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December 7, 2012 6:29 pm
Investment in individual savings accounts (Isas) could become more flexible following a consultation on the inclusion of Alternative Investment Market (Aim) shares.
On Wednesday, chancellor George Osborne announced that the government was considering whether shares traded on small-and medium-enterprises equity markets should be eligible for Isas.
If the rules are changed investors will be able to use the tax-efficient savings wrapper to hold shares in more than 1,000 companies listed on Aim or other markets such the ICAP Securities & Derivatives Exchange, without paying income or capital gains tax charges.
Aim shares can already be held within self-invested personal pensions (Sipps), and the disparity in treatment between the investment vehicles has been a source of irritation to sophisticated private investors and groups such as the Quoted Companies Alliance and Association of Private Client Investment Managers and Stockbrokers.
The government had previously shied away from permitting Aim shares in Isas, saying that they had no place in a “mainstream” savings vehicle as they were relatively risky and illiquid.
The change appears to have been driven by the lack of funding available to small companies. The government hopes that allowing investors to hold Aim shares in their Isas will encourage greater investment in the junior market, boosting funding for enterprise.
Lord Lee, a Liberal Democrat peer who has repeatedly raised the issue in the House of Lords, said he was pleased at the possible change but hoped that it would not threaten the existing inheritance tax relief available on the shares.
Around 20m people in the UK hold Isas, which can be used to invest in a mixture of cash, gilts, bonds, investment trust or shares traded on recognised markets. Aim shares can only be included if they are “dual listed” on a recognised market.
However, Clive Garston, corporate law expert at international law firm DAC Beachcroft, said successive governments had always deemed Aim shares too risky for Isas. “This has long been a bone of contention for everyone connected with the Aim market and meant that shares in household names, such as Majestic Wine, were not eligible,” he said.
Gavin Oldham, chief executive of The Share Centre, said that allowing access to a broader range of stocks would increase individual portfolio diversification while offering some of the best growth prospects in the market.
“Logically, there is no reason why Aim shares should remain outside an Isa portfolio. Critics have argued that Aim stocks offer a level of volatility which individual investors should be protected from. However, many investors already access shares with very similar risk and volatility profiles through investing the small-cap market.”
Barclays Stockbrokers predicts widespread interest from clients if the rules on Aim shares change. “In the last six months 28 per cent of UK equity trades made by our clients have been in Aim quoted stocks so they are clearly seeing opportunities in that market,” said Alastair Thaw, a director at Barclays Stockbrokers.
George Osborne has also confirmed expectations that the overall Isa contribution limit will be increased in line with inflation next year. Isa investors will be able to put aside £11,520 in 2013/14, of which £5,760 can be held in cash.
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