ACCA ATX ^UK Syllabus A2. Chargeable gains - Investors Relief - Notes ^{2 / 5}

What is investors' relief?

Investors’ relief effectively extends entrepreneurs’ relief/business asset disposal relief to external investors in unquoted trading companies. 

To qualify for investors’ relief shares must be:

• Newly issued and acquired by subscription;

• Owned for at least 3 years after 17 March 2016.

What are the consequences of investors' relief?

There is a £10m lifetime limit (in addition to the entrepreneurs’ relief/business asset disposal relief limit)

Gains taxed at 10%

Investor must not be an employee or director of the company whilst holding the shares in that company.

Illustration

On 6 November 2021 Elise subscribed for 100,000 £1 ordinary shares (a 3% holding) in Oz Ltd, an unquoted trading company, at their par value.

She has never been an employee or director of the company.

On 22 November 2024 Elise sold the shares for £700,000.

What is the capital gains tax payable?

• Solution

  Elise’s shareholding does not qualify for Entrepreneurs’ Relief/Business asset disposal relief as she was not an employee and did not hold 5% or more of the share capital of Oz Ltd.

  However, she does qualify for Investors’ Relief - newly issued shares acquired by subscription and owned for more than 3 years.

  Elise’s capital gains tax liability would be:

  Chargeable gain £600,000
  AE          £(3,000)
  Taxable gain         £597,000

  CGT: £597,000 x 10% = £59,700