Abolition of AIM IHT relief unlikely to raise many funds

Individuals with shares in companies trading on the Alternative Investment Market (AIM) may feel like they have been under a roaming tax spotlight for a number of years. There has been speculation for some time that the inheritance tax (IHT) relief, known as business relief, might cease to be available on AIM shares.

The Chancellor announced significant changes to IHT business relief in the Autumn Budget 2024, confirming that AIM listed shares would only obtain 50% IHT relief from 6 April 2026, rather than the current 100% relief available to investors.

That was actually better news than many AIM investors had been expecting. The merits of business relief applying to AIM had been queried by the government’s own adviser, the now abolished Office for Tax Simplification in 2019, and many had expected Rachel Reeves to abolish business relief on AIM shares entirely. This reprieve was reflected in the markets, highlighted by the FTSE AIM All-Share Index closing about 4% higher on the day of the budget.

The recent news of the Deputy Prime Minister suggesting that the Chancellor might want to consider a return to the subject of AIM business relief will undoubtedly fuel speculation that further changes could be announced in the Autumn Budget 2025.

There are various arguments for and against AIM shares qualifying for IHT relief but one reason the Chancellor may insist she has no desire to revisit this subject is simply because it is unlikely to generate significant amounts of additional revenue for the Exchequer. Any financial benefit to the Treasury could be disproportionate to the level of column inches such a full abolition of relief might generate.

In a freedom of information request response sent to RSM UK dated 30 October 2024, HMRC confirmed that it had modelled the value of business relief on AIM shares for the 2021/22 financial year. This estimate was also published as part of the documentation supporting the Autumn Budget 2024.

In its response, HMRC effectively confirmed that it has not routinely monitored the cost to the Treasury of business relief on AIM shares. It holds the data as claims are submitted on forms IHT400 but it would need to be collated manually by staff and inputted into their digital systems. This was noted to be “resource-intensive” and a request for similar data in other years was declined as a result.

This is unlikely to be a surprise to anyone with experience of preparing and submitting IHT return forms, many of whom would testify that the process can be laborious and in need of a technological overhaul.

For the purposes of the Autumn Budget 2024, an estimate of the cost of AIM business relief to the Exchequer in the 2021/22 year was calculated to be £185m.

That in itself is a relatively modest amount in the context of the government’s finances. One might assume that with the proposals already announced for AIM shares, that costs might be broadly halved from April 2026, albeit some individuals with larger pension pots might be tempted to look at the IHT benefits that are retained by AIM listed shares. There could be some inflows into the market as a result.

However, there has been a general decline in the value of AIM listed shares since the 2021/22 financial year. Looking again at the FTSE AIM All-Share Index, this closed at a value of 1,056.50 on 5 April 2022 compared to 640.54 on 4 April 2025 (5 April being a Saturday with markets closed). That represents a fall of around 40%.

If such a reduction were similarly applied to the cost of IHT relief on AIM listed shares, as the value included in estates may be similarly reduced, then the annual cost to the Exchequer from 6 April 2026 might be much less, perhaps in the region of £55m to £80m.

This range assumes that the AIM market may see some recovery in the forthcoming year given recent stock market turbulence. One must also take into account the potential for a slower pace of interest rate cuts in the UK which could have an impact on the value of AIM listed shares. All in all, a saving grace to investors may be that the Chancellor has bigger targets to aim at.