Stamp duty amounts to 0.5% of every transaction, and a number of experts have commented that it is unlikely to attract more investment in markets in which investors are seeking high returns.
Speaking after the announcement, Richard Gill, editor of small cap specialist investment website t1ps.com, said: “"The chancellor’s decision to scrap the payment of stamp duty on shares traded on AIM and the ISDX from April 2014 has been largely welcomed by the industry. The move is certainly not a negative one but in our opinion will have very little effect on demand and liquidity for shares in these markets.”
To attract more investors to the sector, legislation needs to go further to ensure that AIM shares offer significantly improved returns in the long term.
Richard Power, head of the smaller companies team at Octopus, said: “Making AIM shares eligible for stocks and shares ISAs would attract more investors, and there is currently a consultation into this. Further tweaks to VCT rules could make them more favourable, and a re-introduction of capital gains tax taper relief would of course be beneficial.
“But what the move has done is highlight that it’s a growth market, and it helps to promote the industry, which is a very positive thing. It won’t have a significant impact financially in the short term, but then investors should be taking a long term view anyway.”
The change in policy also makes London more attractive for small caps companies and IPOs, following the introduction of the financial transaction tax (FTT) in France and Italy, and its potential roll-out across 11 EU member states.
Strong performance
The small cap sector has gained traction as investor risk appetite returns, and according to the AIC, the UK Smaller Companies sector outperformed the average investment company by 17% over the 12 months to March 2012, which is bound to increase its popularity.
Ed Beal, manager of Dunedin Smaller Companies, said: “The financial strength and potential of many smaller companies is in stark contrast to the huge level of public sector debt and the anaemic economic growth outlook. While the structural problems of the UK economy will take some years to resolve, many smaller companies will continue to expand due to the quality of their management, sound balance sheets and exposure to overseas markets.”
