AIM shares face volatility risk as Treasury removes business relief

Dame Julia Hoggett, the chief executive of the London Stock Exchange, has expressed serious concerns regarding the potential removal of business relief from AIM shares in the upcoming budget. In a letter to City minister Tulip Siddiq, she highlighted that this change could lead to significant market volatility, particularly affecting smaller companies that have historically benefited from this relief. The AIM has seen a decline in the number of companies listed, dropping from 819 to 704, with a corresponding decrease in market value from £131 billion to £76 billion since the end of 2020. Hoggett emphasized that the removal of business relief could prompt individual investors and inheritance tax funds to liquidate their holdings, exacerbating volatility in an already illiquid market. This could disproportionately impact share prices across AIM, which is crucial for growth companies seeking equity capital. The exchange has been a vital source of funding, contributing significantly to the UK economy by supporting jobs and generating tax revenue. The letter also pointed out that around 75% of AIM-listed companies are smaller firms, often more vulnerable to capital constraints. The availability of business relief has been a key factor in attracting investment to these companies, and its removal could create a negative perception of the government's commitment to fostering a supportive funding environment. Hoggett's warning comes amid broader concerns about the UK's financial landscape post-Brexit, as the City has missed out on several high-profile initial public offerings. The potential tax and spending decisions by the new government could further complicate the situation for AIM and its listed companies.