AIM A guide to AIM tax benefits

AIM A guide to AIM tax benefits 

Part 1
Tax benefits for individual investors

Capital gains tax 
(CGT) gift relief
There is no general CGT relief for gifts (although transfers 
between husband and wife are on a no gain/no loss basis). 
However, if shares or securities in an AIM trading company 
are transferred, other than at arm’s length, the deemed 
capital gain arising can be ‘held over’, i.e. the CGT liability 
is postponed until a subsequent arm’s length disposal by 
the transferee, who effectively inherits the transferor’s base 
cost. The relief must be claimed by both the transferor and 
transferee within five years and ten months of the end 
of the relevant tax year.
Who can benefit from CGT gift relief?
— The relief is particularly useful for the transfer or gift 
of shares within families
— The transferee must be resident or ordinarily resident 
in the UK and remain so for six years
— There are no specific requirements for the transferor
— There is no minimum or maximum holding required
— It does not apply to a gift of shares to a company.
Entrepreneurs’ Relief
Entrepreneurs’ Relief where available can reduce the rate of 
CGT applicable on disposal from 28 per cent to 10 per cent.
Certain conditions need to be met in order to claim the 
relief and the disposal must represent a material disposal 
of business assets. A disposal of shares will not qualify for 
the relief unless it is an investor’s personal company (i.e. 
the investor holds at least 5 per cent of the ordinary share 
capital and voting rights). The individual must also be 
either an officer or employee of the company or a group 
company. It is recommended that where Entrepreneurs’ 
Relief is potentially available the person seeks appropriate 
professional advice prior to taking action.
Enterprise Investment 
Scheme (EIS)
The EIS can benefit individual investors who subscribe 
for new ordinary shares in AIM companies which qualify as 
trading companies. Qualifying investments up to £1 million 
in aggregate in a tax year (husband and wife may each 
invest £1 million) entitle an investor to the following 
tax reliefs:

30 per cent initial income tax 
relief on investment (‘initial relief’)
— 30 per cent initial income tax relief on investment 
(‘initial relief’)
— For investments in qualifying shares made in a 
particular tax year, any part of the investment may 
be treated as made in the previous tax year.
— Relief is restricted to the actual income tax liability 
for the year, if lower than 30 per cent of the cost 
of the investment.
Example – investment of £100,000 
Gross investment in shares £100,000
Income tax relief at 30% (30,000)
Effective cost of investment £70,000

Exemption from CGT on disposal
— The investment must be held for three years
— Initial relief must not be withdrawn
— The exemption is restricted if initial relief was not given 
on the full amount or if that amount has been reduced.
Example – investment of £100,000 £
Realised value of shares after three years £200,000
Original gross investment in shares (100,000)
Tax-free gain £100,000
Loss relief if the investment 
fails or is disposed of at a loss
— This is calculated at an investor’s top rate of tax 
(currently 45 per cent for a higher rate payer) effectively 
on the net loss, after taking into account the initial 
tax relief
— Losses can be relieved either against capital gains in 
the year of loss or a subsequent year or against income 
in the year of the loss or the previous year
— The maximum net loss can thus be restricted 38.5 per 
cent (see example).

AIM A guide to AIM tax benefits