and venture capital trust market,” stated Quilter Cheviot head of small cap strategy, Amisha Chohan.

“Investors crave stability more than anything, so knowing the tax environment they are operating in will go a long way to ensuring AIM stocks remain competitive and attractive. As we saw in the run-up to last year’s Budget, any uncertainty will just freeze the market and suppress growth.”

Additionally, Chohan noted that the government announced it was bringing unspent pensions into scope of IHT at the Autumn Budget, and there was a “real grey area” of uncertainty if AIM shares held within a self-invested personal pension (SIPP) will receive the 50 per cent business relief or face being taxed at the 40 per cent IHT rate from 2027.

“We need clarity that AIM shares in a SIPP will qualify for the 50 per cent business relief, as otherwise you create divergent investor outcomes,” she argued.

“It may be cumbersome for HMRC to implement, but it needs to happen to ensure fairness and proper application of the rules.”

Finally, Chohan warned that the new tax regime ultimately disadvantaged AIM shares compared to unlisted portfolios, which have maintained 100 per cent business relief up to £1m.

This could result in investors shifting their assets out of AIM and into unlisted portfolios to benefit from the higher relief, although this would create risk as these portfolios are “often illiquid, lack transparency, and expensive”.

“The potential for customer harm, therefore, has increased while the playing field is uneven,” Chohan continued.

“While it is unlikely AIM shares will see any reversal of the business relief changes, it is important the government creates a fair and balanced investment environment that does not put investors at undue risk.”

Commenting on the AIM changes announced in the Autumn Budget and their impact, Chohan said: “The changes announced in October are due to implemented next year, but already we are seeing AIM shares suffering as a result.

“Profit warnings are being issued that we wouldn’t usually expect, and companies are questioning whether being listed on AIM brings enough benefit.

“AIM shares contribute a great deal to the UK economy and are our companies of the future. There have been a number of success stories on the junior market, including several that have graduated all the way up to the FTSE 250 over the years.

“However, these companies now face an uneven playing field with their unlisted, and illiquid, counterparts as a result of the rule changes.

“We do not want to see this vital market stifled at a time when the UK capital markets need revitalising. There are some really easy wins for the government to help do this and stabilise the market, with the potential for capital to return over the medium-term as the economic outlook improves.”

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