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Budget 2016: Entrepreneurial Investors – CGT relief extended to certain investors

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Introduction

Last week’s Budget once again presented the Chancellor the opportunity to tinker with the highly attractive Entrepreneurs’ Relief (ER) regime. Our tinker-man didn’t disappoint.

However, these new changes will generally be viewed as positive changes and will increase the number of situations in which the relief will be available.

 

The changes

The changes are as follows:

  • The main change is an extension of ER to shares held by external investors and, as such, do not need to be employees or directors (“Entrepreneurial Investors”); and
  • Several other amendments to the relief reducing the impact of previous tinkering with the relief.

In latter cases, the Government acknowledges that its previous changes have unfairly prejudiced genuine commercial transactions. It has therefore taken the unusual step of announcing that these amendments will apply from the date of the original changes.

This note concerns itself with the new relief for Entrepreneurial Investors only. The other changes will form a separate note.

 

Extending ER for Entrepreneurial Investors

At present, ER is only available to individuals who, amongst other conditions, are directors or employees of the company or a company in the same group.

The Budget announced a planned extension of ER to sales of shares by external investors. The Budget referred to this as “investors’ relief”.  However, we are laying our claim to the term Entrepreneurial Investors Relief and this will apply where the shares being sold are:

  • in an unlisted trading company or unlisted holding company of a trading group;
  • acquired by the investor by means of a subscription for shares and the individual gives new consideration for the shares;
  • are held for an unbroken period of three years which starts on or after 6 April 2016; and
  • are being sold by an investor who is neither an employee / director of the company (or of another company in the same group).

A key point to note from the above is that Entrepreneurial Investor’s Relief will only apply to shares that are issued on or after 17 March 2016. This means that it will not benefit existing shareholders.

The announcement sets out that Entrepreneurial Investors’ Relief will be subject to  lifetime cap of £10m. After looking at the subsequently published Finance Bill 2016 this £10m will be an additional amount sitting alongside the £10m lifetime limit which exists for the ‘general’ ER.”

 

If you, or your client’s, have any queries about this new relief or related issues in general then please let us know.

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