Investors Relief

A new capital gains tax relief for investments in qualifying shares of a trading company was introduced in Finance Act 2016. Investors’ Relief was introduced to provide an incentive for external investors to invest in unlisted trading companies over the medium to long-term.

For a qualifying person selling shares, in order for investors’ relief to be available, the following conditions must be met: –

  • The company must either be a trading company or the holding company of a trading group
  • The shares must be newly issued ordinary shares (being defined as all share capital of a company other than shares which only entitle the shareholder to fixed-rate dividends) and have been subscribed for by the individual in cash. The shares must be fully paid up at the date of issue. The shares must be subscribed for and issued for genuine commercial reasons and not as part of arrangements, the main purpose of or one of the main purposes is to secure a tax advantage to any person (‘qualifying shares’)
  • The investor has held the shares continuously for a period of three years from issue until immediately before the disposal (the ‘shareholding period’)
  • The investor or a person connected with the investor was not a ‘relevant employee’ of the company at any time when the shares were held. For these purposes, ‘relevant employee’ is defined as broadly a person who has been an officer or employee of the company that issued the shares or of a connected company at any time during the shareholding period.

The Main Benefits

Investors’ Relief reduces the rate of Capital Gains Tax (CGT) charged on disposals of qualifying shares to 10%, subject to a £10 million lifetime limit. The maximum potential tax saving under Investors’ Relief is, therefore, £1 million. The relief is available to both individuals and trustees where certain conditions are met.

Relationship with Entrepreneurs’ Relief

It is a separate tax relief to Entrepreneurs’ Relief and there are no specific interaction provisions. It, therefore, may be possible for shareholders to be eligible for both Investors’ Relief and Entrepreneurs’ Relief, but only in very limited circumstances (e.g. unremunerated directors). Therefore, consideration should be given to the availability of both tax reliefs prior to any investment to gauge whether both reliefs may be available to investors.

Investors’ Relief is intended to encourage and reward new investment over the medium to long-term and so there are conditions to ensure that new ordinary shares are subscribed for with new money that benefits the company and the shares are held for at least three years. The relief is targeted at external investors so will not usually be available where the investor, or an individual connected with them, is an officer or employee of the company.

Unlike Entrepreneurs’ Relief, there is no minimum shareholding requirement in order to qualify for Investors’ Relief, but there are various conditions that must be met in order to qualify.

If you would like to understand more about Investors Relief and how we can assist you, please do get in touch.

Related posts

Leave a Comment