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Investors' Relief: What You Should Know

Posted 3 years ago

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Investors' relief (IR) is broadly regarded as an extension of entrepreneurs' relief and allows investors to benefit from reductions in tax. Introduced under the 2016 Finance Act, the relief was brought in to incentivise investors to purchase shares in unlisted trading companies in a bid to encourage private investment and stimulate entrepreuenrial activity in the UK.

Investment relief is often a go to for those investors and companies who have been excluded from other popular forms of tax relief such as the Seed and Enterprise Investment Scheme (S/EIS).

How does investors' relief work?

Any financial gain from sellinng part or all of a company, a business asset and even shares and securities is subject to something called Capital Gains Tax. Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. It’s the gain you make that’s taxed, not the amount of money you receive.

Under Investors' Relief, those who qualify are only libale to pay 10% of CGT on gains thy receive from the disposal of shares. There is a lifteime limit of £10 million when claiming under the relief.

Am I eligible for investors' relief?

All UK angel investors, venture capitalists and wealthy private individuals may be eligible to claim the relief. Indeed, it is well regarded as having straightforward conditions compared to the other forms of tax relief available. According to the government, to be eligible, the following criteria must be met:

Shares must not be listed on a recognised stock exchange at the date of issue
Shares must have been issued on or after 17 March 2016 and must be fully paid ordinary shares
Throughout the shareholding period, the company issuing the shares must have been a trading company or holding company of a trading group
The investor must have held the shares continuously and for at least three years from 6 April 2016, from the date of issue to the date of disposal
The shares must have been obtained for commercial purposes and not as a way of reducing tax
The investor cannot have been a relevant employee at any time in the period of ownership of the shares

How can I claim?

Investors’ Relief must be claimed, either by the individual or, in the case of trustees of settlements, jointly by the trustees and the eligible beneficiary. You must make a claim to HMRC in writing by the first anniversary of the 31 January following the end of the tax year in which the qualifying disposal takes place.

Before proceeding, we greatly suggest you seek the professional advice of your accountant or financial advisor. Each individual claimant's circustances are individuals.

Authors: Oliver Murphy & Sacha Bright

Disclaimer

To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed.

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