EIS CGT relief

EIS CGT relief

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I have a new client who invested a nominal sum £20 in a company in 2004. The company would have qualifed fir EIS but no claim was made as the shareholders funded the company substantially by loan capital and minimal share capital.

The company is to be sold now and a significant gain (as well as loans repaid) will be made on the shares. Is my client barred from making the CGT claim as no application was made at the time for income tax relief?
Richard Shaul

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By barryhallam
03rd Oct 2007 16:14

Two year time limit
There is a two year time limit for submitting an EIS1. i.e. two years from the end of the year of assessment in which the shares were issued or, If later, two years after the company has completed 4 months trading.

If an EIS1 is not submitted then an EIS3 cannot be issued and so Income tax and CGT exemption or CGT deferral cannot be claimed

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By gbuckell
03rd Oct 2007 13:34

Make a claim!
The time limit for an EIS claim is 5 years after 31 Jan following the end of the tax year in which the investment took place [s202 ITA 2007]. So there is still time to make a claim. Without this the CGT exemption cannot be claimed [s150A(2) TCGA 1992].

To make a claim the company must first submit a form EIS1.

Has the company been trading for at least 3 years? A sale before the 3rd anniversary would lose the client relief.

Reference to funding the company by loans suggests that care may be required over timing of repayments.

Subject to these points and possibly others (EIS is full of pit traps for the unwary), the scope to claim CGT relief sounds promising.

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By AnonymousUser
03rd Oct 2007 13:02

Don't know if it helps.
CGT deferral relief under EIS may be claimed without claiming the IT relief. Indeed the qualifying conditions for IT relief are more stringent, so in some cases CGT deferral may be claimed when IT relief is not available.

In order to defer the gain, your client would need to invest now in shares that qualify for the EIS deferral. I don't see how the circumstances in 2004 come into the picture.

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By User deleted
03rd Oct 2007 21:10

Minimum investment
My understanding is that EIS income tax relief requires a minimum investment of £500. See ITA 2007 s157(2) and TA 1988 s290(2). EIS disposal exemption requires EIS income tax relief to be available and claimed. See TCGA 1992 s150A.

Therefore the capital gains tax exemption would appear not to be available. What do others think?

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By Paul Soper
08th Oct 2007 22:43

A little confusion?
I think Richard may be confusing a few reliefs here. To get EIS relief shares must have been issued for cash, and as the company was largely financed by loans that would not qualify. There would be no point in repaying the loans now to enable a qualifying issue to be made as there does not seem to be an earlier gain to absorb from the relief. The only gain that Richard refers to is that on the existing soon to be sold holding and turning these shares into EIS shares will not make them CGT exempt which I suspect is what he is looking for.

As correctly pointed out the EIS IT and CGT reliefs are quite different - demonstrated that the IT relief is only given for holdings of <20% whereas the CGT relief can be claimed on a holding of any size.

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