Understanding the Alternative Investment Market

4 min read 28 Mar 22

Alternative Investment management, or AIM is the London Stock Exchange’s market for small and medium-sized companies, primarily attracting industry innovators, high-growth companies, as well as those which are well established and profitable. Such a combination offers opportunities for strong investment returns over the medium to long term.   

The AIM market was launched in 1995 with 10 companies and a combined market cap of around £80 million. Since then, more than 3,700 companies have been listed on the AIM market. The AIM market today includes approximately 900 listed companies, with a total value of over £100 billion, according to the LSE. These companies operate across 40 different sectors in the UK with many firms operating globally.

AIM has become an international exchange largely due to its low regulatory burden compared to the Main Market. The entry criteria for AIM is tailored for growing companies with no trading record required, no minimum size criteria and no prescribed level of shares to be in public hands.  Once established there is generally no requirement to seek shareholder approval unless there is a reverse takeover or fundamental disposal. The lower regulatory burden of AIM naturally means that listed companies are generally higher risk investments, and require additional due diligence in comparison to Main Market names.

Benefits of an AIM IHT Portfolio  

Highly tax-efficient 

Holding shares in AIM-listed companies can potentially reduce your Inheritance Tax (IHT) liability as most AIM-listed shares attract Business Relief (BR).  

2 years v 7 years

Traditional IHT solutions such as gifts or trusts require a seven-year period to benefit from full IHT relief. However, assuming business relief is still available at time of death, business relief qualifying AIM shares that have been held for two years avoid the 40% inheritance tax if held at the time of death.  

ISA eligibility

Investors can hold Business Relief-qualifying AIM-listed shares in an ISA.  

No stamp duty

Stamp duty is not charged on AIM share purchases.  

No restrictions on portfolio size

Unlike other tax-efficient investments, there is no limit on the amount you can invest in AIM-listed shares. 

It is worth noting the recently confirmed taxation arrangements in the Office of Tax Simplification review. Moreover, the FCA has decided to make research widely available for sub £200 million market cap UK-listed companies. Both developments have materially improved AIM by removing uncertainty and helping position the companies within the market. 

AIM – a diverse market

AIM is extremely diverse and represents many industries. Companies in the AIM universe range from multi-billion-pound corporations that operate globally to micro-caps with little backing and only a handful of employees. For example, highly profitable AIM-listed RWS Holdings is a world-leading provider of translation, language and Intellectual Property support solutions that operates globally and generates significant revenue from multiple regions of the world. In the same bracket as RWS are micro-cap companies that are pre-revenue and have an extremely speculative path to viability. 

ASOS’s recent move from AIM to the main market, primarily to attract index buyers, is an example of how an active management style would benefit an AIM portfolio. Holders of ASOS shares would lose their business relief, or BR if they passively held their position. Whereas an active manager would have looked to change the holding effectively, preserving the BR that the portfolio was offering. 

Who could consider AIM?

IHT receipts April 2021 to January 2022 were £5.0 billion, £0.7 billion higher than in the same period a year earlier and continue to climb with property values. Mitigating those liabilities is more important than ever. AIM portfolios can be beneficial for investors who want to protect their investments from IHT whilst retaining the control of the assets. An investor must also be willing and capable of taking on the risk involved with investing in equity markets. To qualify for BR, AIM investments must be held for at least two years.

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