Personal Law

Investors’ Relief was introduced in 2016 and is aimed at encouraging investment in entrepreneurial activity in the UK. Due to the conditions of the relief, it can now be used from this tax year. Here is what you need to know about this beneficial tax relief:

1. Investors’ Relief (IR) allows individuals (and some trustees) to qualify for a 10% capital gains tax rate on the disposal of qualifying shares. This relief is similar to Entrepreneurs Relief (ER).

2. As with ER there is a lifetime limit of £10 million. This is in addition to the ER lifetime limit of £10 million. Therefore, an individual might have up to £20 million of gains taxable at 10%.

3. The shares must be in a trading company (or in a holding company of a trading group) throughout the entire shareholding period.

4. In order for the shares to qualify, they must be unquoted ordinary shares. The shares must be subscribed for and fully paid in cash by the person who claims the relief and be held continuously between subscription and sale.

5. The shares must be owned for at least three years (in contrast to the two year ownership requirement for ER). IR applies for shares issued on or after 17 March 2016. Therefore, the first disposals of qualifying shares will take place on or after 6 April 2019.

6. There are strict conditions that neither the investor, nor anyone connected with them (e.g. spouse, children, grandchildren, business partners etc.) can be an officer or employee of the company throughout the period that the shares are owned. It is permitted for an individual to be a director of the company provided they receive no remuneration (or other benefits).

This is a complex area of tax law. We recommend that you seek legal advice if you would like to know more about Investors’ Relief and Entrepreneurs’ Relief.

If you would like to discuss any of the issues raised, please get in touch with your usual contact in Brodies’ Personal & Family department, or telephone 01224 392 242 to speak with a member of the team.

 

Chloe Fitzgerald

Chloe is an Associate in the personal and family department, based in Aberdeen. She advises on many aspects of private client including the preparation of wills and powers of attorney, estate and succession planning and the administration of trusts and executries.
Chloe Fitzgerald