Don’t forget about investors’ relief!

The issue

Investors’ Relief (IR) came in to effect for disposals from 6 April 2019 and people are forgetting about it! They shouldn’t do because the relief applies to shares issued on or after 17 March 2016 and shares that are sold after 5 April 2019 may qualify for the relief because there is a three year qualifying holding period, running from 6 April 2016.

How does the relief work?

IR is a bit like Entrepreneurs’ Relief (ER) but the investor does not need to (and indeed generally cannot be) an officer or employee of the company and nor does he need to own a minimum percentage of the company’s ordinary share capital. If IR applies, like ER, the maximum capital gains tax rate on a disposal is 10% and this is also subject to a (separate) £10M lifetime limit. The key conditions are as follows:

  1. Shares must be subscribed for (as opposed to being acquired).
  2. The shares must be in an unlisted company.
  3. They must have been acquired on or after 17 March 2016.
  4. Ownership on sale must have been at least three years since 6 April 2016.
  5. Shareholder should not be an employee or officer of the company during ownership, apart from a few limited cases where an investor becomes an unremunerated officer.
  6. Shareholder cannot be ‘connected’ with employees or officers of the company during ownership (this is a spouse or lineal descendant or business partner).

Final comment

Although IR has a fair number of restrictions it should always be considered in cases where ER (and other reliefs like EIS) does not apply. Furthermore prospective investments should be reviewed as there may be certain cases where investments can be structured to allow ER and IR relief to be accessed which would give rise to an effective £20M limit for the 10% rate.

 

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