VCM14120 - Venture Capital Schemes: the Enterprise Investment Scheme: income tax relief: company procedures: attribution of EIS relief to shares

ITA07/S201

Normally the amount of Income Tax relief attributable to a holding of shares will be self-evident. Where, however, the maximum amount on which relief is available for a year (see VCM10530) is exceeded, the position is not clear. In this situation the total relief obtained for the year is apportioned between all the holdings of shares for which relief was claimed, or the individual can choose to claim relief on some shares and not on others.

Example

Mr Green subscribes £500,000 for shares in each of four qualifying companies in 2016/17, giving a total investment of £2,000,000. But he can only claim relief on a maximum of £1,000,000. So, for instance, he can opt for relief to be given on the subscriptions for all the shares in two of the companies, or have the relief given on the subscriptions for half of the shares in each of the four companies.

Bonus issue

Where some of the shares in a holding were acquired by means of a bonus issue in respect of shares already held, they are treated as having been acquired as part of the original holding.

Example

Mr Marley subscribed £48,000 for 2,400 shares issued on 1 June 2012, and obtained relief on that amount. On 1 December 2013 there was a ‘ten for one’ bonus issue, so he is regarded as having acquired 26,400 shares on 1 June 2012.

If Mr Marley sells 19,800 shares on 1 September 2014 for £54,000 the relief to be withdrawn is tax on 19,800 / 26,400 x £48,000 = £36,000.

If the date when Mr Marley sells is 1 September 2015 (more than three years after 1 June 2012 but less than three years after 1 December 2013) no relief is withdrawn, because all the shares are regarded as issued on the earlier date.