VCM23520 - EIS: deferral relief: shares issued on or after 6 April 1998: trustees: basis of restriction

The decision flow below summarises how to calculate the proportion of the chargeable gain arising to trustees which is eligible for deferral relief. It describes the consequences of the legislation. The process followed by the legislation is complex. Where at least one individual has an interest in possession, all the other interests in the settlement are treated as another interest in possession. If any of the beneficiaries without an interest in possession, whether entitled to capital or income, is not an individual, then that deemed interest in possession is treated as held by a non-individual, otherwise it is treated as held by an individual.

Where there is an actual interest in possession at both the disposal date and the acquisition date, you look at the percentage of the income to which individual holders of interests in possession are entitled, including the deemed interest in possession. Provided the percentage is higher at the acquisition date, relief is due on the percentage share at the disposal date.

If there is an actual interest in possession at the acquisition date and none at the disposal date, or vice-versa, no relief is due.

Definitions

For the purpose of this section:

  • IIP means an interest in possession, other than an interest for a fixed term
  • Individual includes a charity
  • DD means the date of disposal
  • DA means the date of acquisition of the relevant shares

Decision Flow

1.      Are any of the interests IIPs at DD?

  • Yes - Go to question 2
  • No - Go to question 6

2.      Are any of the interests IIPs at DA?

  • No - No relief
  • Yes - Go to question 3

3.      Are all the beneficiaries at both DD and DA individuals?

  • No - Go to question 4
  • Yes - Chargeable gains are fully eligible for relief

4.      Do individuals have IIPs in all the income at both DD and DA?

  • Yes - Chargeable gains are fully eligible for relief
  • No - Go to question 5

5.      Is the percentage of income to which individual holders of actual or deemed IIPs were entitled at DA not less than at DD? 

  • No - No relief
  • Yes - Relief is restricted to the percentage of gains equal to the percentage of income to which individual holders of actual or deemed IIPs were entitled at DD

6.      Are any of the interests IIPs at DA?

  • No - Go to question 7
  • Yes - No relief

7.      Are all the beneficiaries at both DD and DA individuals?

  • Yes - Chargeable gains are fully eligible for relief
  • No - No relief 

For worked trustee examples, see VCM23530.

Trust as beneficiary

If an interest in a trust is held by a second trust you should look through to the beneficiaries of the second trust in order to determine the portion of the chargeable gains eligible for deferral relief.