Investors’ Relief

With effect from 17 March 2016, a new relief known as “Investors’ Relief” provides a 10% Capital Gains Tax rate on up to £10 million of gains.  Together with Entrepreneurs’ Relief, this provides investors with the potential to have £20 million of gains taxed at only 10% over their lifetime. 

Investors’ Relief is available on gains accruing on the disposal of ordinary shares in an unlisted trading company held by individuals, which were acquired for new consideration on or after 17 March 2016, and have been held for a period of at least three years. The relief will apply to gains on shares subscribed for by an individual, their spouse or civil partner.  The investor and any person connected with them must not be an employee or officer of the company.

Since inception, the relief has been amended to allow for trusts to utilise the relief.  This amendment has provided the ability for the relief to be used as part of tax efficient succession planning.

Our Entrepreneurial Tax advisors commented that although this is a generous relief, it is important for investors not to forget that Enterprise Investment Scheme (EIS) allows a Tax Free exit and additional Income Tax Relief up to 30% of the amount invested.

As an example, assume a higher rate tax payer receives £150K return on an original investment of £100K; ignoring annual capital gains tax-free allowance:

      No Relief (£)     Investors' Relief (£)     EIS Relief (£)    
Original Cost(100,000)(100,000)(100,000)
Income Tax Relief  30,000
Capital Gains Tax(10,000)(5,000)-
Net Income£40,000£45,000£80,000

Despite this, the relief remains a welcome addition which will interest Business Angels and Investors who have utilised their full lifetime allowance for Entrepreneurs’ Relief.

Johnston Carmichael has a team of experts in this area; please contact Suzanne Brownie or Simon Burton if you require further information.