A little-known but valuable tax break for external investors is facing increased scrutiny from HM Revenue & Customs (HMRC), as new letters are being sent to taxpayers who claimed Investors’ Relief on their 2023/24 Self-Assessment returns.
The move marks a clear change in HMRC’s compliance strategy, particularly for Capital Gains Tax (CGT) reliefs that don’t see high usage but have a history of being misunderstood.
Investors’ Relief was introduced in 2016 to reward non-connected individuals for putting their money into unlisted trading companies.
Provided certain conditions are met, investors benefit from a 14 per cent CGT rate (for disposals after 6 April 2025), which is lower than the standard rate.
The relief only applies to newly issued shares bought with cash, held for a minimum of three years.
It is not available to those with employment or director roles, unless under very specific exceptions. A £1 million lifetime gains cap applies for disposals made from 30 October 2024 onwards.
HMRC’s latest letters fall into two categories:
The tax authority is giving recipients 30 days to respond.
Failure to reply may trigger amendments or full compliance checks, with the potential for penalties and interest on any CGT found to be underpaid.
Many claimants believe that simply holding shares in a qualifying business for three years makes them eligible.
However, the rules are much narrower. Genuine external investors must ensure the shares were properly subscribed for, that the company qualifies, and that they aren’t involved in the business as directors or employees (unless narrowly permitted).
If you have received a letter or are relying on Investors’ Relief in a return, now is the time to get expert advice. Incorrect claims can lead to costly penalties.
We are here to help you navigate the eligibility criteria and respond to HMRC within the deadline.
