Calls for tax relief to turbocharge the UK stock markets

The boss of one of the City’s leading brokers has called on the Government to extend inheritance tax relief to more London-listed stocks to boost investment in the UK.

Julian Morse, co-chief executive of Cavendish Financial, said such a move would ‘bolster investment into smaller companies which create the majority of jobs in the UK’.

It comes as data shows such a policy would knock less than 2 per cent off the sum raised by the Treasury from the levy, dubbed the ‘most hated tax’ in Britain.

Under current rules, only shares in companies listed on the LSE’s junior market, AIM, are eligible for inheritance tax relief.

But Morse and other City figures said this should be expanded to include companies listed on the main market of the stock exchange up to a certain market value, rather than scrapping the levy entirely.

He added that any Labour or Conservative government should maintain the relief on AIM and unquoted stocks or risk ‘untold damage to those firms which would directly impact job creation and GDP’.

The head of another major brokerage firm in the Square Mile said extending inheritance tax relief to the main market would ‘absolutely’ encourage investment in UK stocks, which over the past few years have struggled with low valuations, leaving them vulnerable to swoops by overseas buyers and private equity sharks.

Craig Coben, former head of equity capital markets at Bank of America, said the UK tax system was incentivising people to ‘invest in other asset classes, such as residential property, over main market shares’. He added: ‘It’s worth thinking about ways to redress this bias against equities.’

This was echoed by Charles Hall, head of research at investment bank Peel Hunt, who said extending inheritance tax relief would be a ‘very realistic’ approach that could relieve takeover pressure on small and mid-cap companies. He added: ‘It would help revitalise the ecosystem and provide additional demand turbocharging the market.’

The comments came as data from investment manager M&G compiled for The Mail on Sunday estimated that extending inheritance tax relief to main market stocks would knock just 1.4 per cent off the £7 billion raked in by Revenue & Customs from the levy each year.

‘These are not difficult or expensive changes. It wouldn’t require massive Government largesse,’ Hall said. An extension of the tax relief, rather than abolishing it as previously mooted by Rishi Sunak’s Government, is favoured by some in the City, due to fears that eliminating the levy could trigger a mass selloff in AIM shares.