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Sam Dale: SME finance boost looms with Aim/Isa decision

Sam Dale MM blog

Chancellor George Osborne appears to be focussing his resources on two sectors in his Holy Grail quest for economic growth and both are heavily reliant on finance.

The first is housing, which has been lavished with multiple schemes to boost mortgage lending and house building, most recently with Help to Buy.

The second is small and medium sized businesses which have also been the subject of numerous lending schemes.

There was the ill-fated Project Merlin, the short-lived National Loan Guarantee scheme – or credit easing, and the under performing Funding for Lending.

High profile, big scale lending schemes have also been accompanied by small measures such as removing restrictions on funds or individuals investing in firms. 

The Government has been supportive of enterprise investment schemes and venture capital trusts to boost the flow of money into small businesses from investment funds. Entrepreneurs entering the Dragon’s Den are armed with a tax relief to sweeten the deal and improve the chance of attracting investors.

The latest innovation came in the Autumn Statement last year when Osborne unveiled a plan to allow Aim traded stocks to be sold within Isa stocks and shares wrappers. Traditionally Aim stocks have been seen as too risky for Isas and also already the subject of an inheritance tax relief.

Osborne launched a consultation to expand the list of qualifying investments within Isas earlier this year which closes on 8 May, when the Government will publish a summary of responses. It expects to lay draft regulations before parliament by the summer recess in July.

Tax Incentivised Savings Association director of portfolio and retirement planning Malcolm Small says: “There are upsides and downsides. The upside is greater freedom of choice which is hard not to sign up for but the downside is that some Aim stocks have proven to be real turkeys. The risk is in damaging the Isa brand by making it too widespread.

“It is important that IHT relief is retained. The Treasury has historically argued that you are getting a tax benefit on Aim stocks through IHT so why should you have one through Isas as well? The IHT is established though so it is a question of whether Aim stocks are included or not. We have no fixed position on it yet and we can see upsides and downsides.”

IHT relief has proven a bone of contention as many Aim stocks are bought with the specific intention of allowing them to be bequeathed without paying tax. To remove it for Isas would potentially gut Aim shares of one of their core incentives.

Liberal Democrat peer and investor Lord John Lee says: “I would like them to take a decision as soon as possible and make the majority of Aim trading companies eligible for Isas and retain IHT relief.

“There has been no suggestion from the Treasury that IHT relief will be withdrawn and people are keeping their fingers crossed that it will remain. We are waiting some form of definite announcement from the Government.

“It may be that it doesn’t allow all Aim stocks to be allowed under Isas. It could exclude biotech and expiration stocks, for example. These are near start-ups so they may try to differentiate between hyper-risky and normal stocks. We are keeping our fingers crossed, watching and waiting.”

Small says there is no guarantee the move will go ahead and points to other Treasury consultations such as early access to pensions that were not adopted.

From the Autumn Statement on 5 December to the close of the consultation on 8 May, it will be more than five months. It has been a long process and is clearly not a Government priority.

But Isa investors and Aim firms want to see the details ironed out and the relaxed rules come into force. The Government does not have a good record for boosting SME finance but small, relatively simple ideas such as this should be the aim.

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