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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 arises and Entrepreneurs’ Relief is claimed it is possible that a claim may also be made under a provision which postpones or defers 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 is the gain after any Entrepreneurs’ Relief is 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 final paragraph below).

Where a postponement or deferral provision limits 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 is 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 of 18%.

If the whole or any part of the deferred gain comes into charge after 23 June 2010 the “new” CGT rates of either 18% or 28% will apply. 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 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.

F(No.2)A2010/Sch1/para9 modifies 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 must 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.