Investors’ Relief: Qualifying shares, potentially qualifying shares and excluded shares
At the point immediately before the disposal (the relevant time), a share is classed as either a qualifying share, a potentially qualifying share or an excluded share for the purposes of Investors’ Relief.
A share is a qualifying share at the relevant time if -
- the individual making the disposal subscribes for the shares that are issued on or after 17 March 2016 (see CG63530)
- the share is an ordinary share from the time it is issued until the point of disposal (the “relevant time”)
- the issuing company is a trading company or the holding company of a trading group when the share was issued and throughout the shareholding period (see CG63540)
4. the share must be fully paid up for cash at the time of issue (see CG63530)
- the company’s shares or securities are not listed on a recognised stock exchange at the time of issue (see CG50250)
- the investor (or a person connected with them) is not a relevant employee (as defined in section 169VW) in respect of the company throughout the shareholding period (see CG63550)
- the share must be subscribed for and issued for genuine commercial reasons (see CG63530)
8. the share must be issued by way of a bargain at arm’s length (see CG63530)
- the share must be held by the investor continuously for at least three years from the date of issue or from 6 April 2016 where the shares were issued between 17 March and 5 April 2016. This is subject to special rules that apply where shares have been issued in a share reorganisation or exchange (see CG63620 and CG63630)
Potentially Qualifying Share
A share is potentially qualifying if conditions at 1 – 8 above are met but the shares have not been held for the minimum holding period of 3 years.
An excluded share is a share which does not meet the criteria for a qualifying share (conditions 1-8 above) and does not meet the criteria for a potentially qualifying share. Shares issued before 17th March 2016 will always be excluded shares.
There are transitional rules for shares issued on or after 17 March 2016 but before 6 April 2016. Any shares issued between 17 March 2016 and 5 April 2016 must be held for a minimum holding period of 3 years starting from 6 April 2016.
Value received by investor
Where the investor receives significant value from the company shares will no longer be qualifying shares, see CG63640-63644.
See CG63500 for a general description of the relief and the layout of the guidance.
James has the following share portfolio -
A. 100 shares in XYZ plc (listed since 1 January 2010) subscribed for on 27 April 2016. He has no other connection with the company
B 50 shares subscribed for on 30 April 2016 in his employer, an unlisted trading company
C 200 shares acquired from his neighbour in an unlisted trading company on 24 April 2017
D 70 shares subscribed for but not fully paid up from an unlisted trading company on 5 May 2016
E 150 shares subscribed in cash on 25 April 2016 in an unlisted trading company of which he is not an employee.
F 300 shares subscribed in cash on 25 December 2016 in an unlisted trading company of which he is not an employee.
On 30 April 2019 James reviews his share portfolio to establish the status of shares held for Investors’ Relief purposes.
A Excluded shares - issued by a listed company
B Excluded shares - James is a relevant employee of the issuing company
C Excluded shares - James did not subscribe for the shares
D Excluded shares - The shares are not fully paid up in cash at the point of issue
E Qualifying shares - All of the conditions are met
F Potentially qualifying share - all of conditions at 1-8 are met however the shares have not yet been held for minimum holding period. They will become qualifying shares on 25 December 2019
Claire subscribes in cash for 100 shares on 18 March 2016 from an unlisted trading company, she has no connection with the company. On 19 March 2019 Claire disposes of the shares and realises a gain.
Investors’ Relief will not apply to this disposal because the shares were only “potentially qualifying”. The shares were purchased during the transitional stage (17 March 2016 - 5 April 2016) and as a consequence for the shares to qualify for Investors’ Relief they should be held for 3 years from 6 April 2016; the earliest disposal must be on or after 6 April 2019.