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HMRC internal manual

Venture Capital Schemes Manual

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HM Revenue & Customs
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EIS: deferral relief: shares issued before 6 April 1998: how much of the deferred gain becomes assessable?

TCGA92/SCH5B/PARA4

The whole of any deferred gain becomes assessable if the investor disposes of all the shares or if the chargeable event is not a disposal at all (for example if within five years from the time the shares were issued the investor emigrates from the UK).

Example

An investor subscribes £50,000 for 50,000 shares and receives full Income Tax relief. They defer a gain of £50,000. After more than five years they sell all the shares making a capital gain which is exempt from CGT. The whole of the subscription was used to defer the gain and as all the shares have been sold the whole of the deferred gain of £50,000 becomes assessable for the tax year in which the shares were sold. The CGT annual exempt amount can be used to cover part of the gain now assessable.

Part disposal

If the investor disposes of only some of the shares to which the deferred gain relates only part of the deferred gain will become assessable.

Example

The investor subscribes £20,000 for 20,000 shares and receives Income Tax relief in respect of all £20,000. They defer a gain of £20,000. After more than five years they sell 15,000 of the shares making a gain which is exempt from CGT. Part of the deferred gain comes back into charge. The whole of the subscription of £20,000 was used to defer the gain, and as 15,000 of the 20,000 shares have been sold the same proportion of the deferred gain £15,000 becomes assessable for the tax year in which the 15,000 shares were sold. The CGT annual exempt amount can be used to cover part of the gain now assessable.