Capital gains on AIM-traded investment companies are currently taxed at 40 per cent, are not eligible assets for business taper relief and cannot be held in ISAs. The AIC says the changes mean that from April 2008 where investors pay tax on their disposals the rate will be 18 per cent, which will enhance investment returns for higher-rate taxpayers.
The AIC also says VCTs will benefit as they often invest in AIM-traded companies. Any capital gains made by the VCT are received tax free by the VCT and, in turn, their shareholders can make disposals tax free, as well as not being taxed on dividends. Once the proposed CGT changes are introduced, the tax benefits of investing in VCTs as a means of gaining exposure to this asset class will be even more pronounced, according to the AIC.
AIC director general Daniel Godfrey says AIM-traded investment companies and AIM focussed VCTs have emerged as winners from the Chancellor’s announcement.
He says: “Over the last two years the number of AIM-traded investment companies has rocketed and a potential CGT reduction from 40 per cent to 18 per cent will undoubtedly increase their tax efficiency and attractiveness to some investors.
“At the same time, the tax position of shareholders investing directly in AIM trading companies will deteriorate. However, VCTs will continue to offer tax-efficient exposure to a diversified range of AIM stocks and their tax advantages will be even more pronounced than is currently the case.”