Angel investors excluded from CGT relief in Finance Bill

The capital gains tax “entrepreneur relief” flagged in Budget 2014 will not be available to so-called angel investors, who provide capital for new businesses without taking on executive roles. Details of the measure, published in the Finance Bill, show it is aimed at the owner/manager, who “is required to devote substantially the whole of his or her time to the service of the company in a managerial or technical capacity”.

The section 43 incentive, which the Government said is particularly designed to encourage investment by “serial entrepreneurs”, will work by offering relief to individuals who have recently paid CGT and subsequently invest in a new business, before selling that new interest no earlier than three years after the investment date.

The CGT due on this sale will be reduced by the lower of either the CGT paid on the original disposal or by half of the CGT due on the new sale.

The original CGT must have been paid since the start of 2010, while the second investment, which will be worth at least €10,000, must be made between January 1st, 2014, and December 31st, 2018.

Technically, an entrepreneur could qualify for the relief if they were to invest in a number of projects at the same time, but the practical difficulties of playing an active, executive role in different businesses is likely to limit the measure’s application in such scenarios.

Tim O’Rahilly, tax partner with PricewaterhouseCoopers, last night described the measure as “restrictive” and mused that it may evolve over the period of its application. He pointed out that the second company must be involved in an activity “not previously carried on” by the entrepreneur or an associate, thus excluding many.

Micro attraction
Mr O'Rahilly also noted the volume of business losses experienced across the economy since 2010 will have reduced the number of business people who actually paid tax on disposals over the relevant period. He said the measure was very much aimed at the "micro" business sector.

The Government has emphasised that the provision must receive EU state aid approval before it can come into application.