Q My client is interested in the new rules for investors that allow for a lower rate of capital gains tax when the investment is sold. Is my client correct? And if so, can you give me details?
A The new investors’ relief allows for investors to enjoy a lower rate of tax of 10 per cent on lifetime gains of up to £10m of investments into shares. The shares acquired must be shares in a non-listed trading company and be issued after 17 March 2016.
The relief is similar to entrepreneurs’ relief. However, the investor is prevented from being an employee or office holder and must not be connected to anyone who is. The purpose of the investors’ relief is to encourage external investors to make long-term investment in unlisted trading companies.
The shares must be subscribed for, must be fully paid up, and the consideration must consist wholly of cash. They must be issued for genuine commercial reasons and not as part of a scheme or arrangement. The shares must also be ordinary shares. They must have been held continuously by the individual for at least three years from the date of issue to the point of disposal.
The company must be a trading company or the holding company of a trading group throughout the holding period, and the shares must not be listed on a recognised stock exchange at the point the shares are issued.
If your client is considering making such an investment, the rules should be considered in detail to ensure the conditions are satisfied when the investment is made. The client should also undertake a continuous review during the three-year qualification period. The detailed legislation will be contained in the Finance Act 2016.
Ben Chaplin is managing director of Taxwise