Jeff Salway on the Alternative Investment Market
Two decades on, AIM is thriving but it’s not without its drawbacks, writes Jeff
www.scotsman.com:
scotsmancash@yahoo.co.uk. T WO decades after it first opened the alternative investment market AIM) is more popular than ever among investors seeking to cut their tax bill.
Inheritance tax (IHT) savings have proved particularly appealing, experts say, but investors in fledgling companies have been warned not to overlook the risk of hefty losses.
The FTSE AIM Index was opened on 19 June 1995 and was made up of just ten companies worth a total of £82 million when it went live in January 1996. The index now comprises 1,704 companies with a combined market cap of more than £75 billion, according to accountant and business adviser BDO.
More than a fifth of the firms on AIM are now international, alongside just 26 from Scotland (including Celtic FC, Smart Metering Systems, Bowleven and Scotgold Resources).
While the tax advantages of investing
“[The AIM market is a] uniquely useful venue for specific kinds of companies and investors” Amanda Forsyth
in AIM firms ensures demand for AIM exposure is buoyant, performance remains volatile. The index is still 24 per cent below its starting point in January 1996, over which time the FTSE 100 and the FTSE 250 have risen in price by 82 and 344 per cent respectively.
The market has evolved over 20 years into a “uniquely useful venue for specific kinds of companies and investors”, according to Amanda Forsyth, investment manager and AIM specialist at Edinburgh-based Murray Asset Management.
What hasn’t changed is that, compared with more established options, investors are taking on a heightened risk when investing in AIM firms. There are few disclosure requirements, liquidity – when stocks can be difficult to offload – can be a problem and while the main FTSE market requires that firms must have traded for at least three years to be listed, no such demand is made of prospective AIM constituents.
“The companies are, in general, riskier than those listed on the main market; attracted by the relatively easy and lowcost way of raising capital, they need
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But investors able and willing to take that risk can benefit from several tax perks. For instance, business property relief (BPR) allows for AIM shares held for more than two years and which process to get rid of old CDS, DVDS, Games and electronic devices.
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There are limitations, however, not least that the relief isn’t available on collective funds investing in AIM.
“The rules are complex as to what does and does not qualify for BPR, and this is certainly an area where it can be keep your credit card spending to just groceries or paying for one big cost a month, so that you keep on top of your monthly repayments and don’t get into dangerous territory of spending money you don’t have.
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Shares in companies listed on Aim have, since August 2013, also qualified for inclusion in tax-efficient Isas, and months later became exempt from the 0.5 per cent stamp duty on share purchases.
“In theory an investor could in due course have a portfolio which qualified for relief from income tax, capital gains tax and inheritance tax,” Forsyth pointed out.
Those benefits mean AIM is increasingly used more for tax reasons that for pure investment returns. A growing number of funds and investment trusts offer ordinary investors access to AIM stocks, often as part of broader small company products.
“AIM is well represented in the likes of Marlborough Special Situations, Schroder UK Dynamic Smaller Companies and Threadneedle UK Smaller Companies, where the managers have the capacity to broaden their investable universe,” said Forsyth.
But putting money in Aim-listed companies purely for tax breaks often lures investors into “inappropriate” investments, warned Tom Munro, owner
“In the many cases, it was evident that the ‘tax tail was wagging the investment dog’” Tom Munro
of Tom Munro Financial Solutions. “AIM investing in my view is not for the average investors. In the many cases I have come across, it was evident that the ‘tax tail was wagging the investment dog’ and whilst I agree the tax breaks are generous, the high risks associated with investing in start-up companies seldom compensates,” said Munro.
That includes AIM funds, he added, even if they’re less risky than investing directly in AIM stocks.
“While it is true that the majority of start-up companies may have been well-run even if many were ultimately unsuccessful, the AIM market has never really recovered from recent blows to its reputation, and I don’t think the sector will really regain the trust of retail investors,” he said. government/news/switch-to-save-27billion-up-for-grabs-by-switchingenergy-supplier
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