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Shares is starting a campaign designed to jolt Chancellor Alistair Darling into a tax rethink for investors, and we urge you to join. As providers of a large portion of Aim's seed capital and drivers of much of the junior market's success, private investors face having the rug pulled from under their feet by the government.
Darling's plans to abolish taper relief and create one flat-rate of capital gains tax (CGT) is a missile heading directly your way. As any investor in Aim knows, taper relief is there for the long-term supportive shareholder. If you hold Aim shares for two years the CGT rate falls from 40% to 10% or 20% to 5% for lower-rate taxpayers.
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From 6 April Darling wants a flat rate of 18% - that's an increase of at least 80%. You can influence the government on this issue. And that is why Shares is today launching a campaign demanding these plans be shelved - permanently. It is time for the private investor to speak up. Presented to us as a measure to tackle private equity's exploitation of tax breaks, the government's plans throw the baby out with the bath water. It's true, private equity managers who take personal stakes, or 'carried interests,' in target companies have played the system. Paying themselves nominal salaries and waiting two years for the investment returns, they convert a 40% income tax into a capital gains rate of 10%.
But why should the private equity industry's tax-avoidance methods mean loyal shareholders who, let's face it, are the ones taking the real risks with their capital, get clobbered too?
As the owner of Aim, the London Stock Exchange (LSE) has launched an investigation into the impact of the tax changes on the market. We went along to the LSE's annual Aim conference last week and pointed out that many private investors are making decisions now so the exchange needs to bear its influence on the Government as soon as possible.
But the LSE, which says private investors own about half the market, won't give us deadline for completing its investigation and Shares fears its findings will be too late. There is only a short window of opportunity and as the uncertainty continues, private investors may feel they have no choice but sell now or regret later. October and November are the traditional months for portfolio reviews.
Investors who ploughed money into Enterprise Investment Schemes (EIS) look set to be losers too. Graham Shore, managing director at investment bank Shore Capital, tells me he was told by HM Revenue & Customs (HMRC) that deferred capital gains in EIS schemes will also be subject to 18% CGT from 6 April. One of the big attractions of EIS is it allows deferral of capital gains tax bills. If you put the gain into an EIS company you don't pay the CGT until you sell the EIS-qualifying shares. If you've deferred a 10% tax liability, will you pay 18% after April 6? It's looking that way.
The well-publicised campaign by the owner-managers of private and Aim-quoted companies - which both attract the enhanced taper relief available under HMRC rules - is gathering momentum. But the voice of the private investor is yet to be heard. That is why we urge you join our campaign today in stopping this Government making a massive mistake. Stand up and be counted.
Private investors are not alone in their outrage, many City professionals are also up in arms. Roy Maugham is tax partner at accountants UHY Hacker Young which advises private investors on tax issues
Gains on second-homes will also be taxed at 18% from April 6. Maugham says: 'UK investors will be less inclined to support the Aim-quoted start up business rather than invest in property or fully-listed established companies.'
On the London Stock Exchange's (LSE) investigation into the impact on Aim: 'Given the recent adverse publicity of the proposed changes many [investors] are waiting in the hope of a change and looking for further support from the LSE.' He adds that investors 'need to know where they stand sooner rather than later.'
Neil Pamplin is client service director at Grant Thornton and advises clients on tax issues, including Enterprise Investment Schemes (EIS)
Pamplin says it won't become clear whether those who've already invested deferred gains in EIS will revert to the flat 18% rate after April 6: 'Until the draft regulations are published in December we won't know with any surety.'
On the LSE's investigation into the impact on Aim: 'I hope the LSE joins others in petitioning the Treasury for further thought and consultation, perhaps with some transitional arrangements so as not to create an anomaly in the investment markets for the next four months.'
Graham Shore, is managing director of investment bank Shore Capital which advises both private and corporate clients on tax issues
Shore says: 'This is a bad more for the Aim market, particularly when smaller companies are significantly under-performing large caps. From an economic point of view companies will face tougher conditions for raising credit.'
On the LSE's investigation into the impact on Aim: 'Half the money raised on Aim comes from private investors and these changes affects this half. It [the LSE] should be pushing very strongly for the Government to rethink.'