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HMRC internal manual

Venture Capital Schemes Manual

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EIS: deferral relief: shares issued before 6 April 1998: same day acquisitions: disposals before 6 April 1998: examples

Example 1

In this example the investor subscribes less than £100,000 and claims Income Tax relief and deferral relief on different amounts. The changes introduced by FA98 would produce the same result in this case because both the subscription and the deferral relief are less than £100,000. This example only highlights the amount of deferred gain which becomes assessable.

An investor subscribes £80,000 for 80,000 shares in an EIS company. They claim Income Tax relief on £80,000 and £60,000 deferral relief. They sell 50,000 shares at a later date.

Following the steps in VCM22130 the amount of the deferred gain becoming assessable is calculated as follows:

  • the amount in respect of which Income Tax relief is given is £80,000,
  • the £80,000 is attributable equally to all 80,000 shares, £1 is attributable to each share,
  • 60,000 shares are required to give effect to the deferral relief claim of £60,000.

The disposal of 50,000 shares is identified:

  • first against the 20,000 shares which have not had deferral relief,
  • second against 30,000 of the shares which have had deferral relief.

£30,000 of the deferred gain becomes assessable at the later date.

Example 2

In this example an investor subscribes more than £100,000 for shares issued before 6 April 1998 and claims deferral relief of less than £100,000. The changes introduced by FA98 would produce a different result if the shares were issued on or after 6 April 1998, see VCM23150 onwards. This example only highlights the deferred gain which becomes assessable.

On 1 June 1995 Y subscribes £200,000 for 200,000 shares in an EIS company. She claims Income Tax relief in respect of £100,000 and deferral relief of £60,000. On 1 June 1996 she sells 25,000 shares. On 1 June 1997 she sells 75,000 shares.

Following the steps in VCM22130 the amount of the deferred gain becoming assessable is calculated as follows:

  • the amount in respect of which EIS Income Tax relief is given is £100,000,
  • the £100,000 is attributable equally to each of the 200,000 shares, 50p is attributable to each share,
  • 120,000 shares are required to give effect to the deferral relief claim of £60,000. This leaves 80,000 shares against which no deferral relief is claimed.

The disposals are identified as below.

  No Deferral Relief Deferral Relief
     
1 June 1995 80,000 120,000
1 June 1996 disposal 25,000  
  55,000 120,000
1 June 1997 disposal 55,000 20,000
  Nil 100,000

20,000 x 50p = £10,000 of the deferred gain becomes assessable in 1997-98.