EIS/SEIS capital gains exemption

EIS/SEIS capital gains exemption

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Client realises capital gain on EIS/SEIS shares. All other conditions for CGT exemption are met but there was insufficient income tax when purchased to obtain income tax relief.

Does this mean that the EIS/SEIS capital gain is not exempt?

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By kaff
17th Sep 2014 19:21

Did client make a claim to income tax relief?
The CGT exemption is available if EIS/SEIS income tax relief is "attributable" to the shares as defined in s201 and s257e ITA. That requires the investors income tax liability to have been reduced by the income tax relief, which would be the case if there was any income tax liability and a claim to relief was made (even if the whole amount of relief could not be used). No claim to income tax relief, no CGT exemption.

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Replying to kevinringer:
Red Leader
By Red Leader
19th Sep 2014 11:18

income tax claim

kaff wrote:
The CGT exemption is available if EIS/SEIS income tax relief is "attributable" to the shares as defined in s201 and s257e ITA. That requires the investors income tax liability to have been reduced by the income tax relief, which would be the case if there was any income tax liability and a claim to relief was made (even if the whole amount of relief could not be used). No claim to income tax relief, no CGT exemption.

a) So let's say the SA return is done, and although the maximum income tax relief based on the EIS investment amount is say £20,000 but the SA bill is £1,000. Client claims the £1,000 to wipe out his SA income tax bill. From what you say, the subsequent gain would not become taxable as a result of this insufficiency of income tax liability? So despite use of only 10% [EDIT: 5%] of the income tax relief, 100% of the gain remains exempt? 

b) Same as a) but SA return done and shows nil income tax liability before EIS income tax relief. Would an EIS income tax claim in the appropriate part of the SA return be sufficient to preserve the CGT exemption?

Thank you.

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Red Leader
By Red Leader
18th Sep 2014 16:58

.

bump

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By tonycourt
18th Sep 2014 18:52

Yes and no

As I understand it the answer to your first question is yes, full exemption applies to the disposal of the EIS shares.

As for your second question the position is that if IT relief can't be given then there is no CGT exemption. The fact that a claim for IT relief i made on a tax return doesn't alter the position.

See HMRC VCM20060

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