A UK inheritance tax seizure would be painful but not fatal for Aim, an LSE executive says.

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Scraping inheritance tax relief for Aim-listed shares in this month's Budget is painful and unnecessary but will not kill Britain's junior share market, according to a London Stock Exchange executive.

Prime Minister Rachel Reeves faces a $40 billion funding gap, sparking fears of higher capital gains taxes and other charges and cuts to tax cuts.

Aim investors have been nervous in recent weeks about the possible scrapping of a business relief that would allow owners of Aim listed shares to pass them on without incurring inheritance tax, which would normally be levied at a rate of 40%.

Many city leaders fear the repeal of the tax break will have a devastating impact on Aim.

One small fund manager told the Financial Times there was a significant risk of the market crashing as investors pull out once the tax cuts supporting Aim expire. Company representatives are fielding questions from fund managers about contingency plans if the tax breaks are removed.

Marcus Stuttard, head of Aim and UK primary markets at the London Stock Exchange, told a gathering of city executives on Thursday that concerns about corporate rescues were clearly very high.

Reducing or abolishing business relief would be truly unnecessary, he said. It will be painful and unhelpful. But I'm confident that we have a much broader-based market than one that relies on a single tax cut.

He argued that the market would survive even if tax support was removed. It's really important not to get caught up in the idea that markets will fail if business rescues are repealed.

Retracting the tapered relief did not cause failure. Referring to previous government interventions, he said it did not fail when retail was forced out of the market and the prospectus regime was introduced.

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Stuttard estimated that $6.5 billion of investments in Aim companies were held through funds marketed specifically to clients seeking to limit their estate tax bills, compared to Aim's overall market capitalization of $75 billion.

But he acknowledged the value of Aim shares had been hit by budget speculation in recent weeks and predicted they would fall further once Reeves ends his business rescue.

Stuttard also attacked the outrageous proposals to scrap Aim in a report by the Tony Blair Institute and Onward think tank published this week.

The report states that Aim companies should move into the main markets, but Stuttard said this completely misses the point as the Financial Conduct Authority now requires new main market companies to have a minimum market capitalization of $30 million.

Investors are also bracing for a possible capital gains tax increase that city businesses fear will reduce investor activity. Speaking at the same event, Winterflood corporate analyst James Wood said significantly increasing CGT was “absolutely madness.” Many entrepreneurs experience three or four failures before starting a successful business. “You can’t punish people for one final success,” he said.

Others were less positive about the Aims' prospects. Miles Millston, CEO of capital markets fintech Globacap, said Aim was in decline and was no longer fit for purpose, citing persistent liquidity shortages, declining funding opportunities, low trading volumes and erratic share price movements. said.

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