Investors' Relief and Capital Gains Tax
A newly introduced Investors' Relief (IR) has become available from 17 March 2016 which aims to encourage external investment in unquoted trading companies by individuals without the need to be directly involved in the business as an employee or director.
Once qualifying IR shares have been held for a continuous period of three years any capital gains realised on disposal will be taxed at a capital gains rate of only 10%. This is half the current CGT rate applicable to higher-rate taxpayers. There is a lifetime limit of £10 million per individual.
This is a new tax-efficient investment scheme for individuals which should prove popular with unquoted companies looking to raise additional equity capital outside the already existing Enterprise Investment Scheme (EIS) and Seed EIS.
- The investor must subscribe in cash for ordinary shares in a qualifying company on or after 17 March 2016
- The shares must be held for a continuous period of at least three years from the issue date
- The shares are disposed of on or after 6 April 2019
- The investor (or a person connected to him or her) must not be an officer or employee of the company at the date of investment.
- An amendment to the original proposal allows investors to be unremunerated directors so as not to preclude 'business angels' from benefitting from Investors' Relief.
- A further amendment allows investors taking up employment with the company more than 180 days after acquiring the shares and there was no realistic prospect of the shareholder becoming an employee at the share issue date.
- Note that there is no minimum individual shareholding requirement, in contrast to a 5% minimum which applies to Entrepreneurs Relief.
- There is no maximum investment threshold.
- At the date the shares are issued none of the company's shares must be listed on a stock exchange. Shares traded on AIM (Alternative Investment Market) are regarded as unlisted for this purpose.
- The issuing company must be a trading company (or holding company of a trading group) for the entire duration of the period in which the shares are owned.
Claiming Investors' Relief
- A claim for CGT Investors' Relief can only be made following a disposal of shares after 6 April 2019 so investors must ensure that all the conditions mentioned above are met throughout the period of ownership.
- A claim for the 10% rate of CGT must be claimed by the first anniversary of the 31 January following the tax year in which the DISPOSAL is made. For example, for a disposal of qualifying shares on (say) 1 July 2019 a claim must be made by 31 January 2022.
If you would like to discuss the content of this article or you require advice on any aspect of capital gains tax reliefs then please do not hesitate to email us at firstname.lastname@example.org or ring us on 01633 215 544
Please note that this article is for information purposes only and should NOT be regarded as taxation or investment advice or as a recommendation regarding any particular course of action.