Aimzine is a FREE online magazine for investors and everyone involved with AIM companies. If you are not already registered to read Aimzine please click here

The removal of Taper Relief from April 2008 has meant the loss of a considerable tax benefit for AIM investors. We can only speculate as to what extent this incredibly ill-timed change has contributed to the under-performance of AIM in recent times. However, despite the loss of Taper Relief there remain some significant tax advantages for the AIM private investor.

In this article we provide notes on FOUR areas where tax relief may be available to investors in AIM companies. At the foot of the article there are links to further sources of information. In particular the London Stock Exchange Guide to AIM UK Tax Benefits is recommended to anyone wishing to delve further into this subject.

We must stress that tax matters can be complex and there are numerous detailed rules, maxima, minima, time limits and many other factors to consider. Aimzine are not experts in the tax field and this article is only an introduction to this subject. Readers should not act on the information here without further thorough investigation and/or professional advice.

1  Inheritance Tax (IHT)

Investments in qualifying AIM trading companies can attract 100 per cent Business Property Relief (BPR) from IHT provided that the investment is held for at least two years before a chargeable transfer for IHT purposes. This relief can be very valuable for Inheritance Tax planning.

Not all AIM companies are eligible for BPR. To qualify, a company must be a trading company carrying out the majority of its business in the UK. Businesses trading in land or securities, or receiving a substantial amount of income from letting property or land, are excluded. Also, the company must not be listed on another recognised stock exchange. If a company qualified for IHT relief when the shares were bought, but was subsequently disqualified under these criteria, investors must reinvest their holdings into new qualifying shares within six months to retain the BPR exemption.

There is further useful information on Business Property Relief on the HM Revenue and Customs website here. The regulations are complicated, so specialist advice is recommended.

2  Capital Gains Tax (CGT)

There is no general CGT relief for gifts (although transfers between husband and wife are on a no gain no loss basis). However, if shares in an AIM trading company are transferred, other than at arm’s length (read Wikipedia on the Arm’s length Principal here), the deemed capital gain arising can be ‘held over’. Hence, the CGT liability is postponed until a subsequent arm’s length disposal by the transferee, who effectively inherits the transferor’s base cost.

This relief is particularly useful for the transfer or gift of shares within families. There is no maximum or minimum holding required but the transferee must be resident or ordinarily resident in the UK and remain so for six years. This relief does not apply to a gift of shares to a company.

3  Enterprise Investment Scheme (EIS)

EIS provides generous benefits to investors who subscribe for new ordinary shares in AIM companies which qualify as trading companies. As an example, shares purchased in the recent Henderson Morley Open Offer can potentially qualify for EIS relief – see this month’s Aimzine feature on Henderson Morley here.

A company is limited to raising £2 million in any 12 month period through EIS (and other venture capital schemes**).

The benefits available from EIS investments are:- 

1. 20 per cent initial income tax relief on Investment providing that the investment remains qualifying and is held for three years.
2. Exemption from Capital Gains Tax on disposal
3. Loss relief if the investment fails or is disposed of at a loss
4. Investors may defer Capital Gains Tax by re-investing their gains in subscriptions for new ordinary shares in qualifying companies

We found the HM Revenue and Customs guide to EIS helpful – please click here to access this guide. Both the Investors and Company sections of the guide are worth studying.

**The other Venture Capital Schemes are the Corporate Venturing Scheme (CVS) and the Venture Capital Trust (VCT) Scheme. CVS has been described as the equivalent of EIS for companies. Venture Capital Trusts, on the other hand, are fully listed companies which invest primarily in unquoted trading companies, which can include shares in qualifying AIM companies. More information on VCT’s and CVS can be found in the LSE/Baker Tilly guide to AIM UK tax benefits – see ‘Acknowledgements and further Information’ below.

The regulations are complicated, so specialist advice is recommended.

Shares purchased in the recent Henderson Morley Open Offer can potentially qualify for EIS relief

4  AIM Shares in ISA’s

Most of the tax advantages for AIM shares are those which relate to investments in qualifying unquoted companies. Companies traded on AIM are regarded by HM Revenue and Customs as unquoted for this purpose. However, some companies listed on AIM are also traded elsewhere on an exchange designated by HM Revenue and Customs and therefore may not qualify as an unquoted company.

However, it should be noted that AIM shares which are also listed on a recognised stock exchange may be treated as qualifying investments for the stocks and shares components of PEP’s and ISA’s. We are not aware of any definitive list of ISA eligible shares and we have found that some brokers are not clear (putting it politely) on the rules here.

Acknowledgements and Further Information

We are grateful for the following excellent sources of information, which have been most helpful in producing this article. We strongly recommend the excellent London Stock Exchange/Baker Tilly document to anyone wanting to learn more about the tax benefits of AIM. The City One document is also well worth reading as it looks at the wider subject of Private Equity. This document also includes some helpful EIS examples.

The Inside Guide to Private Equity – City One Securities

A Guide to AIM UK Tax Benefits – London Stock Exchange / Baker Tilly

H M Revenue and Customs Venture Capital Schemes

Some brokers are not clear (putting it politely) on the

rules here

Please Help Us

Whilst these notes are only an introduction to AIM tax benefits we are keen that the notes are accurate and unambiguous. PLEASE let us know if you believe that there are any errors in this article or if you have any comments on AIM tax matters.

Written by Michael Crockett

Copyright Aimzine Ltd

RETURN TO AIMZINE NEWSLETTER HOME | July 2009

’