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HMRC internal manual

Venture Capital Schemes Manual

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Seed Enterprise Investment Scheme (SEIS): re-investment relief: relief reduced or withdrawn: examples

Example 1

An investor subscribes £50,000 for SEIS shares that are issued to him in 2012-13. He claims and obtains SEIS Income Tax relief in respect of the shares. He also claims in respect of the share subscription re-investment relief in relation to a chargeable gain of £40,000 from the disposal of a property in 2012-13. The chargeable gain is reduced to nil. Two years later he sells all the shares at undervalue to a friend.

The disposal of the shares is not by way of a bargain made at arm’s length and all the SEIS relief is withdrawn. The whole of the re-investment relief is also withdrawn and a gain £40,000 becomes assessable for 2012-13.

Example 2

An investor subscribes £30,000 for SEIS shares that are issued to her in 2012-13. She claims and obtains SEIS Income Tax relief £15,000. She also claims in respect of the share subscription re investment relief in relation to a chargeable gain of £24,000 from the disposal of land in 2012-13. The chargeable gain is reduced to nil. Two years later, in 2014-15, she sells the shares at arm’s length for £20,000.

On the sale of the shares £10,000 of the SEIS Income Tax relief is withdrawn. This is two thirds of amount attributable to the shares immediately before the sale and the re-investment relief is reduced in the same proportion:

R1 - R2 x 24,000 = 15,000 - 5,000 x 24,000 = 16,000
                 
R1       15,000        

A gain £16,000 becomes assessable for 2012-13.

A loss accrues on the disposal of the shares in 2014-15. The loss is restricted by the Income Tax relief remaining attributable to shares, see VCM40100.

Example 3

An investor subscribes £50,000 for SEIS shares that are issued to him in 2013-14. He claims and obtains SEIS Income Tax relief in respect of the shares. He also claims in respect of the share subscription re-investment relief in relation to a chargeable gain of £40,000 from the disposal of a property in 2013-14. The chargeable gain is reduced to £20,000 (see VCM45020). Two years later he sells all the shares at undervalue to a friend.

The disposal of the shares is not by way of a bargain made at arm’s length and all the SEIS relief is withdrawn. The whole of the re-investment relief is also withdrawn and a gain £20,000 becomes assessable for 2013-14.