Chapter 19 EIS, SEIS and social enterprise reinvestment relief Flashcards
EIS reinvestment relief
If an individual sells an asset and reinvests the sale proceeds in acquiring qualifying EIS shares, he may claim EIS reinvestment relief. This allows a taxpayer to defer the capital gain to a later time, there is no maximum amount that can be deferred. EIS reinvestment relief allows the gain on any asset to be deferred. The amount of gain that can be deferred is the lowest of the gain, the amount reinvested, or the specific amount claimed.
The deferred gain is not rolled over against the base cost of the new EIS shares but is frozen instead. The frozen gain will crystallise when a chargeable event occurs (for example sale of the shares).
There are certain conditions for the relief, the investor must be UK resident, investor must be subscribing for shares in a qualifying EIS company, the reinvestment must be made within 12 months before or 36 months after the disposal of the original asset and the claim must be made no later than 5 years from 31 January after the tax year in which the shares are issued (31 January 2026 for 19/20 tax year).
The frozen gain – becomes chargeable when there is a chargeable event, the most common event is the sale of the shares. A gift of EIS shares is a chargeable event unless it is to a spouse. If the EIS shares cease to be eligible shares, the frozen gain will become chargeable, however a floatation of the EIS company on the stock exchange does not crystallise the frozen gain.
SEIS reinvestment relief
SEIS reinvestment relief – if an individual sells an asset and reinvests the sale proceeds in acquiring SEIS shares, they may claim SEIS reinvestment relief. SEIS reinvestment relief does not defer the gain, instead it exempts an amount of the gain from CGT. The amount of the exempt gain is 50% of the available SEIS expenditure, the amount of available SEIS expenditure is the lowest of the gain, the amount reinvested on which SEIS income tax relief is claimed and the specific amount claimed. The SEIS reinvestment relief claim must be made no later than 5 years from the 31 January following the tax year. Provided the SEIS shares are held for three years the relieved gain is wholly exempt.
Social enterprise reinvestment relief
Social enterprise Reinvestment relief – this allows capital gains on disposals of any asset to be deferred where the gain is reinvested in shares or debt investments in a social enterprise organisation. To make a CGT deferral claim, the investor must be eligible for social investment income tax relief. The maximum amount that may be deferred in a tax year for social enterprise reinvestment relief is £1 million.
The investor must be a UK resident, the reinvestment must be made one year before or 3 years after the gain arose. The amount of the gain that can be deferred is the lower of the gain arising, the amount invested in the social enterprise or the amount specified in the claim. The claim must be made 5 years before the 31 January following the tax year (31 January 2026). The deferred capital gain is brought back into charge when a chargeable event occurs, this is either a disposal of the investment or if the social enterprise ceases to meet the requirements of the scheme.
