Nov 2, 2024 · 14 min
Budget tests AIM’s case against global growth stocks
IC038 AIM Market and Budget Impacts
The episode weighs whether tax advantages and UK-market access can offset weaker investment conditions and the pull of international winners.
- 1The budget’s changes to AIM business relief appear limited, but higher employer National Insurance may deter UK hiring and investment.
- 2AIM companies face pressure to prove stronger growth as investors compare tax benefits with returns from global businesses such as Alphabet and Garmin.
- 3The hosts debate whether mature companies should return cash through dividends or reinvest it to build longer-term growth.
Don't miss
The hosts confront whether AIM’s tax benefits can compensate for the stronger growth prospects offered by international companies.
The brief
Chris and Lord Lee examine how the UK budget could reshape the case for AIM shares, focusing on business relief, employer National Insurance, and investment conditions.
The hosts argue that AIM’s revised tax advantages may not be enough if higher employment costs discourage hiring and weaken the UK’s appeal to growing businesses.
AIM is measured against international growth companies such as Alphabet and Garmin, leaving smaller UK firms a limited window to show why investors should stay.
A listener question turns to AIM shares in SIPPs and inheritance tax, with the hosts offering an initial view while stressing the need for professional tax advice.
The closing debate asks whether mature companies should pay dependable dividends or reinvest cash, contrasting UK payout habits with Alphabet’s continued investment.
What was said on this episode
21 statements · 10 positive · 8 negative · 2 mixed · 1 neutral
AIM business-relief shares will retain partial inheritance-tax relief, with 20% tax applied.
“there will still be a tax break. It's not 100% relief. Effectively, there'll be 20% inheritance tax applied to business relief shares”
Listen at 1:32
The revised AIM inheritance-tax treatment will begin in April 2026.
“it's only going to be April 2026”
Listen at 1:45
The AIM market rose approximately 4.5% after the budget.
“The market itself was up circa 4.5%.”
Listen at 2:28
AIM valuations currently appear unusually attractive.
“valuations have never looked as attractive on AIM, which is really encouraging”
Listen at 2:51
AIM valuations currently look unusually attractive.
“valuations have never looked as attractive on AIM”
Listen at 2:51
The reduced relief may not sufficiently incentivize holding riskier AIM companies after April 2026.
“post-April 2026, will people really be incentivized enough to hold given the added risk of smaller companies?”
Listen at 2:57
The UK budget was not business-friendly.
“I don't think it was very business friendly at all. I was quite disappointed by it.”
Listen at 3:38
Higher employer National Insurance increases incentives for businesses to invest in AI instead of hiring.
“I'd be ploughing money into AI to avoid employing anybody. The incentive here to invest more in AI is heightened”
Listen at 4:01
Higher employer National Insurance would encourage businesses to invest in AI instead of hiring.
“I'd be ploughing money into AI to avoid employing anybody.”
Listen at 4:01
Many investors may prefer low-risk technology giants over smaller AIM companies.
“many people will just say, I'm going to go for the growth, the low-risk tech giants rather than the smaller minnows on AIM.”
Listen at 5:26
AIM companies should improve promotion to attract everyday investors.
“they've got to do more to promote themselves to everyday investors”
Listen at 5:40
Investor exits could worsen AIM underperformance and trigger further exits.
“it's going to be a vicious circle. People getting out, AIM will underperform more, which will encourage more people to get out.”
Listen at 6:35
Several years of policy stability would benefit AIM, though the current window is under two years.
“If we've got some stability now for a few years, which is under 2 years, That's going to be positive.”
Listen at 7:14
The London Stock Exchange should make AIM more effective and attractive to investors.
“the exchange needs to be better. It needs to be zappier. It needs to attract more investors.”
Listen at 7:34
Alphabet trades around 19 times forecast earnings while earnings grow roughly 20%.
“Alphabet shares are trading at whatever, 19 times forecast unadjusted earnings, clean earnings. That's not bad for a company that has been growing at circa 20-odd percent earnings growth.”
Listen at 8:20
AIM shares held within SIPPs likely will not receive reduced inheritance-tax rates.
“we don't believe that you'll be able to benefit from AIM shares from a reduced inheritance tax rate for AIM shares held within a SIPP.”
Listen at 9:31
Many UK companies have paid dividends excessively relative to appropriate levels.
“for many UK companies, they've been paying out excessive dividends, well in excess of what they should have done.”
Listen at 10:33
Some legacy UK companies may cease to exist within 20 years because of underinvestment.
“they're not even going to exist in 20 years' time.”
Listen at 11:28
Underinvestment by many UK businesses will eventually produce diminishing returns and poor capital allocation.
“a lot of these businesses are not investing enough. So sooner or later you'll see diminishing returns and it's just poor capital allocation really.”
Listen at 11:34
Halma has been an effective investor and capital allocator.
“A company like Halma, which we are not holders, but Halma has been a very effective investor and capital allocator.”
Listen at 11:44
Garmin must invest heavily and continuously to remain competitive in its product markets.
“Garmin, another one of the stocks you were talking about, the maker of the smartwatches and GPS track watches and outdoor leisure products, is a case in point. It's having to invest like mad.”
Listen at 12:20
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.
Featuring
Alphabet Inc.
Garmin
London Stock ExchangeListen to the full episode and explore every guest, topic, and moment on PodLume.