Investor Relief was brought in to extend the advantages of Entrepreneurs Relief to investors in qualifying companies…
…and there’s a wrinkle on the rules that means an investor could also end up getting Entrepreneurs Relief too…
That’s a 10% tax rate on up to £40m of gains !
First the basics of Investor Relief
10% CGT rate on disposal of qualifying assets
£10m lifetime limit
3 year holding period required to qualify
Only available to newly issued shares fully paid for, issued after 17 March 2016 (so this is the very first year any claim under this relief could be made)
What makes an Investor?
An ‘investor’ can’t be an employee or director of the company whilst owning the shares…
… but this rule can be relaxed somewhat for unremunerated directors or someone who becomes an employee in the future…
Two lots of relief?
… someone who is an unpaid director or shareholder could get both ER and IR … which would give them the chance to pay 10% CGT on £20m of lifetime capital gains (or £40m if you include their spouse / civil partners)
Could you or yours qualify as investor in your own company?
Afraid not … the connected persons tests stops it extending to you and yours…
Unless ??? it may be possible to create a trust for your children without you as trustee and the trust could become an investor in your company
Connected Persons For IR
Although IR mimics and extends ER it actually has lots of similarities with EIS… could it be the replacement for EIS when EIS gets sun-setted in April 2025?