Currently, individuals who dispose of shares in unlisted trading companies pay CGT at the full rate of 18% or 28%, unless they are able to claim entrepreneurs’ relief (ER). In order to claim ER they would have to be an officer or employee of the company for the 12 months up to the date of disposal of the shares (or up to the date of cessation of trade).
Alternatively, where investors have claimed income tax relief on acquisition of the shares, for example under EIS, the gain on disposal of the shares is exempt from CGT.
From 6 April 2016 ER will be extended with the introduction of an investors’ relief for external investors in unlisted companies.
Individuals eligible for investors’ relief will pay CGT at 10% on gains on the disposal of ordinary shares that have been:
- subscribed for by the individual (for new consideration) on or after 17 March 2016; and
- held for at least three years from 6 April 2016.
The relief will be subject to a lifetime cap of £10m.
This relief will also be available to beneficiaries of trusts.
There will be anti-avoidance provisions to ensure that shares are subscribed for by individuals for bona fide commercial purposes and not for the avoidance of tax.
This relief will encourage long term investment in unlisted trading companies where venture capital reliefs are not available and where the individual is not an officer or employee of the company.
At this stage it would seem that the £10m lifetime cap is in addition to the £10m cap for ER purposes.