Investors' relief is the capital gains tax break for outside investors in private trading companies — the angel's counterpart to Business Asset Disposal Relief. Subscribe cash for new ordinary shares in an unlisted trading company, stay off the payroll, hold for three years, and gains are taxed at 18% instead of 24%, on up to £1 million of lifetime gains. Both of those figures are recent downgrades — the lifetime limit was slashed from £10 million in late 2024 and the rate has climbed from 10% in two steps — which changed the relief from a headline planning tool into what it is now: a useful, modest fallback that investors should qualify for by default rather than design around.
The conditions, precisely
The relief is built to reward genuine outside money, and each condition polices that:
- New shares, subscribed for cash. Ordinary shares issued to you by the company (on or after 17 March 2016), fully paid in cash at issue. Buying existing shares from another shareholder never qualifies — the money must go into the company;
- Unlisted trading company (or holding company of a trading group) throughout — AIM counts as unlisted for this purpose;
- Three years' continuous holding from issue (periods before April 2016 don't count);
- You are not an employee or officer — the defining condition. Neither the investor nor anyone connected can be an employee or paid director of the company (or a connected company) during the holding period. Two carve-outs keep it workable: an unremunerated director — the classic angel taking a board seat, paid nothing but dividends and reasonable expenses — stays qualified, provided they were not previously involved in the business; and an investor who later becomes an employee more than 180 days after investing, with no expectation of employment at the outset, keeps the relief.
The employment condition is where claims die. The investor who "helps out" for a consultancy fee, the director who starts drawing a salary in year two, the spouse on the payroll — each quietly disqualifies the entire holding, and the damage is discovered at exit, years too late to fix. Angels intending to rely on the relief should have their non-remuneration status minuted at investment and respected thereafter, and any move onto the payroll priced as a tax decision, not an admin one.
Where it sits against EIS and BADR
The three reliefs cover different people. BADR (same 18% rate, same £1 million lifetime cap) is for insiders — 5% shareholder-officers and employees; investors' relief is its mirror image, for outsiders, with no minimum stake and no upper limit on holding size. EIS is the premium product where available: 30% income tax relief up front and full CGT exemption after three years beats an 18% rate comprehensively. In practice, then, investors' relief earns its keep in the gaps EIS leaves: companies too large or too old for EIS since even its expanded limits, excluded trades, investors who have used their EIS capacity, stakes too large for comfort under EIS's connection rules (EIS dies above 30%; investors' relief does not care), and rounds where nobody did the EIS paperwork. For a substantial minority investment in an established private trading company — the £2 million ticket into a family business, say — investors' relief is frequently the only relief on the table, worth £60,000 at the current rate and cap.
One structural footnote: the relief's rate and limit now track BADR exactly (both rode the 14%-then-18% escalator, both sit at £1 million), and the two caps are separate — an owner-manager exiting one business under BADR and an angel portfolio under investors' relief uses both.
Claiming, and keeping the file
The relief is claimed in the self assessment return for the year of disposal, by the first anniversary of the 31 January filing deadline. The evidence that makes a claim stick assembles cheaply at the start and expensively at the end: the subscription documents showing cash for new ordinary shares, confirmation of the company's unlisted trading status across the holding period, and the paper trail on non-employment — no payroll entries, no fees, board minutes recording an unpaid appointment. Investors holding through nominee platforms should confirm the subscription (not purchase) mechanics were preserved; syndicate structures can break the "issued to you" requirement in ways worth checking before, not after.
Acumon advises investors and companies on structuring rounds so the reliefs survive contact with reality — EIS where it fits, investors' relief as the deliberate fallback, and the CGT planning at exit that uses whichever cap is available. If you hold private-company shares from a cash subscription and have never checked your investors' relief status, it is a one-hour review that occasionally finds £60,000.