10 min read
HMRC is turning up the heat on tax relief claims, and Investors’ Relief is their latest focus. There’s a growing risk of scrutiny and penalties for investors who claimed this Capital Gains Tax (CGT) relief in their 2023/24 Self Assessment returns. Letters have already been sent out to taxpayers whose claims don’t appear to meet the tough criteria.
If you’re one of them or plan to use this relief in the future, now is the time to understand the rules and prepare. In this blog, we break down what Investors’ Relief is, why HMRC is challenging claims, what the letters mean, and what you should do next.
What is Investors’ Relief?
Investors’ Relief was launched in 2016 to encourage long-term investment in unlisted UK trading companies. It slashes the Capital Gains Tax (CGT) rate to 14% for eligible gains from sales made on or after April 6, 2025. This relief has a lifetime cap of £1 million for disposals made on or after October 30, 2024.
You can qualify only if you meet the following conditions
- Only shares issued directly by the company and purchased with cash qualify.
- They must be in an unlisted trading company or a holding company of a trading group
- Shares must be held for at least three years before disposal
- The investor must not be an employee or officer of the company unless under limited exceptions
It’s a generous relief but also a highly specific one, and that’s where the problems begin.
Why is HMRC looking closely at Investors' Relief now?
HMRC is now checking Investors’ Relief claims carefully because they have found problems with many tax forms from 2023/24. They saw that claims were often made without enough proof or that the rules for getting the relief were not clear.
Specifically, HMRC is worried about:
- Missing papers: When people claim without important documents, like details of how they bought shares or the exact dates.
- Not understanding the rules: Claims made for shares that don’t actually fit the criteria (for example, if they weren’t new shares or were held for too short a time).
- Mixing up tax breaks: When taxpayers confuse Investors’ Relief with other tax savings.
HMRC’s main aim is simple: they want to make sure this tax help is only given to those who truly deserve it. By checking these claims, they’re actively working to reduce the “tax gap” and ensure everyone pays their fair share.
The letters: What you need to know
HMRC is issuing two types of letters to taxpayers who claimed Investors’ Relief in 2023/24:
1. Eligibility check letter
This letter asks you to review the qualifying conditions and confirm whether your claim meets them. If it doesn’t, HMRC expects you to amend your return.
2. Information request letter
Here, HMRC believes your claim lacks detail. You’ll need to provide documents like:
- Share subscription agreements
- Company status confirmation (unlisted, trading)
- Acquisition and disposal dates
- Details of your relationship with the company (e.g. employee, investor only)
Both letters give you 30 days to respond. Failing to do so could result in HMRC amending your return and possibly launching a formal compliance check.
What happens if you ignore the letter?
Ignoring HMRC’s letter is risky. Here’s what might happen:
- HMRC may reject your claim and amend your return
- You could face an investigation or compliance check
- Interest and penalties may be charged on any unpaid tax
- Because HMRC has contacted you, this is a “prompted disclosure” – meaning penalties could be higher
In short, take any letter seriously and respond within the deadline.
Common mistakes that trigger HMRC action
Many taxpayers make honest errors when claiming Investors’ Relief. Some of the most frequent include:
Thinking it’s the same as Business Asset Disposal Relief: It’s not. BADR applies to business owners and includes different rules. Investors’ Relief is specifically for external investors.
Forgetting the “newly issued shares” rule: If you bought shares from another person, they don’t qualify. Only new shares issued by the company count.
Missing the three-year holding period: Selling too early invalidates the relief. Make sure your holding period is clearly documented.
Being a director or employee without meeting the exceptions: This is a complex area and often misunderstood. If you’re connected to the company, get professional advice.
Your next steps: What to do now
Whether you’ve received a letter or are planning to use Investors’ Relief in the future, take these steps to stay compliant:
Review your claim carefully: Go back through your records. Check that your shares were newly issued, paid for in cash, and held for three years. Confirm your employment status with the company.
Gather evidence: Keep subscription agreements, bank statements showing the investment, and correspondence from the company about share issues.
Get advice: An accountant or tax advisor can help clarify grey areas and assist with replying to HMRC.
Respond on time: Don’t miss the 30-day deadline. Send your response or amended return promptly.
How an accountant can help
Handling tax rules like Investors’ Relief can get confusing, but that’s where a good accountant or tax advisor can really help. They can carefully check your claim, make sure all the details are correct, and spot any mistakes before HMRC finds them.
If you’ve received a letter from HMRC, a tax expert can act quickly. They’ll help collect the right documents, check if you meet the rules, and write a clear response for you.
More than anything, they’ll make things easier to understand, help you avoid penalties, and take away the stress. With their support, you can feel confident that your claim is right and your investment is safe.
Conclusion
HMRC’s closer look at Investors’ Relief is a clear message to taxpayers and investors alike that tax reliefs are not automatic, and the rules matter. With letters going out and penalties on the line, it’s more important than ever to understand the relief and ensure your claim is watertight.
If you’re unsure about your eligibility or need help with a recent HMRC letter, now’s the time to act. Professional advice can protect your investment, your tax return, and your peace of mind.
Need help with Investors’ Relief or other tax matters? Contact us today for tailored advice and support that keeps your investments on track and your compliance in check.
