Investors’ relief as form of capital gains tax relief was launched in the 2016 Spring Budget as an extension of entrepreneurs’ relief (ER). It allows the investor to qualify for the 10% rate of CGT on the disposal of unquoted shares, like ER. The lifetime cap for the amount of gains which can be covered by Investors’ relief is £10 million, the same as, but in addition to the lifetime cap for ER.
The conditions for Investors’ relief must generally be met for the entire period for which the shares are held, unlike the ER conditions which only have to be met for the last 12 months of share ownership. The investor must have theInvestors’ relief conditions in mind when he subscribes for his shares, and he must understand how changes in his relationship with the company could jeopardise his ability to qualify for the relief on disposal of those shares.
It is thus disappointing that HMRC took until this week to release detailed guidance on investors’ relief, which is now found in their Capital Gains manual at CG63500.
An individual or trustee can qualify for Investors’ relief if they subscribe for ordinary shares on or after 17 March 2016, and hold those shares for a continuous period of at least three years to date of disposal, which cannot be before 6 April 2019.
The investor mustn’t be an employee of the company when he acquires the shares, but he can become an employee of that company at least six months later, as long as that employment was not a condition of acquiring the shares. The investor can be an unpaid director of the company, as long as he had not transferred his own self-employed trade into that company.
The investor must not receive any significant value from the company in a four-year period that starts one year before he subscribes for the shares. The definition of value in this context is tight and mirrors the strict conditions for EIS shares.
If you client would like to take advantage of investors’ relief you should read the detailed guidance in the HMRC manual, or contact us and we can put you in touch with a capital gains tax expert.