Alternative Investment Market
What is AIM?
The FTSE AIM (formerly known as the Alternative Investment Market) is the London Stock Exchange’s growth market. It was created to help smaller companies raise the capital needed to scale.
Also referred to as London’s junior market, AIM replaced the Unlisted Securities Market (USM) and began operating with ten companies listed and a combined market cap of £82.2m. In just over 25 years, the exchange has grown to encompass around 830 companies and a combined market cap exceeding £106bn (July 2022).
AIM is often considered the most successful growth market in the world.
Why was AIM started?
The Alternative Investment Market was created to serve smaller companies that sought to seek capital to grow but couldn’t afford the costs associated with listing on the London Stock Exchange’s Main Market or could not meet the stringent requirements needed to float.
The Main Market requires companies seeking to float to have existed for three years, to have a market value of at least £700,000, to be willing to float a minimum of 25% of their share capital, and to have enough working capital for at least one year’s trading. AIM does not have these requirements which means that smaller, more entrepreneurial companies are less likely to be put off by floating on AIM.
What companies list on AIM?
Companies looking to float on AIM typically look to raise between £1m and £50m via IPO. While this may seem small, there have been some notable larger raises that exceed £100m. And, while many companies use AIM as a springboard to the Main Market (over 150 companies have made the move), there are still many companies listed on AIM with market capitalisations of over £1bn. This list includes Breedon, Fever-Tree and Jet2, all of which have delivered significant returns to investors who invested early on and have decided to remain on AIM despite their size.
Holding AIM Shares in an ISA
Since 2014 investors have been given the opportunity to add AIM-listed shares into their stocks and shares ISAs. The appeal of paying no Capital Gains Tax at disposal, and paying no income tax on dividends, has seen a steady increase in AIM shares being held in ISA portfolios.
Inheritance Tax (IHT) relief
Many AIM companies will qualify for Business Property relief, which offers up to 100% Inheritance Tax relief on ‘Transfers of Value’. Transfers of Value come into play when a family member passes away or where the shares have been transferred by way of a lifetime gift within the previous seven years.
The full relief is only applicable for certain unquoted companies. To benefit from Business Property relief you must have invested in the shares directly, as IHT is generally not available through funds. Discretionary portfolios created by wealth managers on your behalf also qualify.
What are the risks?
Many Alternative Investment Market-listed companies are still in their earlier stages, so some of the risks associated with investing in startups can be applied here. While some companies listed on AIM do eventually decide to move onto the Main Market, the rate of de-listings on AIM far exceed those on the Main Market.
You can find out more about Fundamental Asset Management’s high performing AIM IHT ISA and AIM Inheritance Tax portfolio service, which has been delivering exceptional investment returns for more than 16 years, from the link here.