What Is IR35? IR35 is a set of UK tax rules designed to ensure that individuals...
In the 2016 Budget, the Chancellor announced the extension of Entrepreneurs' Relief. It now applies to external investors in unlisted trading companies (or holding companies of trading groups).
This new relief, known as Investors’ Relief, applies a 10% rate of CGT on the disposal of ordinary shares. The shares must be in an unlisted trading company held by individuals. There is no minimum requirement to hold at least 5% of shares and voting rights as is the case for Entrepreneurs' Relief.
- The shares must have been:
- Issued to the claimant
- Acquired for new consideration
- On or after 17 March 2016
- held for a period of at least three years starting from 6 April 2016
Lifetime Caps
A person’s qualifying gains for this Investors’ Relief will be subject to a lifetime cap of £10 million that is in addition to the £10 million Entrepreneurs' Relief cap. The introduction of Investors’ Relief gives companies a new opportunity to raise investment outside the SEIS and EIS schemes.
It also provides new opportunities for investors who have exceeded the investment limits for the SEIS and EIS schemes in a far wider range of investments. However, there is no Income Tax relief on the amounts invested as is the case for the SEIS and EIS.
The existing Entrepreneurs' Relief remains unchanged and applies to the sale of a business, shares in a trading company or an individual’s interest in a trading partnership. Where Entrepreneurs' Relief is available CGT of 10% is also payable in place of the standard rate.
Qualifying Conditions
There are a number of qualifying conditions that must be met in order to qualify for the relief.
The lifetime limit means that individuals can qualify for the relief more than once, subject to the overriding condition that the standard rate of CGT will be charged once the total amount of qualifying capital gains exceed £10 million.
Since April 2016, CGT on the disposal of chargeable assets (apart from residential property and carried interest) has been reduced to:
- 10% (from 18%) on disposals that form part of the basic rate band.
- 20% (from 28%) on disposals that form part of the higher rate band.
To find out more on how the investors’ relief, Entrepreneurs’ Relief and CGT rates apply to you give us a call in the office.
