Taxation – Budget ‘threat to AIM shares’

Business advisers and stock market officials are campaigning to make the government reconsider Budget measures which could cause a decrease in the liquidity of shares traded on the alternative investment market (AIM).

Chancellor Gordon Brown’s plans to merge CGT re-investment relief with the Enterprise Investment Scheme has meant that up to half of the AIM-quoted companies which currently offer re-investment relief will no longer qualify.

Unlike re-investment relief, tax relief through EIS is only available when new shares are issued, and then only to firms which have gross assets of less than #10m. Critics claim this will make it more difficult to sell shares on after a new issue, and that this will affect the flotation value placed on shares.

AIM-nominated adviser Graham Shore of Shore Capital said: ‘Not only is it misconceived, but it also goes against the government’s policy to nurture the venture capital industry and make it easier for businesses to raise money.’

Shore hopes the chancellor’s decision can be altered. He said: ‘Nothing is set in concrete yet. Most of the major AIM market-makers and advisers intend to lobby against it.’

Representatives of AIM are expected to join financial directors and company advisers in lobbying against the move, but some experts feel the market should bow to the inevitable.

Chilton Taylor, partner at Baker Tilly and author of the DTI’s guide to EIS, said: ‘It is naive to think the government will continue to give tax relief which is not bringing any new money into the company.’

Tony Fraher, chief executive of Singer and Friedlander Investment Funds, said: ‘Any push for a climbdown will be unsuccessful. Re-investment relief is an area in need of reform, and it was easier for the government just to do away with it.

‘AIM has been suffering in terms of perception, although not in terms of performance, with many institutions unwilling or unable to risk their funds on higher risk ventures. This change is going to be bad for the smaller companies that depend on re-investment relief to attract more investors.’

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