A flow of investment from London’s alternative market to the main stock market is expected following changes to the capital gains tax (CGT) regime in the Pre-Budget Report, tax experts gave warning yesterday.

The abolition of taper relief, announced by Alistair Darling, the Chancellor, on Tuesday, will increase the minimum CGT paid on gains from selling certain types of AIM shares from 10 per cent to 18 per cent from April 6.

Tax experts said that the change would encourage shareholders who had held AIM shares for more than two years and intended to take profits, to sell in the next six months.

The Government also abolished the indexation allowance, which provided relief from inflation. The allowance, which was frozen when taper relief was introduced in 1996, will disappear completely from April 6 next year, increasing the CGT bill for investors who sell their shareholdings after that date.

However, stockbrokers yesterday said that the sell-off would be temporary and added that the wider market would not suffer as investors would continue to be attracted by AIM’s “light touch” regulation and flexibility.

Chris Sanger, head of tax policy at Ernst & Young, the accountant, also said that investors in the main market would benefit from the changes.

Mr Sanger said: “Under the current regime, people with portfolio shareholdings on the main stock market have to pay tax on their gains at 40 per cent if they turn over their shares within three years – this reduces gradually to 24 per cent after ten years’ holding,” Mr Sanger said. “In future these investors will be paying 18 per cent on their gains. This will be real encouragement for individuals to trade shares and invest on the main market. Logically there will be a flow of investment from AIM to the main market.”

Roy Maugham, tax partner at UHY Hacker Young, the accountants, said that changes introduced in the PreBudget Report could prompt a “mass selling” of stocks in London’s junior market. He expected a “rush of AIM and small company investors looking to sell before next April to take advantage of the lower rates of taper relief”.

However, Graham Deane, head of equities at Killik, the stockbroker, said: “I don’t think there will be a sell-off. AIM investors, when they come to the end of the year, often sell to take advantage of the £9,200 capital gains tax allowance. However they then reinvest straight away.”

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