Tax Aware

Extension to Investors Relief

Extension to Investors Relief

Personal Tax

Finance Bill 2016 proposes to extend entrepreneurs' relief to investors in unlisted trading companies who hold their shares for a minimum of three years.

The new rules for Investors Relief ("IR"), which apply to investors who are neither officers nor employees, enable investors in unlisted trading companies to access the 10% Entrepreneurs Relief ("ER") rate as long as those shares are subscribed for on or after 17 March 2016, held continuously for three years, and disposed of on or after 6 April 2019. There is no requirement to hold 5% of the shares or voting rights. As with ER, there will be a £10 million lifetime limit for the relief and this is in addition to the £10 million ER allowance for employees. The rules will also apply to certain trusts with qualifying beneficiaries provided the qualifying beneficiary allows his IR allowance to be used by the trustees.

Conditions are included to ensure that the relief only applies to new shares issued for genuine commercial purposes, and will also be restricted so that it will not apply to investors where those connected with the investor are officers or employees of the company.

This relief should be welcomed as it should help to attract investment into businesses without the need for the officer or director requirement to be met, which is often not appropriate from the perspective of the investor or the company. Although the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) provide existing tax incentives for investors to invest in qualifying businesses, the introduction of IR allows companies to raise additional funds outside these schemes, as well as potentially being attractive to investors who have exceeded their EIS and SEIS limits.