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Investors’ Relief – it could be good for you

Paystream News

David McManus

Friday 24th Nov, 2017

Many contractors may have heard of a Capital Gains Tax (CGT) relief called Entrepreneurs' Relief.

It is available when a company is closed down and the remaining funds within it are distributed as capital.

A director/shareholder who meets certain conditions can use his or her Annual Exemption (£11,300 for the 2017/18 tax year) to offset against any capital gain. The balance being taxed at only 10% rather than the 20% normally chargeable on higher rate taxpayers' gains or worse still, the 32.5% income tax rate if the distribution was treated as income.

Fewer may have heard of Investors' Relief.

In addition to the Annual Exemption, the 10% CGT rate applies to external investors (i.e. not an employee or officer of the company) who realise capital gains from investments in unlisted trading companies.

To qualify for investors' relief the following conditions apply:

  • shares must be newly issued and subscribed for by the individual for new consideration
  • be in an unlisted trading company, or an unlisted holding company of a 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 continuously for a period of three years before the disposal.

If you are planning to close your limited company at some time in the future or have the opportunity to invest in a new company and need a little more advice or guidance, please email taxadvisory@paystream.co.uk or speak to the PayStream Tax Advisory Team on 0161 929 6000 to discuss your plans.