Chapter 23 - EIS Reinvestment Relief Flashcards
EIS Scheme
An individual can get an income tax reducer of 30% on EIS shares bought up to £1,000,000.
Knowledge Intensive Companies
Where shares are subbed in a KIC, the eligible share limit increases to £2,000,000, of which no more than £1,000,000 can be invested in non-KICs.
Reinvestment Relief
Available where a taxpayer sells any type of asset and subscribes for qualifying EIS shares. It can defer a gain on any asset as long as the proceeds are reinvested in EIS shares.
Note
There is no ceiling to the amount of a gain that can be deferred, the £1 million limit only applies to IT
Deferral
The deferred gain is not rolled over against the base cost of the shares, it’s frozen. The base cost doesn’t change. The frozen gain will crystallise and become chargeable in the year of a chargeable event. Most commonly, the sale of the EIS shares.
Amount Deferred
Amount deferred is the lowest of:
- gain
- amount invested in EIS shares
- amount specified in the claim
Amount of Relief
EIS relief is flexible in that it enables taxpayers to claim a lower amount so as to use losses or the AE (reduce gains to £11,700)
Conditions
Must be UK resident at the time the gain was made and at time of reinvestment.
Must be subbing for shares in a qualifying EIS company: unquoted with a UK PE, carrying on a qualifying trade
Must reinvest either 12 months before or 36 months after the sale of an asset
Claim
Must be made within 5 years from the 31 Jan following the tax year in which the shares are issued.
Connected Person
Don’t have to be connected with the company to get EIS relief, you only have to be connected to get IT relief. Connected = owning more than 30% of the shares
Interaction with ER
You can’t claim both on qualifying gains. A taxpayer must choose which one to utilise.
If EIS relief is claimed, ER will be available when the frozen gain becomes chargeable
