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HMRC internal manual

Venture Capital Schemes Manual

EIS: disposal relief: Income Tax relief restricted

TCGA92/S150A (3)

The CGT exemption will be restricted if:

  • the investor does not receive full Income Tax relief on their subscription, see VCM10500,


  • the only reason full Income Tax relief cannot be given is because the claim reduces the investor’s Income Tax liability to nil, see VCM20060.

The restriction will usually apply when an investor subscribes more than the amount on which Income Tax relief is available. From 6 April 2008 the amount was £500,000. From 6 April 2012 it increased to £1 million. The amounts for other years are given in VCM10530. For example, on 1 July 2011 an individual may have subscribed £600,000 for 100,000 shares in an EIS company. Income Tax relief will only be given on £500,000 of the subscription. The CGT exemption only applies to a proportion of the gain on the disposal or part disposal of the 100,000 shares. You calculate the proportion of the exempt gain using the fraction A / B where:

A = the amount by which the individual’s Income Tax liability is actually reduced, and

B = the amount of the subscription x the lower rate of tax for the year of subscription.

This restriction only applies if the shares are sold at a gain, see VCM20100 for the treatment of losses.