What has occurred since then is a concentration of capital around the most liquid and largest of those companies.
Many of those companies have significant family shareholders who consequently benefit from the IHT.
Judith Mackenzie, head of Downing Fund Managers, has run mandates that invest in micro-caps and Aim shares and has highlighted the tendency of specialist IHT funds – that is, marketed on the basis of investing for IHT relief rather than on investment returns alone – coalescing around a small number of the most liquid shares at the top of the Aim market.
As those shares are in companies worth hundreds of millions, and potentially billions, of pounds, an investment there that captures IHT relief is arguably not really adding much in the way of growth capital to the UK economy.
Nor has the Aim market been a particularly bountiful place for new companies – 2023 was the worst year for new listings there for 24 years.
The British Isa is currently at the consultation stage and so may not see the cold light of the stock market for some time yet, but if and when it does, advisers and policymakers should be aware that the path to tax-efficient prosperity is paved with good intentions, but can lead to bad outcomes.
David Thorpe is investment editor of FT Adviser
