Investing in AIM shares – the benefits of backing Britain

AIM – the junior investment market of the London Stock Exchange (LSE) – is home to smaller, high-growth companies. It offers access to capital and ongoing financing, playing a crucial role in fostering business growth in the UK and overseas. By helping companies to secure funding, AIM helps them achieve significant development milestones. This, in turn, provides an attractive investment opportunity and significantly contributes to the UK economy.

AIM has been around for 30 years, supporting over 4,000 quoted companies. In this time, AIM companies have raised just shy of £50 billion through IPOs (initial public offerings), and another £87 billion through further fundraising.

AIM-listed shares can be in their infancy years, so the shares tend to be more volatile and a higher-risk investment when compared to medium or large cap companies listed on the LSE’s main indexes – the FTSE 100 and FTSE 250. However, the UK AIM market is a treasure trove of investment opportunities. With its growth potential, tax benefits, and diverse range of companies, AIM is the perfect choice for investors looking to grow their wealth while supporting British innovation.

What are the wider benefits of investing in AIM?

Some investors like to invest in areas that deliver a positive impact for their own economy and country they call home. It’s one of the reasons why investors often favour investing in domestic companies over international shares.

Here are some of the wider benefits on investing in AIM shares in the UK.

Growing gross domestic product (GDP)

GDP is the headline figure used to measure an economy’s size and strength by taking the total value of products and services it produces over a specific time period. If an economy is expanding, GDP figures will be growing and vice versa is the economy is shrinking, or in a recession.

AIM shares continue to deliver a positive impact to the UK’s economy and GDP figures. In 2023, they contributed more than £35 billion to the main headline number. For context, this was almost double what the UK’s agriculture, forestry and fishing sector contributed with £19.2 billion.

Supporting UK jobs

In 2023, AIM companies directly supported 410,000 jobs with employee numbers in consumer, industrial and technology sectors growing the most.

In addition to this, AIM companies sparked further activity through their supply chains supporting a further 212,800 jobs and £18.6 billion of gross value added (GVA) to GDP. This indirect impact includes a broad range of suppliers to AIM companies such as financial services (advisers and stock brokers), business services (registrars, financial public relations, legal, tax, accounting and audit), as well as wider goods and services.

Both those employed directly by AIM companies as well as those employees supported through the supply chain will spend their wages on goods and services supplied by UK businesses, supporting further growth.

Improving productivity

The UK economy has had sluggish productivity for some time. UK productivity is now just 1.3% up on end-2019 levels. Productivity fell 0.8% in the third quarter of 2024, with a fall of 1.8% over the last year. It’s one of the reasons it’s fell behind other major economies like the US and China.

However, it would be unfair to paint all UK companies with the same brush. On average, AIM companies stand out positively with higher productivity than the national average, at £87,100 GVA per employee. This compares to a national (UK) average of £58,327. Over the last four years, the productivity of AIM companies has improved by 4% compared to 3% nationally; AIM companies lead on productivity.

Improving productivity in the UK economy can lead to significant benefits. Higher productivity means more efficient use of resources, which can result in increased output and economic growth. This can lead to higher wages for workers, as businesses are able to generate more revenue and share the gains with their employees.

Additionally, improved productivity can enhance the UK's competitiveness on the global stage, attracting more investment and boosting exports. Overall, these factors contribute to a stronger, more resilient economy, capable of supporting higher living standards and better public services.

Read more: the UK’s poor productivity

Increased tax revenues

Many AIM-listed companies are domiciled in the UK, so they are liable to pay UK corporation tax. This increases the overall tax receipts made to the HMRC each year. In 2022/2023, AIM companies made a significant corporation tax contribution of £5.4 billion. This helps to balance the books on the government’s already strained balance sheet and allows for further funding for investment in public services in areas such as healthcare, education and infrastructure.

They also pay Employers National Insurance Contributions and their employees pay both National Insurance and Income Tax.

A word on sustainability

Investors have become increasingly conscious about how their money is invested and how that can impact the environment and society in general. It's clear that AIM companies are aware of the importance of ethical and sustainability considerations.

The Green Economy Mark has been awarded to 41 UK-incorporated AIM companies. This mark highlights London-listed companies and funds that generate at least 50% of their revenue from products and services aimed at environmental goals, such as climate change mitigation and adaptation, waste and pollution reduction, and promoting the circular economy. Other key figures:

• Currently, there are four UK-incorporated AIM companies certified as B-Corps, with the latest certification granted in August 2024
• 5% of AIM companies have a female CEO, and 23% have a female CFO
• 58% of AIM companies have at least one woman on their board

Help your clients pass on more of their wealth

Whilst the changes brought in by the Autumn Budget on 30^th October 2024 has taken the shine off of AIM listed securities as an IHT planning tool, it still offers significant IHT benefits.

AIM-listed shares will continue to attract full Business Relief if held for at least two years and at death, until 6^th April 2026.Even after this date they will continue to attract 50% IHT relief. As IHT Is currently 40% this means an effective IHT charge of 20%. This still compares well with gifting the assets: it would take five years to achieve a similar level of relief (18%).

And unlike giving your assets away, the client still retains access and control in case the money is needed, so an AIM IHT portfolio can still play a valuable part of estate planning.

Why choose the Charles Stanley AIM IHT Portfolio service?

With our award-winning AIM inheritance tax portfolio service, our dedicated, specialist investment team has a long track record of generating returns for clients from investing in AIM-quoted businesses. The team focuses on selecting profitable and cash generative companies. They do this by screening and meeting the companies they invest in. They also have direct access to senior leaders of the company, which provides invaluable insight into the companies they buy into.

Charles Stanley’s specialist AIM team builds diversified, well-balanced portfolios of AIM shares, that crucially, qualify for Business Relief. Our expert Tax Advisers provide us with confidence that our investments will qualify for the relief.

Since the launch of our AIM service in 2012, we have mitigated Inheritance Tax for over 450 families.

Find out more about our award-winning service