07 February 2020 #Corporate
The Finance Act 2016 introduced investor relief which is essentially a tax relief for Capital Gains in a similar way to the operation of Entrepreneurs Relief. On qualification any capital gain is reduced from the usual capital gains rate – currently 20% to 10%.
The introduction of this relief was to incentivise investment in unquoted companies.
As ever, there are a number of qualifying conditions that must be met and strict requirements for an investor to qualify and these include having to hold ordinary shares continuously for period of at least 3 years.
Consequently, investor relief is quite new – the earliest application for it would have been April last year.
In addition to the minimum holding period, there are special rules about whether or not a director or non-executive director could qualify where they receive remuneration in respect of their office.
We often see investors making investments into non-listed companies and in may circumstances, they will want to take a seat on the board to support the growth of their investment and the business as a whole.
Given that wide curtailment of the application of Entrepreneurs Relief is anticipated in the forthcoming budget, it is likely that investor relief will seek greater popularity from angels or other investors.
Practitioners need to be careful in the drafting or advising of service contracts for those investor directors to ensure the remuneration structure does not disqualify their investment from the such relief.