Support for mid-sized businesses, Employment expenses and Investors’ relief

Our latest tax tips email for accountants started:

HMRC is apparently stepping into the business advice arena this week with a new service aimed at mid-sized businesses. We explain what advice this will cover, and whether you should be worried. We also have an update on the latest HMRC guidance concerning employee expenses involving salary sacrifice, and investors’ relief.

Below is just an extract from that email. To receive the full email when it is published each Thursday, simply follow the link on the right (or below, if you’re reading this on a mobile device)

Investors’ relief

This form of capital gains tax relief was launched in the 2016 Spring Budget as an extension of entrepreneurs’ relief (ER). It allows the investor to qualify for the 10% rate of CGT on the disposal of unquoted shares, like ER. The lifetime cap for the amount of gains which can be covered by investors’ relief is £10 million, the same as, but in addition to the lifetime cap for ER.

The conditions for investors’ relief must generally be met for the entire period for which the shares are held, unlike the ER conditions which only have to be met for the last 12 months of share ownership. The investor must have the investors’ relief conditions in mind when he subscribes for his shares, and he must understand how changes in his relationship with the company could jeopardise his ability to qualify for the relief on disposal of those shares.

It is thus disappointing that HMRC took until this week to release detailed guidance on investors’ relief, which is now found in their Capital Gains manual at CG63500.

An individual or trustee can qualify for investors’ relief if they subscribe for ordinary shares on or after 17 March 2016, and hold those shares for a continuous period of at least three years to date of disposal, which cannot be before 6 April 2019.

The investor mustn’t be an employee of the company when he acquires the shares, but he can become an employee of that company at least six months later, as long as that employment was not a condition of acquiring the shares. The investor can be an unpaid director of the company, as long as he had not transferred his own self-employed trade into that company.

The investor must not receive any significant value from the company in a four-year period that starts one year before he subscribes for the shares. The definition of value in this context is tight and mirrors the strict conditions for EIS shares.

If your client would like to take advantage of investors’ relief you should read the detailed guidance in the HMRC manual, or speak to one of our capital gains tax experts.