Investors' Relief

Key facts

Investors’ Relief charges CGT at 10% on qualifying gains.
The lifetime limit is £10 million — ten times higher than BADR.
Shares must be newly issued and held for at least 3 years.
You do not need to be an officer or employee of the company.
The company must be an unlisted trading company (or holding company of a trading group).

What Is Investors’ Relief?

Investors’ Relief was introduced in Finance Act 2016 to encourage external investment in unlisted trading companies. It applies a 10% CGT rate to qualifying gains, with a lifetime limit of £10 million.^[1]

Unlike Business Asset Disposal Relief (BADR), you do not need to be an employee or officer of the company, and there is no minimum percentage shareholding requirement. This makes the relief specifically attractive for passive investors, business angels, and venture capital investors who do not qualify for EIS.

Qualifying Conditions

All of the following conditions must be met for Investors’ Relief to apply:^[2]

Share Conditions

The shares must be ordinary shares (not preference shares or loan notes)
They must be newly issued shares — shares purchased from another shareholder do not qualify
The shares must have been subscribed for (i.e. purchased directly from the company) on or after 17 March 2016
The shares must be held for a continuous period of at least 3 years from the date of issue

Company Conditions

The company must be an unlisted trading company, or the holding company of a trading group
The company must have been a qualifying trading company throughout the period the shares were held (or continuously from 17 March 2016 if later)

Investor Conditions

Neither the investor nor any connected person can be an employee or officer of the company at any time from the date the shares were issued
The shares must not be eligible for EIS income tax relief (even if not claimed)

Connected persons include spouses, civil partners, direct ancestors, and direct descendants. If your spouse becomes a director of the company, your shares will no longer qualify for Investors’ Relief.

The £10 Million Lifetime Limit

The lifetime limit for Investors’ Relief is £10 million of qualifying gains — significantly more generous than the £1 million BADR limit. This provides a maximum tax saving of up to £1.4 million for a higher-rate taxpayer (14% × £10m).^[1]

The Investors’ Relief lifetime limit is separate from the BADR lifetime limit. Each individual can therefore potentially claim 10% CGT on up to £11 million of qualifying gains (£1m under BADR plus £10m under Investors’ Relief).

Comparison with BADR

Feature	BADR	Investors’ Relief
CGT rate	10%	10%
Lifetime limit	£1 million	£10 million
Minimum holding period	2 years	3 years
Minimum shareholding	5%	No minimum
Must be officer/employee?	Yes	No (must not be)
Share type	Existing or new	Newly issued only
Company listing	Listed or unlisted	Unlisted only

How to Claim

You claim Investors’ Relief on your Self Assessment tax return, using the capital gains pages (SA108). The claim deadline is the first anniversary of 31 January following the tax year of disposal.^[3]

Before claiming, you should obtain a compliance statement from the company confirming that it meets the trading company conditions. While this is not legally required, it provides evidence to support your claim if HMRC enquires.

Interaction with EIS and SEIS

Shares that are eligible for EIS income tax relief cannot also qualify for Investors’ Relief, even if EIS relief is not claimed. This is an important distinction: eligibility (not just a claim) for EIS income tax relief disqualifies the shares.

However, if EIS income tax relief has been withdrawn (for example, because the company ceased to qualify within 3 years), the shares may then become eligible for Investors’ Relief, provided all other conditions are met.

Tip: If you are considering investing in an unlisted company, compare the benefits of EIS (30% income tax relief plus CGT exemption) with Investors’ Relief (10% CGT rate on disposal). EIS is often more valuable, but the qualifying conditions are stricter and the maximum investment limits are lower.

Practical Considerations

Anti-avoidance: The relief will not apply if arrangements exist whose main purpose is to secure a tax advantage by way of the relief.
Reorganisations: If the company undergoes a share reorganisation, the new shares generally inherit the Investors’ Relief status of the original shares.
Part disposals: You can dispose of part of your shareholding and claim Investors’ Relief on that part, retaining the rest.
Death: If shares qualifying for Investors’ Relief are inherited, the beneficiary does not inherit the relief. The shares receive a CGT-free uplift to market value at death.

Frequently Asked Questions

What is the difference between Investors’ Relief and BADR?

Investors’ Relief is designed for external investors who do not work in the business and may hold less than 5% of shares. BADR requires a 5% shareholding and officer/employee status. Both charge CGT at 10%, but Investors’ Relief has a £10m lifetime limit compared to BADR’s £1m.

Can I claim both Investors’ Relief and BADR?

Not on the same shares. However, you could claim BADR on shares in one company and Investors’ Relief on shares in a different company, as each relief has its own separate lifetime limit.

Do the shares need to be in an EIS-qualifying company?

No. While there are similarities, Investors’ Relief is a separate regime from EIS. The company must be an unlisted trading company, but it does not need to meet EIS conditions. However, shares that qualify for EIS relief cannot also qualify for Investors’ Relief.

What if the company becomes listed after I subscribe?

The shares must be in an unlisted company at the date you subscribe. If the company subsequently lists, you may still qualify provided the shares were unlisted when issued and all other conditions are met.

Sources

Investors’ Relief — GOV.UK
Capital Gains Manual: Investors’ Relief — HMRC
HS308 Investors’ Relief — HMRC