Think you qualify for Investors’ Relief? HMRC wants proof

HM Revenue & Customs (HMRC) is now challenging taxpayers who claimed Investors’ Relief without fully meeting the qualifying conditions.

The tax authority has begun contacting individuals who included the relief in their 2023/24 Self-Assessment returns.

The benefits and the boundaries of Investors’ Relief

Investors’ Relief was launched in 2016 as a way to encourage long-term investment in trading companies by non-connected individuals.

It offers a favourable 14 per cent CGT rate (from 6 April 2025), but only on:

• Newly issued ordinary shares
• Paid for in cash
• Held for at least three years
• Where the investor is not an employee or director (with narrow exceptions)

As of 30 October 2024, the lifetime gains cap for this relief is £1 million.

How HMRC is questioning Investors’ Relief claims

Two types of correspondence are now being issued:

• “Double-check your claim” letters – these urge the taxpayer to review the conditions. If the claim is invalid, they’re expected to amend it. If it’s valid, HMRC requires written confirmation.
• “We need more information” letters – where the return lacks critical details such as share issue dates or the investor’s connection to the business.

HMRC allows 30 days to respond. Ignoring the letter may lead to your return being altered or a compliance check being launched.

Any additional tax owed will attract interest, and since this counts as a ‘prompted disclosure’, higher penalties may apply.

Mistakes HMRC is watching for

Many assume that holding shares in a trading company for three years is enough. In reality, that’s just one of several criteria, and failing to meet even one condition can void the claim.

HMRC knows this and is now actively challenging any ambiguity.

If you have claimed this relief or plan to, then you need to make sure every box is ticked.

The consequences of an incorrect claim are significant.

Speak to us today if you have received a letter, are unsure whether you qualify, or want to structure your future investments with tax efficiency in mind.