VCM20090 | EIS: disposal relief: TCGA92/S150B(3): example

In this example TCGA92/S150A(3) applies to restrict the exemption.

• July 2015 investor subscribes £1,500,000 for 100,000 shares in an EIS company. Maximum Income Tax relief of £300,000 is given in the tax year 2015-16.

• August 2016 the investor receives £200,000 value from the company. The Income Tax relief is reduced by £40,000 (£60,000 x £200,000 / £300,000) by making an assessment.

• January 2020 all the shares are sold for £2,100,000.

The chargeable gain is calculated as below:

Disposal proceeds £2,100,000

less cost £1,500,000

Chargeable gain £600,000

A = Amount of tax relief = £300,000

B = Subscription X EIS rate (30% 2015-16 £450,000

The chargeable gain exemption is restricted to £600,000 x 2 / 3 = £400,000 leaving a chargeable gain at this point of £200,000.The TCGA92/S150A (3) formula is:

The exemption is further reduced by the following amount:

Exempt gain X Reduction in relief

Relief attributable to shares before the reduction

£400,000 X 40,000 = £53,333

£300,000

The exempt gain becomes £346,667 and the chargeable gain £253,333 (£200,000 + £53,333).