As widely predicted, the Chancellor has announced reductions to the limits for tax-relieved pension contributions. With effect from 2014/15, the annual limit will be reduced from £50,000 to £40,000 and the lifetime limit from £1.5million to £1.25 million.
Those looking for compensatory income tax relief may soon be able to use their annual ISA allowance to invest in AIM companies. One of the most welcome announcements this afternoon was that the Government is consulting on extending the categories of qualifying investments for ISA investment to include shares traded on AIM and other SME equity markets. This follows a lengthy campaign by the Quoted Companies Alliance, the London Stock Exchange and others.
Although this is just a consultation at this stage, it seems very likely that the Government will proceed with the change as it is consistent with its stated intention to encourage investment in SMEs and should greatly increase the pool of potential investors in AIM companies, allowing access to the large number of individuals who currently invest their annual ISA allowance in investment trusts, VCTs and unit trusts. AIM shares are treated in the same way as unquoted shares for the purpose of several other investment incentives, including the Enterprise Investment Scheme, so their exclusion from ISAs is an anomaly long overdue for rectification.