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EIS and CGT Deferral Relief

Director currently owns 100% of a group of companies.  The group would qualify under the EIS rules.  He has a seperate personal capital gain.  

Can the company issue more shares to him to enable him to defer his capital gain?

He currently has a large directors loan owing to him from the company.  Can he effectively convert this loan into newly issued shares?

Thanks for any guidance

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01st May 2012 10:25

No

Firstly he cannot convert exising loan into new shares, as shares must be subscribed for in new money.  Repayment of loan and then subscription for new shares is likely to be caught by the return of value rules.

If he is prepared to put up new money, he can subscribe for new shares and obtain deferral relief, as deferral relief does not require the ownership to satisfy the connection test.

 

 

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01st May 2012 10:53

Add

To add to the comments already made, there is no doubt that repayment of the loan, whether before or after the subscription, would invalidate the EIS claim. He can lend further cash after the share subscription and have this repaid. So in this case it will be important to have two director's loan accounts - the first one frozen for 3 years.

Also the new cash must be used for the purposes of the trade, which could include reducing borrowing (but not the director's loan!).

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