Investors Relief

1 year, 1 month ago by Oliver Atkinson

Introduced as part of the Budget in 2016, the primary function of Investors’ Relief is to reduce the amount of Capital Gains Tax on the disposal of shares in unlisted companies. Unlike Business Asset Disposal Relief (BADR, previously known as Entrepreneurs’ Relief), for which the shareholder must be directly linked with the company as either a director or employee in order to qualify, Investors’ Relief is specifically aimed at reducing the Capital Gains Tax due on external investments.

Investors’ Relief has largely remained under the radar since its introduction, as to qualify for the relief any shares sold under the scheme must have purchased after 6th of April 2016 and been held for a minimum of three years. But since the 2019/20 tax year, the relief has become a consideration for anybody looking to sell their shares in an unlisted company.

Let’s take a quick look through the details:

• The relief allows for a 10% CGT rate for the sale of shares in unlisted companies
• The disposed shares must be held in an unlisted company that is current and trading in order to qualify, and must be paid in cash and subscribed for by the investor
• The shares must be held for a minimum of three years prior to disposal
• There is no minimum or maximum shareholding to qualify, the shares could be for 0.01% of a company, or 99%
• The investor nor any connected persons can be an employee or an officer of the company.

Aside from the last two points above, these terms are look very similar to BADR. However, BADR recently saw its lifetime allowance reduced from £10 million to £1 million in the 2020 Finance Bill, whilst for Investors’ Relief the lifetime allowance remains at £10 million. This makes it a useful option for investors who have potentially used up their BADR allowance, or if the company in which the shares are held outgrows the thresholds for the Enterprise Investment Scheme.

If you are thinking of selling your shares in a Brighton & Hove based business, or even further afield, and want to have a chat with an accountant about the best option for you, please feel free to get in touch with us.