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HMRC internal manual

Venture Capital Schemes Manual

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HM Revenue & Customs
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EIS: disposal relief: TCGA92/S150B(3): example

In this example TCGA92/S150A(3) applies to restrict the exemption.

  • July 2008 investor subscribes £750,000 for 100,000 shares in an EIS company. Maximum Income Tax relief of £100,000 is given in the tax year 2008-9.
  • August 2009 the investor receives £100,000 value from the company. The Income Tax relief is reduced by £13,333 (£20,000 x £100,000 / £150,000) by making an assessment.
  • January 2013 all the shares are sold for £1,350,000.

The chargeable gain is calculated as below:

Disposal proceeds £1,350,000
   
Less cost £ 750,000
Chargeable gain £ 600,000

The TCGA92/S150A (3) formula is:

A = Amount of tax relief = £100,000
         
B   Subscription x EIS rate (20% 2008-09)   £150,000

The chargeable gain exemption is restricted to £600,000 x 2 / 3 = £400,000 leaving a chargeable gain at this point of £200,000.

The exemption is further reduced by the following amount:

Exempt gain x Reduction in relief
     
    Relief attributable to shares before the reduction
£400,000 x £13,333 = £53,333
         
    £100,000    

The exempt gain becomes £346,667 and the chargeable gain £253,333 (£200,000 + £53,333).