Prepare to flee London’s AIM if Reeves mounts inheritance tax raid, bank warns

Companies listed on London’s junior AIM market are being told to prepare to flee the exchange or announce emergency share buybacks amid fears that a punishing inheritance tax raid could trigger a sell-off, City AM has learned.

In a letter seen by City AM, one investment bank has urged all of its AIM-listed clients to prepare “proactive measures” ahead of the budget on 30 October to cushion themselves from any turmoil sparked by the Chancellor Rachel Reeves’ rumoured plans.

Shares on the market currently enjoy a tax-break which exempt them from inheritance tax if they have been held for at least two years. Reeves has been urged to scrap the relief in a move which could raise around £1.6bn a year, according to the Institute for Fiscal Studies.

However, the City has warned the move could also remove a key incentive to invest in AIM stocks and gut the market of some £6bn managed in specialist inheritance tax vehicles.

In a letter to its clients the bank in question urged companies to draw up contingency plans to shield themselves against any sudden price shock caused by the move.

“There are […] pro-active measures which your board may wish to consider in anticipation of the 30 October including moving from AIM to the main market and, subject to eligibility criteria, generating incremental investor demand by virtue of FTSE index inclusion,” the bank wrote.

“For companies with surplus capital, the announcement of a buyback may provide some share price support if consistent with the overall strategy of the company in question,” it added.

Scrapping the tax break could cause an immediate 20-30 per cent fall in the value of shares across AIM, according to analysis from Peel Hunt, another City investment bank.

Julia Hoggett, boss of the London Stock Exchange, similarly sounded the alarm over the plans last month and warned they could pose a potentially existential threat to AIM.

In a letter to the City minister, Tulip Siddiq, she said scrapping the relief “would remove a core source of capital” and bring the market’s “viability into question”, Sky News reported.

The followings come after years of lacklustre performance for AIM and a torrent of exits as companies either sell-up to private investors or scrap their listings.

At its peak in 2007, the market boasted some 1,694 companies. That had slumped to around 704 at the end of August 2024.

Like the main market, AIM has also been rocked by a dearth of companies floating over the past two years. Just £88.6m was raised through IPOs on the junior market in the year to September, one per cent of the £8.8bn raised during the market’s peak year of 2006/07.

The Treasury did not respond to comment.