Seed Enterprise Investment Scheme (SEIS): Re-investment Relief: identification of disposals: examples
An investor subscribes £80,000 for 80,000 shares in a SEIS company that are all issued to him on 3 November 2012. He obtains Income Tax relief on £80,000 and £60,000 re-investment relief in respect of a gain from a disposal of land. 50,000 of the shares are sold on 4 April 2014.
Following VCM45130 the amount of the deferred gain that accrues at the time the 50,000 shares are disposed of is calculated as follows:
- the £80,000 Income Tax relief is attributable equally to all 80,000 shares,
- the £60,000 re-investment relief is attributable equally to all 80,000 shares.
The numbers of shares falling into the categories described in VCM45130 are:
The 50,000 shares disposed of are identified as 50,000 of the 80,000 shares to which both re investment relief and Income Tax relief are attributable, (c).
The disposal is within three years of the share issue and the Income Tax relief attributable to the 50,000 shares may fall to be reduced or withdrawn with a corresponding reduction or withdrawal of re-investment relief, see VCM45090.
On 25 May 2014, Mary disposes of 24,000 of her holding of 34,000 ordinary shares in Z Ltd in an arm’s length sale. She had acquired the shares, which are all of the same class, as follows:
- on 1 September 2012, she was issued with 10,000 shares, in respect of which she obtained SEIS Income Tax relief,
- on 5 October 2012, she was issued with 5,000 shares, in respect of which she obtained both SEIS Income Tax relief and re-investment relief,
- on 5 October 2012, she acquired 4,000 shares by private sale from her brother, to whom they had been issued on 1 September 2012,
- on 16 January 2013, her husband transfers 9,000 shares to her. These shares had been issued to him on 5 October 2012, and he had obtained SEIS Income Tax relief in respect of the subscription,
No Income Tax relief had been withdrawn prior to the disposal.
For the purposes of the identification rules, the 9,000 shares that were transferred to Mary on 16 January 2013 are treated as having been acquired by her on 5 October 2012.
Following VCM45130, the relevant attributions of relief to the shares in her holding are as below, (the dates shown being those which are applicable for identification purposes).
|b||Income Tax relief only||10,000||9,000|
The 24,000 shares that Mary disposes of are identified in the following way. Firstly, (First in First Out) with the 10,000 shares she acquired on 1 September 2012 and then with 14,000 shares she acquired (or is treated as having acquired) on 5 October 2012. Of the shares acquired on the same day, 5 October 2012, the 14,000 shares treated as disposed of are identified firstly as the 4,000 shares to which no reliefs are attributable, then the 9,000 shares to which Income Tax relief (but not re-investment relief) is attributable, and finally 1,000 of the 5,000 shares to which both Income Tax relief and re-investment relief are attributable.
Mary had subscribed £7,500 for the 5,000 shares that were issued to her on 5 October 2012, and in respect of that subscription she claimed re-investment relief for a chargeable gain of £4,000 which accrued to her on 10 November 2012. She sold her shares for £2 per share and on disposing of 1,000 of the 5,000 shares the Income Tax relief attributable to those 1000 shares is withdrawn. £800 (£4,000 x 1,000 / 5,000) of the previously exempted gain thus becomes assessable in 2012-13. (All the details of the withdrawal of Income Tax relief are not covered in this example).
An investor subscribes £100,000 for 400,000 shares in a SEIS company that are issued on 1 February 2013 and claims the maximum Income Tax relief. These are the only shares held by him in that company. He makes a claim to set off £25,000 of the amount subscribed against a chargeable gain which accrues to him on 8 October 2012, £15,000 against a chargeable gain accruing to him on 10 December 2012, and £30,000 against a chargeable gain accruing to him on 28 December 2012. No other gains accrue to him in 2012-13 so he cannot set off the whole of the amount he subscribed for the shares against chargeable gains. On 4 April 2014 he disposes of 100,000 of the shares.
The total re-investment relief, £70,000, is attributed proportionately to each of the 400,000 shares. He has disposed of a quarter of his shares, so, if the disposal leads to the withdrawal in full of the Income Tax relief attributable to the 100,000 shares, a chargeable gain £17,500 (70,000 x100,000/400,000) will be treated as accruing in 2012-13.