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Tax implications of EIS company liquidation

EIS income tax relief, capital gains tax deferral and loss relief

My client invested £25,000 in an EIS scheme on the 3rd October 2016.  He subsequently received the EIS3 form showing  authorisation by HMRC.

Income tax relief was claimed on this investment through his 2015/16 Tax Return form.  The investment was backdated from the 2016/17 year to 2015/16.

In addition, CGT deferral relief was claimed against a significant capital gain my client made in the 2014/15 year.  This claim was made by amending the 2014/15 Tax Return form with a resultant reduction in the CGT liability for that year of £7,000.

The EIS company almost immediately ran into trouble and during February 2017 liquidators were appointed following a hearing at the District Registry.

The promoters of the original EIS scheme decided to bid for certain assets held by the company which was now in liquidation and the liquidators agreed to this and a new company was then set up with the original EIS investors being granted warrants to subscribe for ordinary shares at a nominal value in the new company. The new company will not be EIS qualifying.

I would be grateful for confirmation from any contributors in relation to whether they feel my understanding detailed below is correct:

1) I understand that the original EIS company did continue to meet the conditions for EIS eligibility up to the date of liquidation.  Accordingly, am I correct in thinking that the EIS income tax relief claimed on this investment will not be lost?  My client has received no communication from HMRC to indicate that the EIS status of the company was lost prior to liquidation.

2) Given that my client claimed CGT deferral in relation to his original investment, presumably this deferral effectively ended on the date the company went into liquidation.  At this time, his shares would have become worthless and effectively were disposed of for nil value.  So presumably the deferred gain of £25,000 came back into charge in the 16/17 year at the date of liquidation. Please can contributors confirm this is correct.

3) Am I correct in thinking that at the date of liquidation my client can claim loss relief for the original value of the investment of £25,000, less the income tax relief given of £7,500.  So, a loss arises in the 2016/17 year of £17,500 which can be offset either against income tax or capital gains tax.  Given that my client is a 45% taxpayer, am I correct in thinking that I will be able to make a claim against his income tax liability for the 2016/17 year of £17,500 x 45% = £7,875?

  I presume that the loss relief claim will be made through the self assessment tax return form for the 2016/17 year.  I am not certain where this claim should be detailed.   Should the claim be detailed  in one of the boxes on the additional information pages? Is box 6 on page AI2  the correct place for this claim,  with an explanation entered elsewhere on the tax return form.  I would welcome any guidance given in relation to this matter.

4) As far as I can see, the issue of the warrants in the new company to my client at negligible value has no tax implications on him at the current time.  I would welcome confirmation in relation to this.

Thanks in advance to anyone who can assist me with these queries.

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