By Steve Conley, Academy of Life Planning
22 April 2025
The government’s decision to halve inheritance tax (IHT) relief on shares listed on the Alternative Investment Market (AIM) has sent shockwaves through the UK’s growth ecosystem. While the Treasury aims to raise at least £110 million annually from this measure, the fallout for UK entrepreneurship and innovation may cost far more in the long run.
A Misaligned Move
Designed in 1995 as a springboard for smaller, high-growth companies, AIM has played a critical role in the UK’s economic dynamism. Over 3,988 companies have raised more than £130 billion through the market, which has traditionally attracted long-term, risk-tolerant investors — often older individuals seeking IHT exemptions after two years of shareholding.
By halving the IHT relief, Chancellor Rachel Reeves’ October 2024 budget may have delivered a quick fiscal win, but at a serious cost to investor confidence and the nation’s growth strategy.
Collateral Damage: Capital Flight and Market Contraction
The FTSE AIM 100 Index has plummeted 18% since the budget announcement, compared to a 6% decline in the broader FTSE 100. This disparity reflects how investor sentiment has sharply soured on growth stocks — especially those lacking the liquidity or stability of their main-market counterparts.
With IPO activity on AIM already at its lowest level since the global financial crisis, the reduction in IHT relief risks turning a vibrant growth platform into a ghost town. As Chelsea Financial Services’ Darius McDermott warned, undermining AIM now “might make it unfit for purpose.”
Undermining the Growth Playbook
This policy shift is at odds with the government’s own rhetoric around fostering innovation, scaling up British enterprise, and building a future-facing economy. Growth companies — often pre-profit, R&D-intensive ventures — depend on patient capital. Incentivising retail investors through IHT relief has been a cornerstone of that ecosystem.
By weakening one of the few tax incentives left for long-term, non-institutional investment in high-risk ventures, HMRC is not just targeting tax avoidance — it’s eroding the foundation upon which UK entrepreneurship stands.
A Call for Coherence
Policymakers must recognise that fiscal policy does not exist in a vacuum. Taxation that penalises risk capital harms not only the investors but also the communities, jobs, and innovation pipelines these companies support.
If the government is serious about driving sustainable economic growth, it must revisit this decision. The IHT relief on AIM shares was not a loophole — it was a lifeline for the UK’s entrepreneurial future.
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