AIM’s main index shot up by 4% as investors in the junior market celebrated a reprieve from a potentially crippling inheritance tax blow.
Fears ahead of the Budget had been that an inheritance tax exemption for AIM shares would be removed sparking a rash of selling and removing one of the market's key supports.
However, the Chancellor kept the relief, albeit reduced it by half to 20%, which was still much better than expected.
Broker Peel Hunt estimates there is around £6 billion in funds created for Aim stocks with inheritance tax relief, while individuals have about £5 billion directly invested.
Removing this money would have likely led to share prices dropping by between by 20-30%, Peel Hunt added.
Rachel Winter, Partner at Killik & Co, said: "AIM shares have suffered from a perfect storm in recent years.
“Brexit has damaged confidence in British companies, and higher interest rates have made investors more risk-averse and less willing to hold shares in smaller companies.
“The AIM index lost half its value between late 2021 and late 2023. There were some tentative signs of a recovery in 2024, but the index had been heading downhill again since Labour’s victory in the election due to fears that Business Relief would be removed.
“The index has rallied today on the news that AIM shares will attract an inheritance rate of 20% rather than the usual 40%."
Susannah Streeter at Hargreaves Lansdown added that business property relief has been an incredibly valuable tax break for AIM investors over the years.
An investor who held qualifying investments for two years could see them fall out of their estate for inheritance tax purposes.
“There will still be concerns lingering that the reduction in the relief will mean it may be harder for firms to raise funds, as investors won’t benefit from such a generous tax break. It’s still unclear the extent to which the market may be affected longer-term,” she said.