Everyone and anyone has heard of Entrepreneurs’ Relief a tax incentive for businesses that has been the subject of much speculation and debate over the years. Recently there were rumours it may be further reformed or scrapped by the UK Government. However, in March 2020 they didn’t reform it, or even scrap it, but they did substantially reduce it from a lifetime limit of £10 million to £1 million.
For many business owners, reaching the lifetime limit of £10 million is a pipe dream, so they could plan safe in the knowledge that their business disposal would be eligible for the reduced 10% tax rate. Now however, many people face the likelihood that they will no longer be eligible for the favourable rate of tax on the disposal of their business.
To make matters worse, Entrepreneurs’ Relief was renamed Business Asset Relief by the Finance Act 2020. Not only is the name confusing, as the relief does not apply to the sale of assets, but to the sale of a business, but also nobody is using the new name!
Have you heard of Investors’ Relief?
However, there is a new kid on the block, called Investors’ Relief, and which has similar tax benefits to Entrepreneurs’ Relief and yet nobody seems to have heard about it. What’s better yet, is Investors’ Relief still has a lifetime limit of £10 million, which was not reduced in line with Business Asset Relief.
So, what exactly is this relief?
Investors’ Relief reduces the amount of Capital Gains Tax on a disposal of shares in an unlisted trading company to 10% (sounds familiar right?) and it applies to shares that have been owned for at least 3 years (compared to the shorter 12 month holding requirement).
The differences between Investors’ Relief and Entrepreneurs’ Relief
The primary difference between Investors’ Relief and Entrepreneurs’ Relief however is the employee condition. Whilst Entrepreneurs’ Relief required the shareholder to be an employee or officer, Investors’ Relief is not usually available if you or someone connected with you is an employee.
In addition, there is no 5% minimum shareholding!
For many business owners, the biggest problem they faced in trying to ensure the shares qualified for the lower rate was appointing shareholders as officers of the company, or ensuring they met the all important 5% requirement. Neither of which are needed for Investors’ Relief, making it just as generous as the former Entrepreneurs’ Relief but potentially more widely applicable and with a lifetime limit still at £10 million. Yet nobody seems to have heard of it.
Contact us for more information and advice
There are some other differences and conditions, and we would need to review the application of the relief, just as we would do for Business Asset Relief.
If you have any questions regarding this tax relief, or to see if, or how you qualify, we can help so please contact us.