AIM Shares Could Soon Be Eligible For ISAs
It has long been a bugbear of many private investors that you can't include shares traded on AIM in an Individual Savings Account, or ISA.
The rules here are also pretty complex, too. There are some AIM shares that can be included in an ISA, because they are also listed on a major market elsewhere, mostly in Australia or Canada.
Then there are another group of AIM shares that qualify for Inheritance Tax relief, because they meet another set of criteria.
To add to the confusion, AIM shares can be traded in Self Invested Personal Pensions, or SIPPs. For some time, government officials have claimed AIM shares were too risky to be considered for ISAs, but why then are they allowed in SIPPs?
So, for example, Gulf Keystone Petroleum (LSE: GKP), valued at £1.7bn, can't currently be put into an ISA. Like many large AIM companies, Gulf Keystone has plans to move to the main London market, in order to broaden its investor base and continue its development.
In total, there are around 1,100 companies on AIM right now, worth a combined £65bn. Around 50 AIM companies are worth more than £250m, and seven are valued at north of £1bn.
Since this junior market began, over 3,300 companies have been AIM-listed at some point in time, and they have raised in excess of £80bn (which is noticeably higher than the total value of all the companies currently listed).
All this could change
Today, HM Treasury said it was launching a consultation on whether to expand the types of investments that can be included in ISAs. Although AIM is not mentioned, the main thrust is to assess whether to include "shares traded on small and medium-sized enterprise equity markets".
Interestingly, similar junior markets across Europe are also under consideration. And part of the consultation will also cover whether the same changes should be considered for Child Trust Funds and Junior ISAs.
It also looks like those AIM shares that qualify for other tax reliefs, such as the Enterprise Investment Scheme (EIS), Venture Capital Trust (VCT), and Inheritance Tax Business Property Relief, will continue to do so.
The consultation runs until 8 May 2013, after which time the government will decide on what changes, if any, to make. That means any change won't be made in this year's Budget, as some people had hoped for, as that takes place next week.
I have to confess to slightly mixed feelings here. I worked in corporate finance in the 1990s, and I remember when AIM launched with just 10 companies. It's amazing that sensible changes to simplify the rules like this have taken nearly 20 years to even get to this stage.
However, there is undoubtedly a lot of dross on AIM these days. It's worth bearing in mind that, if the rules change, and you make a loss on an AIM share within an ISA, then you won't be able to offset it any gains you make elsewhere!
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