Abolishing inheritance tax (IHT) would be a massive blow to the alternative investment market (AIM) in the short term with the potential to create significant market disruption, according to Wealth Club.
The firm, which specialises in tax-efficient and alternative investments, says that the AIM market attracts attention from individual investors and fund managers due to its potential investment opportunities and is not just a “tax dodge” market
According to their analysis, specific IHT products comprise a relatively small share of the overall AIM market, which is significantly lower than the 30 per cent that some sources had previously estimated.
The Wealth Club further asserts that it is highly unlikely that the government will choose such a dramatic course of action given the significant financial ramifications of a complete abolition of IHT. Instead, it believes that the government would likely choose less radical rule changes, either adding other levels or raising the nil-rate bands. These gradual improvements would probably go over better with the market and be more readily accepted.
Wealth Club Investment Manager Nicholas Hyett says: “Abolishing IHT would be bad news for AIM. There are billions of pounds invested in specialist AIM products precisely because of their potential to mitigate IHT bills. Withdrawing that relief would inevitably hit company valuations and has the potential to create serious market disruption.
“That said AIM is far more than being just a tax dodge. It includes some great companies and billions are invested into the market by fund managers who do not benefit from the inheritance tax relief.
“In our view, it is highly unlikely the government will actually abolish IHT. It’s simply too much of a cash cow. Our estimates suggest the government’s tax-take from IHT could reach £9bn by the end of the decade. That’s not to say cuts and tweaks won’t be made.
“Of course one of the purposes for IHT relief on AIM is to encourage investment into smaller fast-growing companies which in turn creates lots of jobs and economic growth. Radical moves that put that at risk would fly in the face of the government’s wider policy to support smaller company investment so we suspect an alternative carrot to get people to invest in these companies would need to be found.”
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