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HMRC internal manual

Venture Capital Schemes Manual

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Share Loss Relief: individual and corporate claimants: individual claimants: more complex cases: disposal of shares forming part of a mixed holding: special case

Where shares are disposed of from a mixed holding but part of the holding remains, it is necessary to identify the shares disposed of in order to determine whether they are qualifying shares for Share Loss Relief purposes and - if they are - when and for how much they were acquired. The general rules for these identifications are at ITA07/S148(4) and (5) (see VCM75450), but different rules apply where the mixed holding contains any of the following types of share immediately before the disposal:

  • shares to which Seed Enterprise Investment Scheme relief is attributable
  • shares issued before 1 January 1994 in respect of which Business Expansion Scheme relief has been given and has not been withdrawn
  • shares to which Enterprise Investment Scheme relief is attributable
  • shares to which deferral relief (under TCGA92/SCH5B) is attributable, ie shares in a qualifying company on the acquisition of which some or all of an original gain was postponed.

Where this is so, which rules to apply will further depend on when those ‘relief shares’ were issued. There are four alternative sets of rules, applying in the following four cases.

 

 

 

Shares issued before 1 January 1994 (that is, issued during the period in which the Business Expansion Scheme operated)

Use the identification rules appropriate to Business Expansion Scheme (BES) relief. These are at ICTA88/S299(3) to (4C). (Subsections (4) to (4C) were substituted for the previous subsection (4) by FA98/SCH13/PARA39 in relation to disposals made on or after 6 April 1998.)

Under these rules, the shares disposed of are identified firstly with shares in respect of which BES relief has been given (and not withdrawn) and which were issued between 6 April 1981 and 5 April 1983. Secondly the shares disposed of are identified with shares in respect of which BES relief has been given (and not withdrawn) and which were issued after 5 April 1983 and before 1 January 1994. Only when all BES shares have been identified with shares disposed of are further disposals identified with non-BES shares The following identification rules are all subject to this requirement that BES shares issued before 6 April 1983 be treated as disposed of before BES shares issued later, and both in priority over non-BES shares. This is at ICTA88/S299(3).

Subject to that, shares disposed of are identified with those acquired on an earlier day rather than with those acquired on a later day. In other words, a ‘first-in, first-out’ basis applies. Further, where shares were acquired on the same day, any disposal is to be treated as relating to those shares in respect of which BES relief has been given and not withdrawn, rather than to those in respect of which relief has not been given, or has been withdrawn. This is at ICTA88/S299(4A). ‘Non-BES’ shares are not identified with shares disposed of until all the BES shares (whenever issued) have been so identified and are treated as having been disposed of.

For the purposes of these rules, BES shares issued to a spouse or civil partner and later transferred to the holder’s spouse or civil partner during their lifetimes are treated in the transferee’s hands as being acquired by him or her on the day they were issued. This is at ICTA88/S299(4B).

For the purposes of these rules, where TCGA92/S127 applies (see CG51805+) shares in the new holding are treated as having been acquired when the original shares were acquired. This is at ICTA88/S299(4C).

Shares issued on or after 1 January 1994 and before 6 April 2007 (that is, issued during the currency of the Enterprise Investment Scheme and before ITA 2007 came into effect)

Use the identification rules appropriate to Enterprise Investment Scheme (EIS) relief. These are at ICTA88/S299(6) to (6D). (If, exceptionally, the disposal is of shares to which EIS or deferral relief (under TCGA92/SCH5B) is attributable and the individual has elected for the alternative treatment of shares acquired on the same day (under TCGA92/S105A) then the rules at ICTA88/S299 apply with slight modifications: see VCM75480 if this is the case).

Where shares of the same class in a company have been acquired on different dates within this period, shares disposed of are treated as relating to shares acquired on an earlier day rather than a later day. In other words, a first-in, first-out rule applies. This is at ICTA88/S299(6).

Then, where shares of the same class in a company have been acquired on the same day and it is necessary to determine which of those shares have been disposed of, the shares are treated as disposed of in the following order:

  1. shares to which neither EIS relief nor deferral relief (under TCGA92/SCH5B) is attributable
  2. shares to which deferral relief but not EIS relief is attributable
  3. shares to which EIS relief but not deferral relief is attributable (see note below)
  4. shares to which both EIS relief and deferral relief is attributable (see note below).

Note: the EIS rules provide for shares to be treated as having been issued on a day before their actual issue in certain circumstances (ICTA88/S289B(5)). Where this applies to any of the shares under consideration at (c) or (d) shares treated as issued on an earlier day are treated as having been disposed of before other shares within that category. This is at ICTA88/S299(6A) and (6B).

For the purposes of these rules, shares to which EIS or deferral relief is attributable and which were acquired by an individual from their spouse or civil partner during their lifetimes are treated as acquired by the transferee on the day on which they were issued. This is at section ICTA88/S299(6C).

For the purposes of these rules, where TCGA92/S127 applies (see CG51805+) shares in the new holding are treated as having been acquired when the original shares were acquired. This is at ICTA88/S299(6D).

Shares issued on or after 6 April 2007 and before 6 April 2013 (that is after ITA 2007 came into effect and before the limit on income tax reliefs was enacted by FA 2013)

The identification rules are at ITA07/S246. They are the rules at ICTA88/S209(6) to (6D), re-cast by the Tax Law Rewrite. (If, exceptionally, the disposal is of shares to which EIS or deferral relief (under TCGA92/SCH5B) is attributable and the individual has elected for the alternative treatment of shares acquired on the same day (under TCGA92/S105A) then the rules at ITA07/S246 apply with slight modifications: see VCM75480 if this is the case).

Shares acquired on an earlier day are treated as disposed of before shares acquired on a later day. This is at ITA07/S246(2).

Where shares of the same class in a company have been acquired on the same day and it is necessary to determine which of those shares have been disposed of, the shares are treated as disposed of in the following order:

  1. shares to which neither EIS relief nor deferral relief (under TCGA92/SCH5B) is attributable
  2. shares to which deferral relief but not EIS relief is attributable
  3. shares to which EIS relief but not deferral relief is attributable (see note below)
  4. shares to which both EIS relief and deferral relief is attributable (see note below).

Note: the EIS rules provide for shares to be treated as having been issued on a day before their actual issue in certain circumstances (ITA07/S201(6)). Where this applies to any of the shares under consideration at (3) or (4) above, shares treated as issued on an earlier day are treated as having been disposed of before other shares within that category. This is at ITA07/S246(3) and (4).

For the purposes of these rules, shares to which EIS or deferral relief is attributable and which were acquired by an individual from their spouse or civil partner during their lifetimes are treated as acquired by the transferee on the day on which they were issued. This is at ITA07/S246(5).

For the purposes of these rules, where TCGA92/S127 applies (see CG51805+) shares in the new holding are treated as having been acquired when the original shares were acquired. This is at ITA07/S246(6).

Shares issued on or after 6 April 2013

The identification rules are at ITA07/S246. (If, exceptionally, the disposal is of shares to which EIS or deferral relief (under TCGA92/SCH5B) is attributable and the individual has elected for the alternative treatment of shares acquired on the same day (under TCGA92/S105A) then the rules at ITA07/S246 apply with slight modifications: see VCM75480 if this is the case.)

Shares acquired on an earlier day are treated as disposed of before shares acquired on a later day. This is at ITA07/S246(2).

Where shares of the same class in a company have been acquired on the same day and it is necessary to determine which of those shares have been disposed of, the shares are treated as disposed of in the following order:

  1. shares to which neither EIS relief nor deferral relief (under TCGA92/SCH5B) nor SEIS relief is attributable
  2. shares to which only SEIS relief is attributable (see Note 1 below)
  3. shares to which deferral relief but not EIS relief is attributable
  4. shares to which EIS relief but not deferral relief is attributable (see Note 2 below)
  5. shares to which both EIS relief and deferral relief is attributable (see Note 2 below).

Note 1

ITA07/S148 was amended by FA13/SCH3/PARA2(4) to separately identify shares to which SEIS relief is attributable when the limit on income tax reliefs (VCM74035) was introduced. Losses on shares to which SEIS relief is attributable are unaffected by this limit so it became necessary to be able to separately identify them in a mixed holding.

For the purposes of these rules, shares to which SEIS relief is attributable and which were acquired by an individual from their spouse or civil partner during their lifetimes are treated as acquired by the transferee on the day on which they were issued. This is at ITA07/S257HA(4).

For the purposes of these rules, where TCGA92/S127 applies (see CG51805+) shares in the new holding are treated as having been acquired when the original shares were acquired. This is at ITA07/S257HA(5).

Note 2

The EIS rules provide for shares to be treated as having been issued on a day before their actual issue in certain circumstances (ITA07/S201(6)). Where this applies to any of the shares under consideration at (4) or (5) above, shares treated as issued on an earlier day are treated as having been disposed of before other shares within that category. This is at ITA07/S246(3) and (4).

For the purposes of these rules, shares to which EIS or deferral relief is attributable and which were acquired by an individual from their spouse or civil partner during their lifetimes are treated as acquired by the transferee on the day on which they were issued. This is at ITA07/S246(5).

For the purposes of these rules, where TCGA92/S127 applies (see CG51805+) shares in the new holding are treated as having been acquired when the original shares were acquired. This is at ITA07/S246(6).