Press release: Tax experts back new incentive for business angels in unlisted trading companies

17 March, 2016

The Association of Taxation Technicians (ATT) has welcomed the Budget announcement of an extension to Capital Gains Tax (CGT) Entrepreneurs’ Relief which is designed to encourage individuals to invest in unlisted trading companies over the long term.

Michael Steed, President of the ATT, commented:

“Until now ‘external investors’ (business angels) in unquoted trading companies have been able to obtain both income tax relief on their investment and CGT exemption on the subsequent disposal of their shares by using either the Enterprise Investment Scheme (EIS) or the Seed Enterprise Investment Scheme (SEIS). Both can work well in the right circumstances but both are governed by very tight qualifying conditions.

“Yesterday’s announcement opens up an alternative route for prospective investors. By enabling investors to qualify for Entrepreneurs’ Relief (previously only available to individuals who worked in the company in which they were investing), any gains (within a £10 million lifetime limit) on qualifying share disposals after three years will be subject to a CGT rate of 10 per cent instead of what will (from 6 April 2016) be the new 20 per cent rate. 

“It will be interesting to see whether this extension to Entrepreneurs’ Relief for external investors prompts a shift away from EIS and SEIS. Much will inevitably depend on the how the legislation is structured and on the complexity of anti-avoidance provisions. If the provisions can be kept simple, they have the potential to provide a very attractive alternative to EIS and SEIS.”

Notes for editors

  1. The relevant HMRC policy paper is here.
  2. Red Book reference 1.172 on page 48 reads:

“1.172 In addition, entrepreneurs’ relief will be extended to long term investors in unlisted companies. This will provide a 10 per cent rate of CGT for gains on newly issued shares in unlisted companies purchased on or after 17 March 2016, provided they are held for a minimum of three years from 6 April 2016, and subject to a separate lifetime limit of £10 million of gains.”