In the Budget 2016 a new relief was introduced, Investors Relief (IR) to encourage passive investors to invest in trading businesses. The investor subscribes for qualifying shares and when these shares are disposed of the gain in value of the shares attracts a preferential 10% rate of Capital Gains Tax (CGT) up to a lifetime limit of £10 million.
This new relief is in addition to the Entrepreneurs’ Relief (ER) and may be considered by investors who have already utilised in full their £10 million lifetime ER entitlement.
Sadly this relief does not extend to investors who are family members, for example a husband, wife or civil partner, relatives (brothers, sisters, parents or their children). The spouse or civil partner of a relative is also excluded from receiving this relief as are business partners.
An investor can subscribe for shares which must be ordinary shares in a company which is unlisted on a recognised stock exchange, however shares listed on the Alternative Investment Market (AIM) can meet the criteria for the relief to apply.
Unlike EIS there are no excluded trades for IR. Hotel businesses, asset backed trades, property development businesses and farming businesses could all take steps to attract investors using IR.
As with all investments, investors should consider carefully, with the aid of a qualified financial advisor, the terms under which they invest.
Photo credit: Alex Nguyen – Money