Investors’ relief is now available for Capital Gains Tax

Stephen Oates | 28 June 2019

Investors’ relief is now available for Capital Gains Tax

This blog was originally published on LinkedIn on 11th June 2019.

Investors’ relief is now only available for disposals after 5 April 2019.

Investors’ relief is separate to entrepreneurs’ relief, although many of the rules are similar. Investors’ relief gives a reduced rate of CGT of 10% for gains on qualifying share disposals by individuals or trustees and also has a lifetime limit of £10 million. It is worth pointing out that this lifetime limit is separate from the entrepreneurs relief lifetime limit.

Investors’ relief is aimed at incentivising external investors, in unquoted trading companies, who may not otherwise qualify. This could be because one of the requirements is that the investor, or an individual connected with them, must not be an employee or a director of the company whilst owning the shares. There are some specific exceptions to this rule.

The relief is intended to encourage and reward new investment, so there are conditions to ensure that the shares are subscribed for with new money that benefits the company.

As is often the case with tax reliefs, these conditions are quite complex. Broadly, shares must be:

  • Ordinary shares in a trading company which are not listed on a stock exchange.
  • Issued on or after 17 March 2016 (the date the relief was announced).
  • Acquired by subscription and fully paid up for in cash at the time of issue.
  • Owned by the investor continuously for at least three years, or up to 5 April 2019 if later as the relief is only available from the 2019/20 tax year onwards.

Example – the relief in practice

On 1 June 2016, an investor subscribed for 250,000 £1 ordinary shares in ABC Ltd, an unquoted trading company, at their par value. The investor has never been an employee or director of the company. The shares were sold for £880,000 on 5 July 2019.

The conditions for investors’ relief are met, including the three-year holding period. After deducting the annual exempt amount, the investor’s CGT liability for 2019/20 in respect of the shareholding will be £61,800 ((£880,000 - £250,000 - £12,000) at 10%).

We’re still early in the 2019/20 tax year, but if you are considering making a disposal in the future forward planning should be put in place to check the availability of investors' relief and how it may be claimed.

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