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HMRC internal manual

Community investment tax relief manual

Withdrawal of relief: Disposal of shares or securities

CTA2010/Part 7/Chapter 5/S244; ITA/s361

Community investment tax relief obtained in respect of investments in shares or securities is either reduced or withdrawn if:

  • the investor disposes of all or part of the investment within the five year period beginning on the day the investment was made (the “five year period”),
  • at the time of the disposal the community development finance institution (CDFI) has not ceased to be accredited, and
  • the disposal does not arise out of a repayment, redemption or repurchase of the shares or securities.

The extent to which any relief is recovered depends on whether the disposal falls within the definition of a qualifying disposal.

Non-qualifying disposals - relief withdrawn

If the disposal is not one of a specified number of qualifying disposals then any relief obtained in respect of that investment for any tax year or accounting period is withdrawn in full.

Qualifying disposals - relief reduced

If the disposal is a qualifying disposal the relief attributable to that investment for any tax year or accounting period is reduced by 5% of the disposal proceeds (if the relief given in any year or period is less than 5% of the disposal proceeds the relief is withdrawn)

Qualifying disposals are disposals that are:

  • by way of a bargain made at arm’s length, or
  • permitted disposals as defined at CTA2010/Part 7/Chapter 5/S243 & ITA/s360 (see CITM7010).

In some tax years or accounting periods an investor’s tax liability may be insufficient make full use of the maximum community investment tax relief available in respect of the invested amount for that year or period (see CITM6030 & CITM6050). Where this is the case, and the relief needs to be reduced because of a qualifying disposal, the reduction is proportionately reduced.

Example 1

An individual investor subscribes £10,000 for shares in a CDFI on 1 June 2004. The investor has sufficient income tax liability to make full use of the relief due under the CITR scheme. On 1 January 2008 the investor sells half of shares at arm’s length for the full market value - £4,000.

Disregarding the disposal in 2008, tax relief of £500 (5% of £10,000) would be available for 2004/05 and each of the subsequent four years.

But the qualifying disposal in 2008 is within the five year period for the investment. It reduces the relief available as follows:

  • to the extent that relief under the CITR scheme has already been given for any year, the excess relief will be recovered by assessment. The amount of the reduction for each year is £200 (5% of £4,000), and
  • any claims to relief made after 1 January 2008 will exclude the shares that were sold on that date, (see CITM6010 & CITM6060) so the maximum relief available each year will be £250 (5% of £5,000).

Example 2

Details as for Example 1 above except that in tax year 2005/06 the investor’s income tax liability before any relief due under the CITR scheme is £300, so community investment relief originally obtained for that year is limited to that amount.

Since the £300 relief obtained in 2005/06 is only 60% of the maximum amount (£500) that could have been obtained the amount of relief recoverable by assessment for that particular year is limited to £120 (60% of 5% of £4,000]).

Investments made on or after 1st April 2013 (corporate) or on or after 6th April 2013 (individual)

Investments made after these dates allow carry forward of excess relief to later periods. S244 and S361 have been amended by FA2013 to allow withdrawal or reduction of carried forward relief. An investor will receive the same amount of relief overall if withdrawal or reduction is required no matter when the investment was made.

In example 1 above if investment was made in June 2014 and the sale in January 2018 and the full relief was not used in 2014/15, £400 being carried forward and used in 2015/16, the reduction made would be

2014/15 - £100

2015/16 - £300

Relief of £250 would continue to be due.