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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: share exchanges

When an EIS company is taken over, the acquiring company may issue its own shares in exchange for the original shares; that is the shares which have attracted EIS Income Tax relief and some or all of which have also attracted deferral relief. Even though new shares are issued in exchange this is a disposal of the original shares and the deferred gain comes back into charge unless:

  • all the EIS Income Tax relief and deferral relief given on the original shares has been withdrawn, possibly as a result of the take-over, or
  • the share exchange takes place on or after 6 April 1998 and falls within TCGA92/S150A/PARA8D, see VCM20190, or
  • the share exchange takes place more than five years after the original shares were issued and meets the conditions set out at Section 150A (8A) to (8C), see VCM23230.

TCGA92/S150A/PARA8D, ICTA88/S304A, TCGA92/SCH5B/PARA8

Section 150A (8D) effectively applies the provisions of ICTA88/S304A for CGT purposes. These are explained at VCM23230. If they apply the new shares stand in the place of the old shares in all respects. This means that they will attract the same disposal relief on a subsequent disposal as the original shares would have done. Where the conditions of ICTA88/S304A are met, the shares also meet the requirements of TCGA92/SCH5B/PARA8, see VCM23230, so that the new shares stand in the place of the old shares for deferral relief purposes as well.

TCGA92/S150A/PARA8A - 8C

Where the conditions imposed by these provisions are met TCGA92/S135 may apply resulting in no disposal if the technical conditions are met and the anti-avoidance provisions of TCGA92/S137 do not operate, see CG52500 onwards. This would mean that the deferred gain would not be brought back into charge on the share exchange.

In all other share exchanges the taxpayer disposes of his eligible shares and the deferred gain comes back into charge.