Investors’ Relief was introduced in 2016 but due to the requirement for qualifying shares to be held for 3 years, the relief can only be claimed on disposals from the current tax year onwards. For those who have already utilised their Entrepreneurs’ Relief lifetime allowance or for whatever reason do not qualify for Entrepreneurs’ Relief, Investors’ Relief gives an opportunity to qualify again for a 10% rate of Capital Gains Tax on up to £10million of gains on shares.
The relief carries a number of conditions in order to qualify and these are significantly different from the existing rules for Entrepreneurs’ Relief. These are outlined briefly below:
Conditions Relating to the Shares
- The shares must be fully paid ordinary shares which have been subscribed and paid for by way of cash.
- The shares were issued on or after 17 March 2016 and at the time of issue were not listed on a stock exchange.
- These shares must have been owned continuously from subscription to disposal for at least three years. For shares issued before 6 April 2016, the shares must be owned for three years from 6 April 2016 plus the period prior to 6 April 2016.
- The company must be a trading company or holding company of a trading group
Conditions Relating to the Investor
- Only individuals or trustees qualify. Companies cannot qualify for the relief.
- There are restrictions around the investor being an employee of the company. Broadly, if the investor is an employee then they cannot qualify for Investors’ Relief except in specific circumstances. Unremunerated Directors, however, do qualify but again subject to certain conditions.
- There are also restrictions where the investor receives value from the company which can preclude a claim for relief.
- Care also need to be taken where persons connected to the investor receives value or is an employee of the company as this can also jeopardise a claim for relief.
The relief was primarily introduced to provide incentives for external investors to invest in unlisted trading companies and is a valuable tax break. Given the complexity of the rules, it is important that the qualifying conditions are considered from the outset and revisited throughout the period of share ownership.
If you would like to discuss a claim for Investors’ Relief please contact your usual AAB advisor or Jill Walker (firstname.lastname@example.org)