Investors’ Relief, Contractor loan schemes, Employee expenses

In last week’s newsletter we were enthusiastic about the new investors’ relief which was promoted in the Budget as a version of entrepreneurs’ relief for longer-term investors. Unfortunately the draft Finance Bill 2016 paints a different picture as we explain below. We also have a warning of some grim implications of leaving contractor loans outstanding, and an update on changes for employee expenses. 

This is an
extract from our topical tax tips newsletter dated
31 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Investors’ Relief 
The new investors’ relief is not a form of entrepreneurs’ relief, as claimed in the Budget, it has more in common with the enterprise investment scheme (EIS). The conditions needed to qualify for the new relief are more restrictive than we expected. 
  
Last week we encouraged you to look at investors’ relief a means for individuals to benefit from a reduced rate of CGT, if they subscribe for shares in companies owned by family or friends. Unfortunately the new investors’ relief won’t be available to the relatives of employees or directors of the company. A key condition for investors’ relief (revealed in the draft Finance Bill 2016), is the investor must not be an employee or officer of the company or connected to such an employee or officer. 
  
Investors’ relief has also been saddled with conditions lifted directly from the EIS rules relating to value received from the company. Under EIS the investor losses a portion of their income tax relief, and associated CGT exemption, if he receives significant value from the EIS company within a four year period; (one year before the shares were issued to three years afterwards). This prevents the investor, or anyone connected with the investor, receiving anything worth more than £1,000 from the company in that period. 
  
Although there is no income tax relief available under investors’ relief, and the CGT relief amounts to a halving of the top CGT rate, similar rules to disqualify shares from investors’ relief will apply when value is received from the company (TCGA 1992, Sch 7ZB). This will limit investors’ relief to people completely unconnected with the company, such as “angel investors”. It will also prevent those investors taking any guiding role with the company such as a non-executive director.

This is an
extract from our topical tax tips newsletter dated 31
March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
 

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full newsletter contained links to related source material for this
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