What is AIM?
AIM (formerly the ‘Alternative Investment Market’) is the London Stock Exchange’s growth market, created to help smaller companies raise the capital needed to scale.
Also referred to as London’s junior market, AIM replaced the Unlisted Securities Market (USM) and began operating with ten companies listed and a combined market cap of £82.2m. In just over 20 years, the exchange has grown to encompass around 1,000 companies and a combined market cap exceeding £90bn.
AIM is often considered the most successful growth market in the world.
Why was AIM started?
AIM was created to serve smaller companies that sought to seek capital to grow but couldn’t afford the costs associated with listing on the London Stock Exchange’s Main Market or could not meet the stringent requirements needed to float.
The Main Market requires companies seeking to float to have existed for three years, to have a market value of at least £700,000, to be willing to float a minimum of 25% of their share capital, and to have enough working capital for at least one year’s trading. AIM does not have these requirements which means that smaller, more entrepreneurial companies are less likely to be put off by floating on AIM.
What companies list on AIM?
Companies looking to float on AIM typically look to raise between £1m and £50m via IPO. While this may seem small, there have been some notable larger raises that exceed £100m. And, while many companies use AIM as a springboard to the main market (over 150 companies have made the move), there are still a few companies listed on AIM with market capitalisation of over £1bn. This list includes ASOS, ABCAM and Fevertree, all of which have delivered significant returns to investors who invested early on.
The companies on AIM are spread across 37 different sectors (90 different sub-sectors) and come from 26 different countries. In fact, over 250 companies listed on AIM are from outside of the United Kingdom, making it proportionally one of the most diverse exchanges in the world.
AIM companies in July 2017
Can I invest in AIM companies?
Trading on AIM accounts for up to a quarter of all trading done by private shareholders. While there are clear risks associated with [investing in growth businesses, it is the excitement and volatility of the AIM market that attracts many younger investors; a recent survey conducted by TD Direct Investing reports that the AIM index has more than three times as many 30–44-year-old investors than those in the 45–75 age group.
While AIM investments are viewed as riskier than those on the Main Market, the tax incentives on offer can make them more attractive.
What are the tax advantages?
AIM shares offer investors a number of ways to take advantage of government-sponsored tax reliefs including Inheritance Tax relief, Capital Gains Tax relief and various other forms of loss relief on shares that qualify for the Enterprise Investment Scheme (EIS) or which are invested in through a Venture Capital Trust (VCT). The fastest-growing form of tax relief on AIM shares arises through holding them in a stocks and shares ISA.
Holding AIM shares in an ISA
Since 2014 investors have been given the opportunity to add AIM-listed shares into their stocks and shares ISAs. The appeal of paying no Capital Gains Tax at disposal, and paying no income tax on dividends, has seen a steady increase in AIM shares being held in ISA portfolios.
Inheritance Tax (IHT) relief
Many AIM companies will qualify for Business Property relief, which offers up to 100% Inheritance Tax relief on ‘Transfers of Value’. Transfers of Value come into play when a family member passes away or where the shares have been transferred by way of a lifetime gift within the previous seven years.
The full relief is only applicable for certain unquoted companies. To benefit from Business Property relief you must have invested in the shares directly, as IHT is generally not available through funds. There are some exceptions, and discretionary portfolios created by wealth managers on your behalf could qualify.
The Enterprise Investment Scheme
Some companies that list on AIM may qualify to offer shares through the Enterprise Investment Scheme. Qualifying companies can offer generous income and Capital Gains Tax relief as well as loss relief in the event of a company ultimately failing and the shares becoming worthless.
While the shares are listed on AIM, investors must hold onto the shares for a minimum of three years or the tax reliefs they have gained will be clawed back by HMRC.
Venture Capital Trusts
A Venture Capital Trust (VCT) is a fund-like instrument through which investors can receive tax relief. VCTs use the money raised to invest in early-stage businesses, offering investors Income Tax relief and Capital Gains Tax relief similar to those available through the EIS. Dividends paid by companies invested through a VCT do not incur Income Tax. However, VCTs do not offer the IHT relief that EIS does.
What are the risks?
AIM-listed companies are often still in their earlier stages, so some of the risks associated with investing in startups can be applied here. While many of the companies listed do make it onto the Main Market, the rate of delistings on AIM far exceed those on the London Stock Exchange.
In general, AIM companies have lower levels of liquidity, making it harder for investors to sell shares whenever they want. It may also be harder to find information about AIM-listed companies, with levels of market research generally much lower than Main Market equivalents.
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