Investing within the penny inventory house already carries the chance of heightened volatility, and the waters might get even choppier come 30 October. That’s when Chancellor Rachel Reeves will unveil the federal government’s price range geared toward stabilising the UK’s public funds.

It’s now feared that inheritance tax reduction on AIM-listed firms will likely be scrapped. This may increasingly drive monetary advisers to advocate their purchasers promote AIM shares. This is because of ‘consumer duty’ guidelines, designed to guard purchasers from potential losses that advisers might have foreseen.

Many UK small caps, together with nearly all of penny shares, are listed on the junior market. In keeping with estimates from Peel Hunt, a Metropolis funding financial institution, the ending of this tax break might trigger a right away 20%-30% drop within the worth of AIM-listed shares.

Uncertainty all spherical

Now, it wants declaring that we don’t know what’s going to occur within the price range. There could be no change in any respect. The FTSE AIM All-Share Index is barely down 1.3% prior to now month, so it appears buyers are presently sanguine about this.

If this does occur, although, it could clearly be dangerous for a market that’s already struggling to draw listings. Certainly, the London Inventory Trade has stated the variety of firms on its junior market has dropped to 704, in comparison with 1,694 again in 2007. Rising volatility is unlikely to encourage extra personal companies to record.

It’s estimated that axing the tax break might doubtlessly increase £1.6bn a yr. That’s a drop within the ocean within the grand scheme of issues (sufficient to pay authorities debt curiosity for a couple of days).

Subsequently, I feel it’d be a short-sighted transfer. Then once more, I presently have 5 AIM-listed shares in my portfolio, so maybe I’m biased.

How I’m reacting

A big sell-off and declining market valuations might hinder AIM-listed firms’ skill to draw funding. But their fast day-to-day enterprise operations is probably not straight affected.

So, I’d see a small-cap crash as a possibility to purchase the concern, to paraphrase Warren Buffett. One AIM inventory I’d definitely like to purchase 30% cheaper is Keystone Legislation Group (LSE: KEYS).

The network-style legislation agency, which has a £182m market cap, operates a platform the place legal professionals work as self-employed consultants. This permits for scalability with out the excessive mounted prices of conventional firms.

Keystone has been rising income at an honest price and is solidly worthwhile. The inventory additionally provides a 3.2% dividend yield.

Within the first half, income grew 8.3% yr on yr to £46.5m, whereas 153 new “high-calibre” legal professionals made functions in the course of the interval.

Trying ahead, a major financial downturn might affect earnings development. Additionally, the UK is now seeing an exodus of rich residents (Keystone offers a variety of authorized companies usually required by rich people).

Nevertheless, I nonetheless assume there’s a major natural development alternative. As many legislation corporations push for a return to the workplace, Keystone’s versatile mannequin permits legal professionals to work remotely and independently, doubtlessly making it extra enticing.

Plus, the corporate is led by founder James Knight, which I discover interesting. Founder-CEOs usually prioritise long-term enterprise choices, which aligns effectively with my very own Silly investing philosophy.

If there’s a Halloween scare in AIM shares, I’ll be shopping for this one for my ISA portfolio.