Capital gains tax rates on sale of shares in unlisted trading companies are currently 10% for basic rate tax payers and 20% for higher rate and additional rate tax payers. If the gain is covered by Entrepreneurs Relief (ER) then the rate is 10% even for higher rate and additional tax payers. Broadly, the main criteria for ER is:
- Must be 5% or more of the share capital of the company
- Must be employee or officer at the point of the sale and for a continuous period of one year up to the that point.
- Must have held the shares for at least one year
It can be seen that outside investors would not normally fit these criteria. They won’t be an officer or employee, and may not have 5% of the shares.
The new extension to ER, known as Investors Relief, has different criteria to the standard ER rules described above. Investors Relief criteria include:
- Must be new shares subscribed for and issued by the company (not transferred from an existing shareholder)
- Must NOT be employee or officer, nor a relative of any employee or officer of the issuing company
- Must have held the shares for at least three years
In all cases, the company must be trading, and not an investment company. This means the company must not have significant (20%) investment assets or income.
As with all of our tax tips and web pages this information is necessarily summarised and of a general nature. If you would like detailed specific advice please contact us.