Chapter 23 EIS and SEIS Reinvestment relief Flashcards
EIS and SEIS 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.
Interaction with business asset disposal relief – it is possible to qualify for EIS reinvestment relief and business asset disposal relief, you can claim either. If the individual claims EIS reinvestment relief first it is possible to claim business asset disposal relief when the frozen gain comes back into charge. The deferred gain is taxed at the business asset disposal relief rate at 10%.
The business asset disposal relief claim must be made by the first anniversary of 31 January following the tax year in which the frozen gain comes into charge. The availability of business asset disposal relief depends on satisfying the business asset disposal relief conditions at the time of the original disposal.
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.
