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AIM Investors Face Potential GBP1.4 Bn Tax Hit

by Robert Lee,, London

04 September 2007

Investors in shares listed on the London Stock Exchange's Alternative Investment Market (AIM) could face huge losses even if the smallest changes are made to business asset taper relief according to UHY Hacker Young, the chartered accountants.

UHY experts have warned that AIM investors could be faced with a tax bill of up to GBP1.4 billion if the qualifying period for business asset taper relief is extended from two to five years. Taper relief is available on most shares listed on the AIM stock market.

Taper relief is currently under scrutiny by a parliamentary committee, following claims by trade unions and some MPs that it is misused by some private equity investors to reduce their tax bill. They also complain that the short period of time unlisted shares need to be held for before qualifying for the tax relief encourages short-termist management of companies.

Chancellor of the Exchequer, Alistair Darling is reviewing the tax break as part of his preparation for the next budget, and is under pressure to bring in changes that UHY says would have a "disastrous" impact on the value of AIM shareholdings.

“Any rash changes made to the taper relief system, such as extending the qualifying period, could have very serious consequences for the UK’s enterprise economy," warned Derek Murphy, Tax Partner at UHY Hacker Young's London Office.

He continued:

“The AIM market is one of the UK’s big capital markets success stories, it is the envy of the world but it is at risk of being seriously damaged if it is caught up in any changes made to taper relief.”

“The Government must not overlook the fact that one of the reasons AIM has become the world’s premier market for smaller companies is the tax incentives offered to investors who hold shares for a particular amount of time.”

“The taper relief regime was deliberately designed to encourage investment in the enterprise economy and it is doing that job admirably.”

“If the Government takes away or reduces these tax incentives, they put the success of AIM and the enterprise economy at risk, just for the sake of appeasing the trade unions.”

UHY experts have cautioned that changes to the taper relief regime could result in a sudden flood of investors trying to sell AIM shares, which would cause chaos on the market and result in potentially huge losses for investors.

Murphy added:

“It might only take rumours or speculation about the changes to the tax treatment of AIM shares for AIM to be inundated with investors trying to sell.”

“The Government needs to confirm at the earliest opportunity that AIM will not be put at risk by its review of taper relief.”

He concluded:

“The new Chancellor needs to address AIM investors’ fears long before the pre-budget statement later this year.”

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