LSE Urges Fiscal Support For SMEs

by Jason Gorringe, Tax-News.com, London

28 September 2010

In response to the UK government’s green paper on ‘financing a private sector recovery', the London Stock Exchange has presented a number of recommendations to ensure support for high growth small- and medium-sized enterprises (SMEs), entities that it believes are "crucial to ensuring a successful economy".

The Exchange's policy proposals include:

• Introducing a more favourable capital gains tax (CGT) regime for investment in quoted companies.
• Allowing Venture Capital Trust (VCT) participation in the secondary market.
• Raising VCT investment ceilings.
• Allowing ISA (individual savings account) investment in quoted companies.
• Abolishing Stamp Duty over five years.

Commenting on the submission, Marcus Stuttard, Head of the AIM exchange, said:

"This consultation represents an excellent opportunity for industry groups and businesses to work together with the government to deliver real and tangible benefits to the UK's SME community. The targeted proposals outlined in this submission will help attract a wider set of investors to growth companies, providing them with vital initial capital and supporting deeper liquidity in the trading of their shares, generating a virtuous circle of investment and growth."

The Exchange makes the following policy recommendations:

Capital Gains Tax

“A reduced CGT rate or roll-over relief for capital gains on investment in companies on growth markets would not only boost liquidity but also encourage investors to re-invest their gains into smaller companies creating a more vibrant market for the longer term.”

Venture Capital Trusts

“Allowing VCT participation in the secondary market would provide urgently needed liquidity through funds that are already accounted for by the Treasury, while increasing the gross asset ceilings for VCTs from GBP7m to GBP15m and the employee test limit from 50 to 250 employees would make investment capital available to a wider pool of growth companies and SMEs.”

Individual Savings Accounts

“To bring a wider set of investors and boost liquidity in the secondary market, the Exchange calls on the government to amend ISA rules to allow investment in unlisted companies, like those on AIM. The incremental investment that could result from AIM shares being made eligible for ISAs would partially offset the capital and liquidity that has been withdrawn from smaller companies during the financial crisis. This would further allow qualifying companies to diversify their shareholder registers.”

Stamp Duty

“[Finally], phasing out or abolishing stamp duty as part of a five year corporate tax strategy would further boost the efficiency of equity markets for UK companies, savers and investors. This measure would be revenue neutral for the Treasury and increase the total amount of capital investment by up to GBP7.5bn a year. As a reduced measure, the Exchange would welcome a targeted abolition of stamp duty for SMEs as a means of supporting growth companies' access to equity capital.”

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