A fund manager has called for tax rules governing Aim shares to be reviewed, saying they were sometimes used in a "cynical" way not intended by policy makers.
Judith MacKenzie, who runs the £89m Downing Strategic Micro Cap fund, said the rules should be changed to ensure the tax breaks do not apply to the shares of the very largest companies on Aim.
The Office for Tax Simplification (OTS), an independent body created to advise the government on tax matters, is currently looking at the rules governing Aim shares as part of its review into inheritance tax, as ordered by the chancellor.
Most shares on the Alternative Investment Market (Aim) are exempt from inheritance tax as long as they are held in the estate for two years at the time of death.
This is because, despite Aim shares being listed on a stock market, they are counted as being unquoted and under the business property relief (BPR) rules, shares in unquoted businesses are exempt from inheritance tax.
The rule was introduced to facilitate the transfer of family businesses to the next generation.
Ms MacKenzie said the rules should be changed to cap the size of the companies on Aim that qualify for business property relief.
She said: "At the end of the market where I invest, which is typically below £150m market cap, the extra liquidity that comes into the Aim market as a result of the business property relief rules is very welcome, and helps companies at that end of the market.
"Some products in the market are quite cynical really, in terms of what they invest in. It's a vicious circle, or a virtuous circle, depending on how you look at it.
"Some of the funds that specifically [cater] to Aim IHT portfolios are getting as much as £8m a month coming in, and it has to be invested quickly, because the underlying investor doesn’t get the tax relief until the money is actually invested in shares, they don’t get it if it is held in cash.
"That means the fund manager invests it in the largest companies on Aim, because they have the liquidity, but I’m not sure it's those large companies, like Asos, that really benefit. Then, because of the money going into those large companies, they become more liquid, and so attract even more money."
She added: "I don’t know what the limit should be, perhaps £500m. But I certainly do think the rules should change."
A representative of the Office for Tax Simplification said: "Aim shares were included in the very wide scope of the OTS IHT review which will be published later this year; work on the report is ongoing."
David Scott, an adviser at Andrews Gwynne in Leeds, said another option that should be considered was to treat Aim shares as if they were listed.
He said: "It is a quirk of the rules that Aim shares, despite being on a stock market, are not counted as being listed by the rules.