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HMRC internal manual

Venture Capital Schemes Manual

Seed Enterprise Investment Scheme (SEIS): Re-investment Relief: identification of disposals

TCGA92/SCH5BB/PARA8 (4), TCGA92/S150E (6), ITA07/S257HA

The usual share identification rules do not apply where shares have been issued and SEIS Income Tax relief is obtained in respect of those shares. Each acquisition is treated separately.

A shareholder who has acquired SEIS shares may possess other shares in the company which are of the same class. Also, shares may have been acquired at various times and at different prices. Consequently, where a shareholder makes a disposal, we need rules to identify the particular shares disposed of to determine whether the shares disposed of result in any exempted gains coming back into charge.

First in First out

If the shareholder has acquired shares of the same class on different days and disposes of some but not all of his shares the disposals are identified first against the earliest acquisition.

Disposals of shares acquired on same day

If a shareholder disposes of some but not all of the shares he or she acquired on the same day it is necessary to determine which shares are disposed of. This is done by separating the shares into three categories depending on whether SEIS Income Tax relief alone is attributable to them, both SEIS Income Tax relief and re-investment relief are attributable to them, or neither. In making this decision, bear in mind that:

  • SEIS reliefs cannot be attributable to shares if the shareholder did not acquire them by subscription unless the investor acquired them on a disposal within a marriage or civil partnership (see below) and the reliefs were already attributable to the shares;
  • where an amount of re-investment relief or SEIS Income Tax relief is attributable to an issue of shares - that is, to all the shares of a particular class of shares which are issued to the investor on the same day - it is attributable to the whole of that share issue, and a proportionate amount is attributable to each share in respect of which the claim is made.

The shares are treated as disposed of in the order (a) - (c) as below.

    Shares to which SEIS IT relief is attributable Shares to which re-investment relief is attributable
(a) Disposed of first X X
(b) Next Y X
(c) Finally Y Y

X indicates that the relief is not attributable.

Y indicates that the relief is attributable.

Under the SEIS Income Tax rules some shares may have been treated as issued in the tax year prior to that in which they were actually issued, see VCM31130. Where there is a disposal of shares which includes such shares, and not all of the shares in categories (b) or (c) are treated as disposed of, shares in that category treated for Income Tax relief purposes as issued in the previous tax year are treated as disposed of before those which were not.

For the purposes of these rules, if relief is attributable to shares disposed of which were acquired from a spouse or civil partner at a time they were living together, the acquirer is treated as having acquired them on the date they were issued.

The identification rules are illustrated by examples at VCM45140.