Small FTSE 350-listed companies may drop down to the Alternative Investment Market following capital gains tax reforms in this week's Budget designed to boost dot.com and other growing companies.
Chancellor Gordon Brown used his Budget to cut CGT to what he described as its lowest-ever level for long-term investors.
He also extended the definition of unquoted companies to include those listed on AIM enabling them to take advantage of the newly extended four year taper relief for business assets.
The changes will reduce CGT rates more quickly to reflect shorter holding periods of business asset investments and encourage ‘serial entrepreneurs’.
It will also promote wider employee share ownership and increase the incentive for providing risk capital to early-stage entrepreneurial companies by ‘business angel’ investors.
The CGT rate will be cut from 40% to 35% for the first year, 30% for the second year, 20% for the third year and 10% for the fourth year, the chancellor told MPs.
David Harrison, national tax director at HLB Kidsons, said: ‘The CGT reduction will have a significant impact upon start-ups and existing businesses alike. CGT will cease to be a tax planning issue and is ‘manna from heaven’ for both new and established businesses.
KPMG tax partner Iain Stewart said AIM would now be more attractive to the shareholders of AIM-listed companies. ‘This gives lots more flexibility to companies and makes life easier,’ he said. ‘It also makes the UK more competitive as a holding company location.’
But Stewart said the chancellor had missed the opportunity to give individuals with significant shareholdings the same relief as that for companies to help serial entrepreneurs further.
Other CGT measures announced in the Budget included a crackdown on avoidance by individuals exploiting tax rules for trusts. The group relief rules for companies will also be modernised to allow groups and consortia to be established through companies resident anywhere in the world.