By Ian Sluckis, Partner 

If you thought claiming Investors’ Relief was a simple process with little chance of interference from HM Revenue & Customs (HMRC), think again. 

The tax authority is now contacting individuals who included the relief in their 2023/24 Self-Assessment tax returns – challenging taxpayers who claimed Investors’ Relief without fully meeting the qualifying conditions. 

That’s why, if you believe you qualify for Investors’ Relief, you must make sure you can provide clear evidence of your eligibility.  

The benefits and the boundaries of Investors’ Relief 

Investors’ Relief provides a reduced rate of Capital Gains Tax (CGT) on qualifying shares, designed to encourage long-term investment in trading companies by non-connected individuals. 

However, this favourable 14 per cent rate only applies to newly issued ordinary shares that meet all of the following criteria: 

• The shares must have been paid for in cash. 

• The shares must be held for at least three years. 

• The investor must not be an employee or director (with narrow exceptions). 

The lifetime gains cap for Investors’ Relief is £1 million. 

How HMRC is challenging Investors’ Relief claims 

HMRC is now questioning claims for Investors’ Relief by issuing letters to claimants. 

“Double-check your claim” letters are urging taxpayers to review the qualifying conditions for Investors’ Relief.  

Taxpayers are expected to confirm the validity of claims to HMRC in writing and to amend any invalid claims themselves.  

“We need more information” letters are being sent to investors whose claims lack critical details, such as share issue dates or the investor’s connection to the business. 

What happens if I receive a letter? 

If you receive a letter from HMRC regarding your Investors’ Relief claim, you must respond to it within 30 days. 

Make sure you gather evidence of your eligibility to support your claim, and provide any further information required by HMRC. 

Ignoring the letter or failing to respond in time could lead to a compliance check – and since this is regarded as a “prompted disclosure”, higher penalties may apply. 

You will also have to pay interest on any additional tax owed. 

Mistakes HMRC is watching for 

Many assume that holding shares in a trading company for three years is enough to qualify for Investors’ Relief.  

However, this is just one of several qualifying criteria, and failing to meet even one condition could invalidate your claim. 

HMRC is actively challenging any ambiguity – so if you have claimed Investors’ Relief or plan to in the future, you need to make sure you can provide strong proof of your eligibility.  

Struggling to make sense of Investors’ Relief? Contact our tax accountants today for further information and guidance.