EIS Test Case: Capital gains tax exit exemption not linked to income tax entry claim.

4th September 2018

In a recent HMRC test case (Ames v CRC), the Upper Tribunal considered whether it was necessary for EIS income tax relief to have been claimed when an EIS investment was made, for the transaction to then potentially qualify for exemption from capital gains tax when the investment was sold.

For the case in question, the usual EIS1 application process was followed; resulting in HMRC issuing an EIS2 certificate to the company, which in turn they converted into EIS3 certificates for the shareholders. Initial income tax relief was not claimed by one individual taxpayer shareholder as he did not have high enough taxable income that tax year to cover the deduction. When this shareholder realised his investment, for around £1/3m, having sought telephone advice from HMRC, no capital gains tax disclosures were made on his self-assessment return. HMRC became aware of this omission from the tax return and initially interpreted the EIS legislation as the EIS income tax claim being a prerequisite for a subsequent EIS capital gains tax exemption. Accordingly, they then raised a discovery assessment for £72k tax. The taxpayer appealed this interpretation to the First Tier Tribunal, but lost. He then took the decision to the Upper Tribunal, and won.

This test case is helpful in clarifying that these two EIS tax benefits, together with EIS Deferral Relief, all operate independently of each other.

Other items in Blogs
Ellen Carter
11th August 2022 Revisit your remuneration?

For many SME owner-managed businesses, the tax optimum director remuneration structure for many years has been one of a low salary accompanied by high dividends. This allows Companies to take advantage of low dividend tax rates and, in many cases, no employers national insurance to be paid by the company (if paid at the Secondary…

Jaimie King
10th August 2022 Seeing Double: New Recovery Loan Scheme begins

While one government-backed Recovery Loan Scheme (RLS) ends, another opens.   The previous RLS closed on 30th June 2022, but to follow this the government have introduced a new RLS scheme to support businesses through the out-turn of the pandemic, expected to be accessible after 1st August 2022.   The New Recovery Loan Scheme Government…

Charlie Whittle
10th August 2022 Annual Allowance for NHS pensions

What is the annual allowance? The annual allowance for the 2022/23 tax year is £40,000 and each year this is compared with your pension input amounts. Your pension input is defined as the increase or growth in the capital value of your NHS pension benefits across all pension schemes. Any growth in excess of the…

Jake Day
8th August 2022 TRS Registrations: This deadline may apply to you

  1st September 2022 – This deadline may apply to you!   If you hold property or investments on behalf of another person, HMRC may consider this as a reportable trust arrangement. This may mean that you need to register on the Trust Registration Service (TRS) before 1st September 2022.   New legislation now in…

Megan Turner
4th August 2022 Charity Commission annual return: Planned Changes

The Charity Commission has launched a consultation regarding changes to the annual return.   There are a number of new questions, taking the total questions from 36 to 52, although only 32 will be compulsory. The aim of the new questions is to make the annual return more comprehensive, by gaining information around charity’s income…

Ben Beech
3rd August 2022 MP’s call for Government to Introduce Essential User Rebate

The All-Party Parliamentary Group for Road Freight and Logistics has today (27 July 2022) urged the Government to approve the introduction of an Essential User Rebate of no less than 15 pence per litre for operators within the logistics sector to combat the effects of soaring fuel prices and inflation.   The call has come…