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Investors' Relief

Amidst all the discussion of Brexit, leadership elections and economic turmoil, the Government has been quietly progressing with the tax changes outlined in the Budget earlier this year.

A Budget measure of much interest to owner-managed businesses and their investors is the introduction of a new CGT relief for investors.  This will encourage investment into more established trading companies without the restrictions which apply to the existing entrepreneurs’ relief.
The relief
Investors’ relief has been described, including by the Government, as an extension to entrepreneurs’ relief, and its effect is similar in that it operates to reduce the rate of CGT which applies on a disposal of shares from the current rate of 20% (the rate of CGT on share disposals which applies with effect from 6 April 2016) to 10%.  As with entrepreneurs’ relief, a lifetime cap of £10 million of gains applies (this cap is in addition to the £10 million lifetime cap of gains qualifying for entrepreneurs’ relief). 
Qualifying for the relief
In contrast to entrepreneurs’ relief on disposals of shares, which requires a shareholding of at least 5%, there is no minimum shareholding requirement.  However, the relief is focussed closely on longer-term, unrelated investors through a number of other requirements:
  • The shareholder must subscribe for the shares himself (shares bought from another shareholder do not qualify for the relief);
  • The shareholder may not be an officer or employee of the issuing company while he holds the shares, and nor may his spouse or any of their immediate family;
  • The shareholder must hold the shares for at least three years before disposal (in contrast to entrepreneurs’ relief where the required holding time is just one year); and
  • The issuing company must be unlisted at the time the shares are issued (though companies listed on AIM are treated as unlisted for this purpose).
Only shares issued on or after 17 March 2016 (Budget Day) qualify for this relief.  As with entrepreneurs’ relief, the company issuing the shares must be a trading company or the holding company of a trading group throughout the shareholding period.
What situations will it apply to in practice?
This relief will be of most interest in situations where existing CGT reliefs do not apply, such as for companies which do not qualify for the Enterprise Investment Scheme due to their age or because they carry on a trade such as property development which does not qualify for EIS. 
It will also allow companies to offer shares to unconnected investors without the investors requiring a seat on the board to satisfy the requirements for tax relief as applies at present under the entrepreneurs’ relief regime.
This article has been prepared for inclusion in this newsletter by tax expert Charles Goddard of Rosetta Tax LLP.
For more information please contact Jonathan Morris or Kevin McGuinness.
Thrings Swindon


Thrings Solicitors in Swindon have been providing legal advice to businesses and individuals for almost 300 years.

6 Drakes Meadow, Swindon, SN3 3LL

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