This was introduced in April 2016 and is similar to business asset disposal relief (BADR) in that it results in a lower rate of capital gains tax (CGT). BADR used to be known as Entrepreneur Relief. It applies in the following circumstances:
- You subscribed for ordinary shares in a trading company (or the holding company of a trading group) on or after 17/03/2016.
- Those shares are unlisted.
- You held the shares for at least three years. You sold the shares on or after 06/04/2019.
It reduces the rate of CGT on gains to 10% for higher rate taxpayers (it would be 20% without this relief). It’s designed for ‘armchair’ investors – so you don’t have to be actively involved or employed within the business; in fact, neither you nor people connected with you (e.g. spouse) are allowed to be directors or employees when you initially subscribe for the shares.
Like BADR, there’s a lifetime cap. But, whereas BADR only covers lifetime gains of up to £1m, investor relief offers a more generous cap of £10m (which is what the BADR cap used to be, in fact).
If you qualify for both BADR and IR, that’s fine; the £10m cap is in addition to the £1m BADR limit. Unlike BADR, there’s no minimum shareholding requirement – so even with a tiny (say 1%) shareholding, you could still use IR.
If you’re thinking of investing in another company (maybe a friend’s business), speak to EBA first. By ensuring that you would qualify for investor relief, it could save you a handsome sum in CGT further down the line.
