Recognition of Stock Exchanges and Definition of "Listed" for Tax Purposes
We have received a large number of queries about Budget Note 37. This note clarifies some of the points raised about:
- the tax consequences for shares traded on the Alternative Investment Market (AIM)
- designation of recognised investment exchanges as RSEs.
(a) AIM
AIM is a market platform of the London Stock Exchange and the London Stock Exchange is a recognised stock exchange (RSE). So AIM shares are already traded on a RSE. What differentiates them from the main market for most tax treatments is that they are not included in the official UK List maintained by the Financial Services Authority as the UK listing authority.
Capital Gains Tax Business Asset Taper Relief
This example uses business asset taper relief as representative of a tax treatment that is dependent upon shares not being “listed on a RSE”. Similar reasoning will apply to other instances where a particular tax treatment is dependent on whether the shares are “listed on a RSE”.
In certain circumstances one of the conditions that must be met for business asset taper relief to apply to a capital gain arising on a disposal of company shares or securities is that the shares (etc) in question are not listed on a RSE. “Listed” here means included in the official UK List maintained by the Financial Services Authority as the UK listing authority.
Shares solely admitted to trading on AIM are not included in the official UK List maintained by the Financial Services Authority (FSA), as the UK listing authority. Therefore the shares in a company which are traded solely on AIM are not “listed on a RSE”.
If a company’s shares currently meet the business asset taper relief condition of being unlisted it will continue to meet the condition under the proposed new rules. The shares would however cease to meet the condition if they were to be included in the official UK List maintained by the FSA or listed on a recognised stock exchange outside the UK – where the listing met the HMRC definition for official listing.
PEPs/ISAs
This example uses PEPs and ISAs as an example where the tax treatment is dependent on shares being “listed on a RSE”. “Listed” is again defined as included in the official UK List as maintained by the FSA or listed on a recognised stock exchange outside the UK – where the listing met the HMRC definition for official listing.
To be eligible for PEP/ISA investment shares must be officially listed on an RSE. AIM shares are not eligible for PEP/ISA investment because, as mentioned above, they are not included in the official UK List. The shares could however become eligible if they were to be included in the official UK List as maintained by the FSA or were listed on a recognised stock exchange outside the UK – where the listing met the HMRC definition for official listing.
(b) Recognised Investment Exchanges
Please note that HMRC will not be automatically designating Recognised Investment Exchanges (RIEs) as RSEs under the proposed changes to the rules on recognition of stock exchanges. The new legislation will allow a UK RIE to be designated by HMRC as a RSE, but designation is not an automatic process. The position before the new legislation is that the London Stock Exchange is the only RSE in the UK. Whilst the current legislation gives HMRC powers to recognise overseas stock exchanges it does not give powers to recognise any UK stock exchanges other than the London Stock Exchange (which is specifically recognised).
If you have any further questions about this, please contact Marion Williams on 020 7147 2553 or David Moran on 020 7147 2612
