Extension to Entrepreneurs Relief – Investors Relief

When Business Asset Taper Relief was abolished on 5 April 2008 and Entrepreneurs Relief succeeded from 6 April 2008 there were definitely some that lost out. This was especially the case for individuals who held shares in what had previously been a ‘personal company’, the introduction of Investors’ Relief may go some way to redress the balance.

Investors’ Relief is an extension to Entrepreneurs Relief (“ER”) and will be available where individuals (other than employees and offices of the company) or trustees dispose of certain ‘qualifying shares’ in an unlisted company. As with ER investors’ relief is also subject to a lifetime limit of £10 million and will have an effective rate of 10%, any gains that exceed the lifetime limit will be charged as the normal Capital Gains Tax rates of 10%/20% dependant on the circumstances.

Shares are qualifying shares if:

1. the individual making the disposal subscribes for the shares that are issued on or after 17 March 2016
2. they are ordinary share from when they are issued until the point of disposal
3. the company is a trading company, or, the holding company of a trading group from when the shares were issued throughout the period up to disposal
4. the shares must be fully paid up for cash at the time of issue
5. at the time they are issued none of the shares or securities are listed on a recognised stock exchange
6. the investor (or a person connected with them) has not been a relevant employee of the company or connected company at any time throughout the shareholding period
7. they are held continuously by the investor from when they are issued to disposal, and
8. they have been held for at least three years from 6 April 2016

The relief will apply to ‘qualifying shares’ that meet all the conditions, that are issued on or after 17 March 2016 and disposed of after the minimum three-year holding period, therefore, the first year this will apply to is for disposal on or after 6 April 2019 onwards. Therefore, the first tax returns a claim for Investors relief could be made are those relating to the 2019/20 tax year.

Eligible Beneficiary

For the relief to apply to a disposal by trustees, reference is made to an ‘eligible beneficiary’ of which there must be at least one. An eligible beneficiary is an individual who:

1. has an interest in possession (other than an interest in possession that has a fixed term) in settled property that includes a holding of shares immediately before disposal
2. has an interest in possession for at least three years up to the date of disposal
3. has not been an officer or employee of the company or connected company at any time throughout the shareholding period (as for individuals above), and
4. has elected jointly for the trustees to be treated as an eligible beneficiary, this needs to be made in order to make the claim

Investors’ Relief is not automatic and must be claimed. The time limit for making the claim is 12 months after 31 January following the end of the tax year in which the disposal took place – so for qualifying disposal in the year ended 5 April 2020, a claim must be made by 31 January 2022 if the relief is to be claimed.

Full in depth guidance can be found on HMRC’s website in the Capital Gains Manual at the following link: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg63500p