What is Investors’ Relief?

Ordinarily, when an individual sells shares that are subject to capital treatment, they are liable to Capital Gains Tax (“CGT”). This can either be at the lower rate of 10%, higher rate of 20%, or both, depending on whether the individual is a basic or higher rate taxpayer.

Investors’ Relief is a straightforward but underutilised tax relief which reduces the amount of CGT that would otherwise fall due on the disposal of shares. Qualifying disposals under Investors’ Relief taxes a gain on disposal at a flat rate of 10%.

What has changed for Investors’ Relief?

Firstly, drawing on features of both the Business Asset Disposal Relief (“BADR”) and Enterprise Investment Scheme (“EIS”), Investors’ relief is designed to attract individuals who invest in unlisted trading companies. Specifically, those who are not actively involved in the business. It is handy for investors who have fully used their lifetime BADR entitlement. It acts as a safety net for investors whose shares initially qualified under the SEIS or EIS but have since been disqualified.

Investors’ Relief applies to shares issued on or after 17 March 2016. Furthermore, it is only available where the shares were subscribed for cash rather than purchased from another shareholder.

For the disposal of the shares to qualify for Investors’ Relief, the following conditions must be met:

  • The shares must be held in a trading company that is not listed on a public exchange;
  • The shares must be ordinary shares
  • The shares must have been owned for at least three years up to the date of disposal, and
  • The person disposing of the shares is not an employee/connected to an employee/director of the business.

Want to find out more?

There is a £10 million cap for Investors’ Relief that applies to the individual’s lifetime. Unlike with other reliefs, there is no minimum shareholding requirement. If you have any questions or want to understand more, please contact one of our tax team.