Introduced in the last two years, Investors’ Relief was a big change to the tax and investment environment. Investors’ Relief can save each investor up to £1m in tax over the course of their lifetime.

Imagine a scheme which allows you to be taxed at the same rate as Capital Gains Tax Entrepreneurs’ Relief when you dispose of your shares. Imagine an EIS scheme with no maximum investment limit and no cap on the amount of shares you can hold.

That, with a few caveats, is Investors’ Relief and here is Panthera’s guide on what you need to know.

Taking out shares – how to qualify

For you to qualify, your shares must have been purchased on or later than the 6^th April 2016 or the shares issued and subscribed for on or later than 17^th March 2016.

There is no minimum or maximum number of shares you need to purchase to qualify for Investors’ Relief unlike with Entreprenuers’ Relief or EIS.

The shares you purchase must be newly-issued ordinary shares, entitle you to no preferential arrangements with the company, and be fully paid in cash. The shares cannot be listed on the Stock Exchange.

You must hold the shares directly and not via a personal services company. The shares you can buy can either be in the trading company or the holding company of a trading group.

HMRC will need to be convinced you have made the investment for genuine reasons and not to avoid paying tax.

In the year prior to and three years after share issue, you will disqualify yourself from relief if you receive any payment except for payments of £1,000 with no prior arrangement in place, dividends paid at commercial levels, and any rent, interest, or payment for assets made at commercial levels.

Panthera advice – Investors’ Relief only applies to incorporated businesses so you will not qualify for investments made in limited liability partnerships.

How long do you have to hold onto the shares?

You have to hold onto your shares continuously for a minimum of three years. Under the scheme, the earliest tax year in which you can make a disposal that qualifies for Investors’ Relief in the 2019/2020 tax year.

Can you be an officer or employee of the company you’re investing in?

Yes, but only six month after you’ve taken out your shareholding.

You can become an unpaid director from the time of investment and still qualify for relief, although you can still claim:

• expenses carried out on required duties needed for the performance of your director’s duties exclusively

• interest on a loan granted to the company at a commercial rate

• dividend payments at no greater rate than would be considered a normal return on investment

• being paid for supplying goods at a rate not higher than market value

• being paid rent on any property the company is occupying where the rent is reasonable and commercially justifiable

• being paid for qualifying services relevant to its trade but not managerial or secretarial work normally associated with directors.

After you’ve sold up

Investors’ Relief is a completely separate relief from Capital Gains Tax Entrepreneurs’ Relief and EIS schemes. It’s an up-to-£10m lifetime relief you can take advantage of.

To claim the relief, you need to complete the capital gains tax pages on your Self Assessment. You will be able to make a claim up to the first anniversary of the 31^st January after the tax year you sell up.

Investors’ Relief - talk to an expert

As with the rules surrounding Capital Gains Tax Entrepreneurs’ Relief and EIS schemes, the Investors’ Relief scheme is complex and we’re here to help you navigate it. To find out more, please call 01235 768 561 or email enquiries@pantheraaccounting.com.