What is the tax position for an AIM-quoted company?
I run a growing advertising agency based in Edinburgh. I am considering listing my company on AIM in order to fi nance expansion plans, but I am unsure as to what tax implications this will have. What is the tax position of an AIM quoted company?
A. Jon Harris of Pinsent Masons says:
One of the main advantages for companies listing on AIM is that they continue to benefi t from a number of tax reliefs normally only available to unlisted companies.
AIM listed businesses get a higher rate of taper relief, which is available to all shareholders, not just employee shareholders. This means investors pay capital gains tax (CGT) at only 10% on gains made on the sale of shares after only two years.
Conversely, tax would be payable at 40% on an equivalent sale of LSE-listed shares. Significantly, shares in AIM companies qualify for full exemption from inheritance tax and, in certain circumstances, income tax relief is available for losses arising on investments made in AIM companies.
Also, shares in AIM companies can qualify for the enterprise investment scheme (EIS) and venture capital trusts (VCT). Both can be important sources of capital, although the chancellor recently imposed changes which make it harder for AIM companies to raise money via these routes.
Under the EIS scheme, individuals who invest in ordinary shares in a qualifying company obtain certain tax reliefs, including relief at 20% against income tax up to a maximum level (£400,000 pre-budget), exemption from CGT on disposal of the shares, provided they are held for a minimum of three years, and the ability to defer gains arising on the sale of other assets by rolling the gain into EIS shares.
VCTs are investment companies that allow individuals to acquire shares in an investment company, which, in turn, invests in qualifying companies. VCTs are exempt from tax on gains realised on investments. Also, individuals investing in VCTs receive relief against income tax on their initial investment plus an exemption from CGT on disposal of VCT shares and pay no income tax on dividends received from VCTs.
The most significant change in this year’s Budget was the reduction of the maximum size of companies qualifying for EIS and VCT schemes. Before the Budget, only companies whose gross assets were £15m prior to any investment and £16m after the investment qualifi ed. This has been reduced to £7m and £8m, respectively, taking a number of AIM companies outside the scheme.