A new investors’ relief by Rebecca Cave

In the Budget on 16 March 2016 the Chancellor outlined yet another relief designed to reduce the tax payable on gains made on the disposal of shares: Investors’ Relief.

This new relief was billed as a version of entrepreneurs’ relief (ER) for long-term investors, as it will reduce the CGT payable on qualifying gains to 10%, in a similar manner to ER. However, on examining the detailed rules for investors’ relief set out in Schedule 14 of the Finance Bill 2016, this new relief appears to have inherited features from both ER and the enterprise investment scheme (EIS).

Entrepreneurs’ relief can apply on the disposal of shares in the investor’s ‘personal company’. It can also apply to the disposal of other business assets and businesses. This article compares ER conditions for gains related to shares with the proposed investors’ relief.

Condition Entrepreneurs’ relief Investors’ relief
Acquisition of shares From anyone at any time - shares can be second hand Subscribe for new shares on or after 17 March 2016
What shares qualify All types of shares, including  preference shares and securities (debentures) Ordinary shares only
Period to hold shares 12 months to date of disposal 36 months to disposal, but period is counted from a date no earlier than 6 April 2016
Minimum proportion of shares in issue to hold 5% of the ordinary share capital with exemption for EMI shares No minimum
Employment conditions Investor must be an employee or officer of the company for at least 12 months to disposal Investor must not be an employee or officer of the company at any time shares are held
Company Trading company or holding company of trading group Unquoted trading company or holding company of trading group
Maximum lifetime gains covered by relief £10 million £10 million


The £10 million cap for the ER is in addition to the £10 million cap for the proposed investors’ relief. In theory, an investor could benefit from a total of £20 million of gains taxed at 10% rather than 20%, using the right combination of ER and investors’ relief.

However, the shares benefiting from those two reliefs can’t be held in the same company or even in related companies. This is due to the opposing conditions in relation to employment and connection with the company.

For ER, the investor must be someone closely connected to the company, such as an employee or officer, and he or she must hold 5% or more of the ordinary share capital. For investors’ relief, the investor must not be an employee or officer of the company (or any connected company), during any period in which he or she holds the shares. This condition extends to anyone connected to the investor, so relatives of the company’s employees and directors can’t make use of investors’ relief.

Investors under EIS have to be careful not to take any significant value (apart from director’s fees) from the company they invested in during the first three years of holding the shares. If they do receive value, which is not refunded to the company, the investor loses all their EIS income tax relief and the CGT exemption on disposal of the EIS shares. Similar receipt of value rules have been included in the investors’ relief conditions, which is going to make this new relief very complex to operate in practice.


For further information on investors’ relief and other CGT reliefs, see Capital Gains Tax Reliefs for SMEs and Entrepreneurs 2016/17 (http://www.bloomsburyprofessional.com/uk/capital-gains-tax-reliefs-for-smes-and-entrepreneurs-201617-9781784513047/).


Rebecca Cave is co-author of Capital Gain Tax Reliefs for SMEs and Entrepreneurs, Tax Planning, Core Tax Annual: Capital Gains Tax and Bloomsbury’s Tax Rates and Tables, all publisrebecca cavehed by Bloomsbury Professional.  

Written by Ellie MacKenzie

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