30/10/2023

Newest Tax

Investors’ Relief

 

Investors’ Relief (IR) offers a unique opportunity for companies in search of external investment and investors seeking substantial tax advantages. While traditional investment tax breaks might not always be a perfect fit, IR steps in to provide a tax-efficient alternative. In this blog post, we’ll explore the key aspects of IR, shedding light on how it can benefit both businesses and investors alike.

Investors’ Relief (IR)

  • IR is aimed at companies looking for external investment and would be suitable for investors looking for a tax break where, for one reason or another, other investment tax breaks like EIS or SEED EIS or Business Asset Disposal Relief are not the right fit for either side.
  • IR will be available where there is a disposal of qualifying shares in an unlisted trading company (or holding company of a trading group).
  • Upon disposal, subject to a £10 million lifetime limit, any gain would attract a CGT rate of only 10% as opposed to 20%.

Discussing Tax Investors' Relief (IR) to understand what opportunities exist for companies to find external investment opportunities and seek tax advantages

Definition of qualifying shares

  • Qualifying shares for IR purposes means that the shares must be held for at least 3 years prior to their disposal.
  • In addition, the shares must be subscribed for fully paid-up ordinary shares at market value.

Definition of qualifying investor

  • A qualifying investor could be an individual or an interest in possession trust where the underlying beneficiary has an interest in the shares.
  • The investor must not receive value (cash or in-kind) exceeding £1,000 in total from the company during the period 1 year before and 3 years after the investment. This does not include dividends or true commercial payments (e.g. a supplier who is also an investor).
  • The investor or persons connected to them (e.g. family) must not be employed by the company throughout the share ownership period.

However, there are a couple of exceptions to this point. Assuming there was no intention of doing so at the time of making the investment, the investor can:

  • Become an unpaid director, however reasonable legitimate business expenses can be paid. Or
  • Become an employee so long as at least 180 days have elapsed since the investment. A salary and benefits can be paid as long as it is proportional to the work they do.

Investors’ Relief (IR) stands as a valuable alternative for companies and investors seeking tax-efficient options. With its focus on unlisted trading companies and a reduced Capital Gains Tax rate of just 10%, IR offers a unique opportunity for those not fitting the traditional tax break criteria.

Tip
Please do not hesitate to contact us if you would like us to review your situation and to see if you could benefit from Investors’ Relief.

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You can read more about Tax here

We also have a helpful post on Capital Gains Tax here