Junior AIM index clocks up biggest one-day gain in four years as tax raid turns out be smaller than feared

The junior AIM index clocked up its biggest one-day gain in four years after a much-feared tax raid turned out to be less damaging than expected.

The Chancellor said AIM shares – which are typically smaller fast-growing companies in need of investor support – would no longer be fully exempt from inheritance tax (IHT).

But instead of abolishing the relief altogether as feared – which could have seen them subject to a 40 per cent hit – they will attract an inheritance tax rate of 20 per cent if held for more than two years from April 2026. 

Investors reacted with relief that Rachel Reeves’s tax raid was not more punishing and the AIM index rose 4.3 per cent – its biggest daily gain since April 2020.

Rob Morgan, chief investment analyst at wealth manager Charles Stanley, described it as ‘a small blow to AIM’ rather than ‘a knockout punch’.

Fears that the relief would be scrapped have weighed on AIM in recent months with Peel Hunt warning its abolition would see 15 per cent of cash withdrawn from the index overnight –sending it down as much as 30 per cent. 

Abby Glennie, manager of the Abrdn UK Smaller Companies fund, said: ‘The Government did not quite throw in the hand grenade for AIM entrepreneurs and investors that many expected. 

However, IHT applied on AIM assets at 20 per cent still makes investing in the market less attractive than previously.’

The Budget also saw inheritance tax relief scrapped on family businesses and farms worth more than £1million.

Businesses and farms worth under that will still enjoy 100 per cent relief – meaning there is no tax to pay when passed on to their children – from April 2026. 

But relief will be cut to 50 per cent on anything beyond £1million – meaning they will face a 20 per cent levy.

Idina Glyn, a partner at law firm Mishcon de Reya, said: ‘The Budget has executed a swift blow to the foundation of our local communities and rural economy. 

This cap will increase the inheritance tax payable by a substantial number of business owners and landowners – and not just the ultra wealthy. 

The key question for many farmers and business owners is whether they will have a viable business to pass on to their successors after settling the new tax liabilities.’

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