Investors' Relief

It has long been the case that private companies struggle to get equity investment. Investors’ Relief was introduced in the 2016 Budget to encourage this kind of investment. Private companies are notoriously risky, so a tax incentive is needed to encourage potential investors.

Originally branded as an extension of Entrepreneur’s Relief (now called Business Asset Disposal Relief [BADR]), it was actually introduced as a stand-alone relief but is similar in many ways to BADR. The headline is that it provides for a 10% tax rate on gains when the shares are sold. There is a lifetime limit of £10 million of gains.

What kind of companies can I invest in?

This relief is strictly limited to trading companies or trading groups. In this context trading excludes property letting and holding investments. A small amount of non-trading activity is permitted within a trading group but it must not exceed 20% of the company’s, or group’s, overall activities.

The shares must be a new issue by the company, on or after 17 March 2016, you cannot buy them from an existing shareholder, and you must pay in full in cash. You then have to hold the shares for at least three years before making a sale that could qualify for the relief.

Who can invest?

Any individual can invest provided they are not connected to an employee of the company. Trustees can also invest provided the beneficiary has an interest in possession in the shares. Again, neither the trustee nor a beneficiary of the trust can be an employee of the company.

You can have a seat on the board of directors provide it is unremunerated and shares may be held jointly or by a partnership if desired.

Given the three-year holding period the first qualifying disposals are likely to be in 2019/20 tax year. If you think you may qualify and haven’t claimed, there is still time to amend your return and reduce your tax liability.

If you need an further assistance, or would like to discuss Investors' Relief further, please get in touch.