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Investors’ Relief Explained: How to Pay Just 14% Capital Gains Tax on Business Shares

Investors’ Relief Explained: How to Pay Just 14% Capital Gains Tax on Business Shares

Investors’ Relief Explained: How to Pay Just 14% Capital Gains Tax on Business Shares

August 13, 2025 | Shameem Wahid | Personal Tax

Making smart investment decisions is only half the equation when it comes to building personal wealth — the other half lies in minimising your tax liability to retain as much of your gains as possible. As the UK economy faces a prolonged period of stagnant growth, the government naturally seek ways in which to stimulate and encourage private investment to support business growth. One tool which has been at their disposal since 17 March 2016 but has perhaps gone underpromoted is Investors’ Relief (IR). Our accountants share their expertise and explain how to utilise IR to your benefit.

What is Investors’ Relief?

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Investors’ Relief (IR) is a type of tax relief that allows you to reduce the rate of capital gains tax (CGT) if you incur gains on your disposals of shares in an unlisted trading company. It’s typically used by external investors, because whilst it may at first glance appear similar to Business Assets Disposal Relief (BADR), the key difference is that IR is specifically designed for those who are not employees in the company they hold the qualifying shares in.

So, who can use Investors’ Relief?

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IR is only available to private individuals and limited companies are unable to use this tax relief. IR particularly benefits certain types of investors, ranging from high-net-worth individuals who are comfortable with investing in early-stage companies, angel investors and business angels, or even friends and families wishing to support and invest in a love one’s business venture. However, one key aspect to being able to utilise IR is that as the investor, you must not be an officer or employee of the company. There is one exception to this where you have already invested and received shares, then become a non-remunerated director in the company. You may remain eligible so long as all other qualifying conditions are met.

What are the qualifying conditions for Investors’ Relief?

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To make sure your investment and subsequent disposal qualifies for IR, you’ll need to comply with all HMRC’s strict eligibility requirements. Even failing to meet any one of the conditions will mean you’ll be unable to claim for reduced CGT rates on your gains:

  • The shares must be new ordinary shares in an unlisted trading company (although shared listed on the Alternative Investment Market are still treated as unlisted).
  • The company must be continuously trading throughout the entire period of share ownership (or be a holding company of a trading group).
  • The shares must be fully paid for in cash.
  • The shares must be held for at least three years before disposal
  • You must not receive any value from the company within the three-year period of ownership other than in instances where the company is repaying a commercial loan to you, issuing dividends which do not exceed normal investment return, and/or the company is paying your market value rent for use of property that is owned by you.
  • You must not have exceeded your IR £10 million lifetime limit which is a separate lifetime allowance to the lower BADR £1 million lifetime limit.

What are the tax benefits when using Investors’ Relief?

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Clearly, there’s substantial risk involved when investing in early-stage unlisted companies and even more so when you have no influence on how the business is run. Whilst other schemes such as the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) can help minimise loss on investments, IR instead boosts the benefits when you make a gain offering significant tax savings. Our team can advise on how you can strategically utilise different tax relief schemes across your investment portfolio to ensure you retain as much of your gains as possible.

When you come to dispose of your shares and are fortunate to make a gain, you’ll be subject to CGT. This is charged at a rate of 18% if you are a basic rate taxpayer or 24% for higher and additional rate taxpayers. Either way, it’s no doubt a significant chunk from your profits. However, by ensuring that you remain eligible for IR and then claiming the tax relief when you have made your qualifying disposal means that any gain accrued becomes subject to a reduced tax rate of 14% (increased from 10% as of 6 April 2025). Be aware that the rate of CGT charged is due to further increase to 18% for all disposals that occur on or after 6 April 2026.

Here’s an example to show you what this would look like. Say, you purchased £100,000 worth of shares in an unlisted trading company in 2022. They’ve since increased in value to £350,000 in 2025 and, because you have no involvement in the company and have held onto your shares for 3 years, you’re able to utilise IR. Your tax bill on this investment would total to £34,580 (assuming you have not utilised your annual £3,000 CGT allowance) allowing you to keep £215,420. Without IR, as a higher rate tax payer, your tax bill would be £59,280 (again, assuming you have not utilised your annual allowance) leaving you £190,720. In this scenario, IR benefits you by allowing you to retain £24,700 of your investment gain.

How to claim Investors’ Relief

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When you dispose of assets and make a gain, it is your responsibility to report this gain to HMRC and pay any tax due on it. The process to report your gain can be completed in your annual self-assessment tax return (so be sure to have registered in time if you are not already registered to file a personal tax return). This needs to be done by the 31st January following the end of the tax year in which you made your disposal. So, for example, if you sold your shares in July 2025 (the 2025/26 tax year), you would need to submit a self-assessment tax return to report your capital gains by 31st January 2027.

When completing your tax return, you will need to make sure you fill in the Capital Gains Summary (SA108) section and report the disposal of shares. Be sure to include the date in which you acquired the shares as well as the date you sold or disposed of them, along with the name of the company in which you held shares. Don’t miss out on ticking the box which indicates that BADR or IR is being claimed, and then you’ll need to specify IR in the relevant section. Whilst HMRC do not require you to submit supporting evidence alongside your tax return, you must retain all documentation for at least a year in case HMRC decide to open up an investigation.

How to claim Investors’ Relief

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If you’re considering making a disposal we can help check whether you qualify for investors’ relief to reduce your capital gains tax, as well as help you make your claim with HMRC. Get in touch with us today.

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