Capital Gains Tax: Entrepreneurs' relief for a long term investor
Good news! Entrepreneurs’ relief (ER) will be extended to external investors in unlisted trading companies.
This new investors’ relief will apply a 10% rate of Capital Gains Tax (CGT) to gains accruing on the disposal of ordinary shares in an unlisted trading company held by individuals, that were newly issued to the claimant and acquired for new consideration on or after 17 March 2016, and have been held for a period of at least three years starting from 6 April 2016.
In order to qualify for relief, a share must:
be newly issued, having been acquired by the person making the disposal on subscription for new consideration
be in an unlisted trading company, or unlisted holding company of trading group
have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016
have been held continually for a period of three years before disposal.
The rate of CGT charged on the qualifying gain will be 10%, with the total amount of gains eligible for investors’ relief subject to a lifetime cap of £10m per individual. Rules will ensure that this limit applies to beneficiaries of trusts.
Because the relief is designed to attract new capital into companies, avoidance rules will ensure that shares must be subscribed for by individuals for genuine commercial purposes and not for tax avoidance purposes.
Entrepreneurs' Relief on associated disposals Legislation will be introduced in Finance Bill 2016 to allow Entrepreneurs’ Relief to be claimed on an ‘associated disposal’ of a privately-held asset when the accompanying disposal of business assets is to a family member. Relief can also be claimed in some cases where the disposal of business assets does not meet the present 5% minimum size condition.