JUNE 2016 - More Relief (but not light!)
Following the budget, the 2016 Finance Bill contains what Mr Osborne described as an extension to Entrepreneur’s Relief.
In fact, what we have is a new relief called Investors Relief and all that this has in common with Entrepreneur’s Relief is a 10% rate of capital gains tax on a lifetime limit of up to £10 million of gains.
The new relief applies to gains on shares subscribed for after 16 March 2016. Unlike Entrepreneur’s Relief, the investor must not be an officer or employee and indeed nor must a person connected with him. This includes a spouse, sibling, ancestor or descendant.
The shares must be ordinary shares which are fully paid up in an unquoted trading company and the investor must have held these for at least three years to qualify for the 10% rate. With the reduction in the full rate of capital gains tax from 28% to 20%, it might not be such a disaster if the relief turned out to not be available but this is very much another of the circumstances where less is more!
There are strings attached to the Chancellor’s generosity in the form of anti-avoidance provisions. For example, even once the shares have been held for three years, the qualifying conditions must continue to be met and so, for example the investor and his family must not become employees.
Interestingly, shares quoted on the Alternative Investment Market will qualify and it will be possible for the investor to transfer shares to a spouse without the relief being lost. There is no minimum percentage shareholding, unlike the 5% required for Entrepreneur’s Relief.
While many business angel type investors will welcome this relief, had he been around today, George Orwell may have said “Investors Relief good but Enterprise Investment Scheme better”. If you have the opportunity of investing in an unquoted trading company then, if you can make this investment under the Enterprise Investment Scheme then not only can you pick up a valuable 30% income tax relief, provided that you claim this, any capital gain on sale of your shareholding will be completely exempt from capital gains tax.
If you would like more information or would like to discuss, please click here to get in touch.