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Autumn Budget 2024 – Inheritance Tax Update

The Labour Party manifesto ^[1] pledged not to increase income tax, VAT or national insurance (but seemingly only for employees not employers). This has led to heightened speculation in the leadup to Labour’s first post-election budget that other forms of taxation would need to rise to meet their manifesto commitment to “fund all day-to-day spending with tax receipts”.

Concern regarding potential reform to business relief has adversely impacted the performance of AIM. In the 5 months since the General Election was called on 23 May to the 29 October 2024, the AIM index has declined by 11.1% ^[2] , as both private and institutional investors have been unwilling to commit further capital. In comparison, other UK equity indices including AIM’s closest benchmark, the UK Small Cap index, which does not benefit from Business Relief, have been broadly flat ^[2] .

UK Index Performance since the 23^rd May
Source: Deutsche Numis Indices

Greater certainty has been provided in today’s budget, with the Chancellor revising the rate of business relief to 50% for AIM shares with effect from April 2026 ^[3] . In essence, this will mean 20% inheritance tax will be payable on AIM shares rather than the standard 40% on assets above the current inheritance tax thresholds (£325,000 nil rate band and £175,000 residence nil rate band), which have been frozen for a further two years to April 2030 ^[3] .

It is also worth noting, the government will reform agricultural relief associated with farmland and business relief for private businesses from April 2026, with 100% relief for the first £1 million of combined agricultural and business assets, and 50% thereafter ^[3] . Pleasingly, the value of the relief for agricultural and business assets, including AIM companies, remains uncapped. The government is also removing the opportunity for individuals to use pensions as a vehicle for inheritance tax planning by bringing pensions into the scope of inheritance tax from April 2027 ^[3] .

Whilst it is disappointing that clients are no longer able to obtain 100% business relief on AIM shares, the stock market has welcomed greater clarity, with the AIM Index rallying by over 4% ^[2] immediately post the budget statement. Continued Government support for business relief should restore investor confidence in AIM; combined with attractive valuations this should lead to a reversal of the c.10% relative under-performance since May 2024

The Whitman AIM service continues to offer investors exposure to leading, high-quality, businesses with a sustainable competitive advantage and this is reflected in the forecast double digit growth in earnings ^[4] for the current financial year. We are confident the long-term outperformance of the UK small cap asset class and patient investors will be well rewarded.

Sean O’Flanagan

Joshua Northrop, CFA

George Henderson

30th October 2024

Source:

[1] Labour Party Manifesto 2024

[2] London Stock Exchange

[3] HM Treasury, Autumn Budget 2024

[4] Whitman Asset Management

Disclaimer: This communication is issued and approved by Whitman Asset Management Limited (“Whitman”) which is authorised and regulated by the Financial Conduct Authority. The value of investments may fall as well as rise and your capital is at risk. Information on past performance, where given, is not necessarily a guide to future performance. We strongly recommend that you seek professional advice before you consider making investments in such securities. AIM has less stringent rules and AIM company shares may be less liquid than those companies listed on the London Stock Exchange.

Although Whitman uses all reasonable skill and care in compiling this report, no warranty is given as to its accuracy or completeness. The opinions expressed accurately reflect the views of Whitman at the date of this document based on our views at such time regarding market conditions and other factors, may depend upon assumptions or projections that may not prove to be correct, and are subject to change. The opinions stated are honestly held, they are not guarantees and should not be relied upon.

Current tax rules and the available tax reliefs offered on investments into AIM-quoted stocks may change at any time, and there is a considerable risk that if the legislation changed in respect of these tax reliefs, then those stocks that no longer qualified for such reliefs would be subject to heavy selling pressure, potentially leading to significant investment losses.