Tom Walker FCA, explains the tax benefits of Investors’ Relief and who it is applicable to.<\/h2>\n
Are you an investor in a private trading company that doesn’t qualify for the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS)?\u00a0<\/span><\/p>\n Are you aware of other potential investment tax breaks available to you?\u00a0<\/span><\/p>\n Investors’ Relief<\/span><\/a><\/span> is perhaps a less well known scheme in the maze of intricate laws and regulations that make up the UK tax system. However, if you answered ‘yes’ to the above questions then it could be of potential use to you. Investors’ Relief works whereby it can help reduce your exposure to taxation on any gains arising from your investment in unlisted, trading companies.\u00a0<\/span><\/p>\n This is why we’ve written this blog post, to provide you with knowledge and information as to how you may be able to access this tax relief so that you can retain more of your hard-earned gains resulting from the disposal of shares. It’s likely therefore to be a potentially useful opportunity for those investors that qualify, as well as for entrepreneurs and owner managers pitching for investment.\u00a0\u00a0<\/span><\/p>\n Read on to find our more about the nuances of Investors’ Relief and insights into its functionality and benefits. This page specifically covers:<\/span><\/p>\n <\/p>\n What is Investors’ Relief?<\/strong><\/p>\n Investors’ Relief (IR)<\/strong> is a Capital Gains Tax (CGT)<\/a><\/span> incentive available to investors to help reduce their tax liability resulting from the qualifying gains made from the disposal of shares in unlisted, private trading companies. <\/span>The tax break is designed to promote investment into private trading companies where tax reliefs such as Business Asset Disposal Relief (BADR) or EIS\/SEIS don’t apply.<\/span><\/p>\n<\/div>\n <\/p>\n IR works whereby CGT is reduced on eligible gains<\/span> from the disposal of ordinary shares in private trading companies. Usually CGT rates are applied at 20% for higher-rate tax payers and 28% for additional-rate taxpayers, but IR reduces this to 10%. <\/span><\/p>\n The essential point to note here is that CGT applies to the uplift, the gain, that you’ve made in selling your shares. If you purchase qualifying shares for \u00a310,000 and then sold them for \u00a350,000 over 3 years later then the reduced IR rate of 10% only applies to the \u00a340,000 gain. <\/span>Your tax bill would then be \u00a34,000. <\/span><\/p>\n If we then compare to higher-rate taxpayers<\/span> who don’t qualify for IR then at 20% on \u00a340,000 their liability is double at \u00a38,000. For additional-rate taxpayers<\/span> at 28%, it’s \u00a311,200. <\/span>The tax relief therefore represents potentially very significant savings given the possible sums of investment likely involved. <\/span><\/p>\n Of note, there is a lifetime limit<\/span> on such qualifying gains of \u00a31m per investor. Also, changes announced by Chancellor, Rachel Reeves in the Autumn Budget 2024<\/a><\/span> now mean the preferential CGT rate applicable to IR will increase from 10% to 14% from 6 April 2025. This will be followed by another hike to 18% from 6 April 2026.\u00a0<\/span><\/p>\n While this blog primarily focuses on external investors, it\u2019s important to highlight that IR also serves as a valuable tool for entrepreneurs seeking private investment, particularly where SEIS or EIS isn’t available. <\/span><\/p>\n IR can play a useful role in incentivising external investment<\/span> in UK-based, unlisted trading companies, which is vital for the growth and development of SMEs. By offering a reduced CGT rate of 10% on qualifying gains, IR makes backing these companies more attractive to investors, increasing their likelihood of investing in innovative and growing enterprises.\u00a0<\/span><\/p>\n <\/p>\n Investors can’t be officers or employees of the company in question at the time of purchasing the shares. Unremunerated directors and\/or individuals who become employees in the future may qualify for this relief under specific conditions, albeit careful planning and consideration are essential.\u00a0<\/p>\n The relief is available only to individual investors<\/span><\/a><\/span> and some trustees of settlements. It doesn’t apply to companies or discretionary trusts.<\/span><\/p>\n![\"Advice](\"https:\/\/no-cache.hubspot.com\/cta\/default\/2284600\/40ccfa7d-0ee6-40c5-a51b-763159b3b734.png\")
<\/a><\/span><\/span><\/span><\/p>\nThe tax benefits of IR summarised<\/span><\/h2>\n
What is the eligibility criteria?\u00a0<\/h2>\n
1. Investors<\/h2>\n