New powers granted to HM Revenue and Customs to award Recognised Stock Exchange (RSE) status could lead to investors in London's Alternative Investment Market (AIM) losing certain tax benefits, accountants have warned.
Legislation was unveiled in Finance Bill 2007 to allow HM Revenue & Customs (HMRC) to designate as a recognised stock exchange for tax purposes any investment exchange designated as a recognised investment exchange (RIE) by the Financial Services Authority.
Currently AIM is defined as 'unlisted', which means shares listed on the market qualify for the higher rate of taper relief for capital gains purposes, and in addition are exempt from inheritance tax. However, according to tax experts, the designation of AIM as an RIE, meaning that it would no longer be deemed an unlisted exchange, would not be a good thing for certain investors in the small-cap market.
“It should be noted that were HMRC to designate the Alternative Investment Market (AIM) as a recognised stock exchange the tax benefits available such as Capital Gains Tax business asset taper relief and Inheritance Tax business taper relief would be lost," noted Clive Mackintosh, tax partner and head of private clients at PricewaterhouseCoopers LLP.
"This would make AIM less attractive to investors and remove the benefits from those already investing in the market," he warned.
However, the London Stock Exchange, which operates AIM, has moved to counter speculation that the new HMRC powers will necessarily lead to the loss of tax relief for AIM.
"Following the 2007 Budget release on 21 March 2007, the London Stock Exchange seeks to clarify the position in relation to AIM tax reliefs," the LSE said in a statement.
"There has been some third party comment that this change may affect the availability of tax reliefs for shareholders of qualifying AIM companies. This is not the case and has been confirmed by the government. The existing tax reliefs that apply to shares admitted to AIM will continue to apply," the LSE assured.
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