The success of AIM has had a positive effect on the UK economy. In 2019 alone, AIM companies contributed £33.5 billion to UK GDP and directly supported more than 430,000 jobs, according to a report published in June by Grant Thornton1.
AIM also tends to attract companies in progressive, innovative sectors, for example medical research, and robotic process automation software. The reliefs your clients can claim encourage investment in these sectors. Directly, because such companies often meet the relevant qualifying criteria, and indirectly, because the existence of AIM provides a venue for companies to raise capital to scale up their innovations.
There are reliefs because there are risks
So there’s no free lunch here. Rather, there is an acknowledgement that some areas of investment tend to be riskier than others. And it’s important to consider all the risks before recommending a tax-efficient investment.
For a start, such investments put capital at risk. The value of these investments, and any income from them, can fall as well as rise. Investors may not get back the full amount invested.
In addition, the shares of unquoted and AIM-listed companies can fall or rise in value more than shares listed on the main market of the London Stock Exchange. They may also be harder to sell.
Put in this context, it’s straightforward to see why the Government offers tax reliefs to encourage long-term investment into sectors and companies where the economic rewards can be great, but where there is also a lot of uncertainty.
That said, investors need to be aware that tax treatment will depend on their personal circumstances, and tax rules may change in future. Tax reliefs also depend on the companies invested in maintaining their qualifying status for the relevant relief.
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VCTs and BPR-qualifying investments are not suitable for everyone. Any recommendation should be based on a holistic review of your client's financial situation, objectives and needs. We do not offer investment or tax advice. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London, EC1N 2HT. Registered in England and Wales No. 03942880. Issued: August 2020. CAM010040.
1 Grant Thornton, Economic Impact of AIM, June 2020
