Chapter 20 Gains and losses on EIS/SEIS/Social enterprise and VCT shares Flashcards
Sale of EIS and SEIS shares
When EIS and SEIS shares are sold at a gain, that is sometimes exempt from CGT. The gain is exempt if:
• The shares are sold outside the relevant period (3 years after the issue of the shares)
• The investor must have obtained income tax relief on the subscription
If any of these are not satisfied a gain is chargeable as usual
EIS/SEIS at a loss – the loss is always an allowable loss regardless of when the shares are sold. In order to calculate the amount of the allowable loss, any income tax relief obtained on the subscription reduces the capital loss that they can claim.
Sale of social enterprise shares and s131 ITA 2007 election
Sale of social enterprise shares – a gain is exempt if income tax relief was received in respect of the investment and has not been withdrawn and if the shares have been held for at least three years. Where a disposal gives a capital loss, the loss will be allowable. However, any income tax relief will reduce the amount of loss available. The capital gains rules on disposals of investments only usually need to be considered where the investment is in the form of shares.
S131 ITA 2007 election – use of capital losses against income – this allows an individual to use losses to deduct the individual’s net income, either in the current or preceding year. this is the only time a taxpayer can set a capital loss against income. The relief is available on qualifying shares, these are:
• Shares where EIS income tax relief has been claimed
• Unquoted shares in a qualifying trading company have been subscribed for
Sale of VCT shares
Sales of VCT shares – capital gains on VCTs are exempt from CGT regardless of the time period. Also, losses on VCT are never allowable for CGT. The exemption only applies to the first £200,000 shares acquired in the year; any excess is chargeable to CGT. If an allowable loss is incurred in respect of VCT shares, relief for the loss is only available against capital gains, it does not qualify under s131 of the ITA 2007.
