VCM23150 | EIS: deferral relief: shares issued on or after 6 April 1998: how much of the deferred gain becomes assessable?

TCGA92/SCH5B/PARA4

The whole of any deferred gain becomes assessable if the taxpayer disposes of all the shares or if the chargeable event is not a disposal. (For example, if within five years from the time the shares were issued, or for shares issued on or after 6 April 2000, within the period from the date of issue to the date immediately before the termination date, see VCM23070, relating to those shares, the taxpayer emigrates from the UK).

Example

An investor subscribes £50,000 for eligible shares that are issued after 5 April 1998. He claims to defer a chargeable gain of £50,000 from the disposal of a property. He subsequently sells all the shares. The whole of the subscription was used to defer the gain on the property and as all the shares have been sold the whole of that deferred gain of £50,000 becomes assessable for the tax year in which the shares are sold. The CGT annual exempt amount for the year in which the EIS shares are disposed of can be used to cover part of the deferred gain now assessable.

Part disposal

If an investor disposes of only some of the shares to which the deferral relief is attributable, a proportionate part of the deferred gain will become assessable.

Example

An investor subscribes £30,000 for eligible shares that are issued after 5 April 1998. She claims to defer a gain of £20,000 from the disposal of land against the subscription for the shares. She sells 75% of the shares. When the shares are disposed of, part of the deferred gain on the land becomes assessable. As 75% of the shares have been sold, the same proportion of the deferred gain (£15,000) becomes assessable for the tax year in which the shares were sold. The CGT annual exempt amount for the year in which the shares were sold can be used to cover part of the deferred gain now assessable.

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Timing, Indexation and Taper relief

The deferred gain is treated as accruing at the time of the relevant chargeable event listed in VCM23110. The gain is not recomputed to give further indexation allowance from the date of the original disposal to the date of the chargeable event or to April 1998. FA98 froze indexation allowance at April 1998 except for companies, see CG17207.

Taper relief, if due, see CG17895 onwards, should be computed on the amount of the deferred gain as if the accrual occurred on the date of the original disposal. There is no further taper relief due from the date of the original disposal to the date of the chargeable event (but see VCM25000 onwards re taper relief for serial EIS investments where a gain accrues or is treated as accruing before 6 April 2008. Any gain or loss accruing on the disposal of the EIS shares themselves in respect of the period for which they were held is treated separately.