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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Business Expansion Scheme (BES): general

Background

The BES was replaced by the Enterprise Investment Scheme (EIS) from 1 January 1994. However, individuals may continue to have holdings of BES shares. This guidance was revised in 2013 and contains material considered likely to be of continuing relevance.

The earlier guidance can be obtained from commercial tax information packages, through the National Archives website or directly from Capital Gains Technical group.

General guidance on the EIS can be found at VCM20000+. Guidance on the capital gains tax aspects is at VCM30000+.

BES shares and CGT

For Capital Gains Tax purposes special rules apply to the disposal of shares which have attracted income tax relief under the BES scheme or the earlier Business Start-Up scheme (“BSS”). There is an important distinction between shares issued on or before 18 March 1986 and shares issued after 18 March 1986. BSS shares will necessarily have been issued before that date. The same rules apply to BSS and BES shares unless specifically stated.

Shares issued before 19 March 1986 remain within the charge to Capital Gains Tax whether the BES relief has been withdrawn or not.

Any gain or loss on the disposal of shares issued after 18 March 1986 on which BES relief has been given is exempt from Capital Gains Tax, unless the whole of the relief given has subsequently been withdrawn, TCGA92/S150(2).

Shares issued before 19/3/86

Relief withdrawn

If all the relief has been withdrawn you should compute the gain or loss in the usual way. However, see CG56925 for the rules on how to identify which shares have been sold.

Relief not withdrawn

If all the relief has not been withdrawn then an adjustment may be needed where the disposal results in a capital loss. The loss will be reduced by the amount of relief that has not been withdrawn. TCGA92/S150 (3).

Husband and wife or civil partner transfers

The loss restriction required by TCGA92/S150(3) does not apply to a transfer of shares between spouses or between civil partners. The usual no gain/no loss rule applies to such transfers, see CG22200+. The restriction does not apply to a later disposal by the transferee spouse or civil partner.

Shares issued after 18/3/86

Any gain or loss on the disposal of shares issued after 18 March 1986 on which BES relief has been given is exempt from Capital Gains Tax, unless the whole of the relief given has subsequently been withdrawn, TCGA92/S150(2).

Where the income tax relief is wholly withdrawn in respect of BES shares issued after 18 March 1986 the exemption in TCGA92/S150(2) will not apply. Such shares will either form a Section 104 holding or be included with any other shares already in a Section 104 holding.