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HMRC internal manual

Capital Gains Manual

Entrepreneurs’ Relief: calculation of the relief: postponed or deferred gains

With respect to gains for the period 6 April 2008 to 22 June 2010 where a gain arose and Entrepreneurs’ Relief was claimed it was possible that a claim could also be made under a provision which postponed or deferred the CGT charged until the occurrence of a future event, such as EIS deferral relief under TCGA92/SCH5B. In these circumstances the amount of the postponed or deferred gain was the gain after any Entrepreneurs’ Relief was given.

You should note however that F(No.2)A2010/Sch1/para9 modifies the rules specifically for EIS relief for gains arising on disposals on or after 23 June 2010 (see below).

Where a postponement or deferral provision limited the gains attracting that relief to the lesser of the:

•chargeable gain arising upon the disposal of the ‘old asset’, or

•the consideration applied on the acquisition of the new asset,

then the chargeable gain applicable for the purpose of the first bullet, where a valid claim to Entrepreneurs’ Relief was made, is the ‘chargeable gain’ after the 4/9th Entrepreneurs’ Relief reduction has been made. When that deferred gain, net of Entrepreneurs’ Relief, comes back into charge it will be charged at the Capital Gains Tax Rate applicable at that time.

The result of this is that the ‘effective’ rate of charge on that deferred gain attached to the pre 23 June 2010 disposal of the ‘old asset’ may be more or less than the 10% it would have been if the charge had been before that date.


N sells her business in 2009 and realises a gain of £99,000. This qualifies for Entrepreneurs’ Relief because it will constitute a ‘material disposal of business assets’. N claims the relief, but also makes an investment of £80,000 in qualifying EIS shares and claims to defer the gain.

N’s gain of £99,000 is reduced by 4/9ths, resulting in a chargeable gain of £55,000 - see CG64125. The investment in EIS shares exceeds £55,000, so the whole of the chargeable gain of £55,000 is deferred. This amount will come into charge at some later time under the normal EIS rules for charging deferred gains.


Changes effective from 23 June 2010

F(No.2)A2010/Sch1/para9 modified the rules for EIS relief with effect for gains arising on disposals on or after 23 June 2010, specifically TCGA92/Sch5B/Para1(5), so that from that date an individual had to choose between claiming Entrepreneurs’ Relief and benefiting from the 10% rate, or deferring the gain under the EIS rules and paying tax at the normal CGT rate applicable at the time the gain becomes chargeable. You should note that where the option is taken to claim Entrepreneurs’ Relief any gains over and above the applicable lifetime limit can still be deferred under the EIS rules.


Changes effective from 3 December 2014

New legislation was introduced by FA2015. TCGA92/S169T-V made it possible to once again defer a gain using EIS relief and also claim Entrepreneurs’ Relief. The legislation also applies where a gain has been deferred using ‘investments in social enterprises’ relief. Instead of claiming Entrepreneurs’ Relief within the time limit found at TCGA92/S169M, claims must be made by the anniversary of 31 January next following the end of the tax year in which the gain is brought into charge. This will be where there is a ‘chargeable event’, usually being the disposal of the EIS shares. If the first disposal is not of all of the EIS shares acquired then the claim will also encompass all future gains on disposals of those remaining shares, and so relief will be due without the need for further claims.

Entrepreneurs’ Relief can only be claimed if the original gain which has been deferred would have qualified for relief at the time of the earlier disposal, following the rules which applied at that time.


O sells her business in 2015 and realises a gain of £99,000. This qualifies for Entrepreneurs’ Relief because it will constitute a ‘material disposal of business assets’. N makes an investment of £100,000 in 100 qualifying EIS shares and claims to defer the gain.

In 2017, O sells 20 of the shares which brings into charge a proportion of the deferred gain. She claims Entrepreneurs’ Relief (as the earlier business disposal would have qualified based on the rules at that time) and the gain is charged at a rate of 10%. When O comes to dispose of the remaining 80 shares, she will not need to make a further claim and the 10% rate will apply.