Over 140 firms on London’s junior stock exchange have alerted the chancellor that the uncertainty surrounding business relief for inheritance tax is negatively affecting investor confidence as this month’s budget approaches, recent reports indicate.

Prominent businesses such as YouGov, Jet2, and Fevertree Drinks have sent a collaborative letter to Rachel Reeves, urging the government to provide “clear support” for business relief from inheritance tax. This measure is aimed at bolstering confidence in the AIM (Alternative Investment Market).

According to a Sky News report, the letter highlights that AIM has enabled innovative companies to access essential patient capital since its inception 30 years ago.

Other companies that signed the letter include Arbuthnot Banking Group, Cake Box Holdings, and Virgin Wines. They emphasized that a large portion of their shareholder base consists of individual investors, despite the existence of a limited number of specialized funds investing in AIM-listed companies.

The letter states, “[Business relief] helps compensate those investors for some of the extra risks that come with investing in growing companies. This investment underpins AIM as a vital growth platform for smaller enterprises.”

Inheritance tax is applied at a rate of 40 percent on a person’s estate, which encompasses property, savings, and investments (excluding pensions). Nonetheless, there are various exemptions, including business relief.

Since 1996, the majority of companies listed on AIM have qualified for this relief, enabling their shares to be transferred tax-free upon the investor’s death, provided that the shares have been owned for at least two years at that point.

According to analysis from broker Peel Hunt, the AIM market could experience a decline of 20 to 30 percent if the tax relief is eliminated. This could result in a loss of shareholder value estimated between £14 billion and £21 billion.

Octopus Investments, a subsidiary of Octopus Group known for its household energy services, is reported to have organized the letter to the chancellor. The company holds a substantial portfolio of AIM stocks through its inheritance tax service, per Sky News.

The investment bank Cavendish, which represents about a quarter of AIM-listed companies, also encouraged numerous businesses to join in signing the letter, according to Sky News. The letter was additionally sent to other Treasury ministers and business secretary Jonathan Reynolds.

These developments come amid estimates suggesting that Reeves may need to secure an additional £25 billion from tax increases to meet Labour’s commitment to avoid a return to austerity. The Institute for Fiscal Studies, a think tank, estimated that abolishing business relief on inheritance tax could generate £1.1 billion for the Treasury.

Critics have noted that the relief allows affluent individuals to reduce their inheritance tax liabilities by allocating a larger portion of their estates to AIM-listed equities. This approach introduces more volatility, as AIM investments would require a 40 percent drop to correspond with the inheritance tax charge.

Octopus Investments chose not to comment. The Treasury and Cavendish have been approached for their responses.