Could you be eligible to claim Investors’ Relief (IR)

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If you currently hold shares in an unlisted trading company that you’re not connected to or you’re looking to invest in unlisted trading companies over the medium to long-term then you could be eligible to claim Investors’ Relief (IR).

What is Investors’ Relief?

Investors’ Relief (IR) was launched in the 2016 budget as an extension of Entrepreneurs’ Relief (ER). It was designed to incentivise individuals to invest in UK entrepreneurial activity by offering a reduced rate of capital gains tax (CGT) of 10% upon disposal of shares of eligible companies that have been held for at least three years.

With a lifetime cap of £10 million, IR can give investors a potential tax saving of up to £1 million. It can be of particular interest if you can’t take advantage of SEIS or EIS tax reliefs. However, to qualify for IR, there are strict criteria that need to be met.

Are you eligible for Investors’ Relief?

In order to qualify, shares must:

  • Be ordinary shares that were issued to the investor in return for cash, paid in full on or after 17 March 2016
  • Not be registered on a recognised stock exchange, such as the London Stock Exchange. (Note that for the purposes of IR, Alternative Investment Market (AIM) shares are eligible.)
  • Have been held for a period of three continuous years from 6 April 2016
  • Belong to a trading company or holding company of a trading group
  • Have been acquired for commercial purposes and not to avoid tax.

There are also strict rules that state that you can’t be connected to the company you’re investing in. For example, you (or a connected person, such as your spouse) can’t be a ‘relevant employee’ after the issue date.  Also, you can’t have received ‘significant value’ from the company during a four-year period that begins one year before subscribing for the shares.

Despite the stringent criteria, there are no restrictions when it comes to the amount raised or size of the business. There’s also no restriction on minimum ownership percentage.

The relief also extends to shares that were held in collective investment schemes and trusts.

Is Investors’ Relief the Same as Entrepreneurs’ Relief?

Investors’ Relief was introduced as an extension of Entrepreneurs’ Relief (ER). This means that the £10 million lifetime cap of IR can be utilised ​in addition to that of ER. Therefore, it’s possible to benefit from both reliefs.

Unlike ER, IR only applies to shares and not to other securities like debts or loans. There are also complex rules that apply to specific cases, such as reorganisations.

How to Claim

If you are eligible for IR, beware: relief is NOT automatic. If you wish to make a claim, you must do so on or before the first anniversary of 31 January following the tax year in which the disposal is made.

For example, if you disposed of your shares on 5 October 2019, you would have until 31 January 2022 to claim.

If you want to find out whether you’re eligible for IR or to learn more, get in touch and we’ll be happy to help.