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HMRC internal manual

Venture Capital Schemes Manual

SEIS: income tax relief: withdrawal or reduction of SEIS relief: disposal of shares

ITA07/S257FA, S257FB

Relief will be withdrawn where before the end of period B (see VCM31140) the investor disposes of shares for which SEIS relief has been given. Guidance on the attribution of SEIS relief to shares is at VCM35020 and on the identification of shares on a disposal is at VCM37020.

The death of an investor does not trigger the withdrawal of any relief given - ITA07/S257GC. A disposal to a spouse or civil partner does not trigger the withdrawal of any relief given - the shares are treated as though the spouse or civil partner had subscribed for them - ITA07/S257FA(4) (see VCM37010).

‘Disposal of shares’ is defined under S257HH as including the disposal of any interest in or right in or over the shares. It includes the situation where the investor is treated as having exchanged one set of shares for another by virtue of TCGA92/S136.

Calculation of relief to be withdrawn

Where relief has to be reduced following a disposal, the amount of the reduction is:

  • the amount of relief attributable to the shares,


  • a sum equal to tax at the SEIS rate on the amount or value of the consideration received,

whichever is the smaller.

But if the relief attributable to the shares is less than tax at the SEIS rate on the amount originally subscribed, for example because the investor has insufficient income tax liability against which to set the whole amount, the reduction in the relief is to be restricted proportionately.

Example 1

Miss Bergen subscribed £100,000 for shares in Serena’s Shoes Ltd issued to her in 2014-15, and obtained relief of £50,000 (£100,000 at 50%). Two years later she sells the shares under a bargain at arm’s length for £80,000.

50% of £80,000 is £40,000 and this, being less than £50,000, is the amount of relief to be withdrawn. (She may be able to claim Share Loss Relief on the net loss of £10,000, i.e. £20,000 less the remaining tax relief of £10,000, - see VCM70000 onwards.)

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Example 2 - maximum relief not obtained

If Miss Bergen’s income tax liability in 2014-15 before relief was only £30,000, so that the relief attributable to her shares was only that amount instead of the full £50,000, the disposal proceeds must be apportioned by multiplying them by the relief obtained (£30,000) divided by the relief claimed (£50,000). The apportioned disposal proceeds amount to £48,000. £48,000 multiplied by the SEIS rate of 50% is £24,000, which is less than the relief obtained of £30,000. The relief is therefore reduced by £24,000.

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Part disposals

If the disposal is of part only of the holding of shares we need to decide how much of the relief attributable to the holding relates to the shares disposed of. If the shares are disposed of for the same amount or more than the individual paid for them, the relief withdrawn will be a proportionate amount of the relief originally given. If they are disposed of for less than the individual paid for them, (providing the disposal was by way of a bargain at arms length), only relief equal to tax at the SEIS rate on the amount of consideration received is withdrawn. The following examples (which assume that disposals are at arms length) illustrate how the amount of relief to be withdrawn is calculated.

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Example 3

Mr Larkin subscribed £100,000 for 100,000 shares in Sussex Crafts Ltd and obtained relief of £50,000. Two years later he disposes of 25,000 shares for a consideration of £30,000. The relief is apportioned across the 100,000 shares so that £12,500 is attributable to the 25,000 shares sold, leaving £37,500 attributable to the 75,000 shares retained. Since the relief of £12,500 is less than 50% of the consideration of £30,000, it is withdrawn in full.

Example 4

Suppose that Mr Larkin receives only £10,000 for the 25,000 shares that he sells. The apportioned relief of £12,500 exceeds 50% of the consideration of £10,000, so only £5,000 of the relief attributable to those shares is withdrawn. As before, the relief apportioned to the remaining 75,000 shares is £37,500; if those shares are later disposed of at a profit no part of the remaining £37,500 of relief relating to the shares already disposed of can be withdrawn on account of the later disposal.