VCM20090 - EIS: disposal relief: TCGA92/S150B(3): example
In this example TCGA92/S150A(3) applies to restrict the exemption.
- July 2015 investor subscribes £1,500,000 for 100,000 shares in an EIS company. Maximum Income Tax relief of £300,000 is given in the tax year 2015-16.
- August 2016 the investor receives £200,000 value from the company. The Income Tax relief is reduced by £40,000 (£60,000 x £200,000 / £300,000) by making an assessment.
- January 2020 all the shares are sold for £2,100,000.
The chargeable gain is calculated as below:
Disposal proceeds £2,100,000
less cost £1,500,000
Chargeable gain £600,000
A = Amount of tax relief = £300,000
B = Subscription X EIS rate (30% 2015-16 £450,000
The chargeable gain exemption is restricted to £600,000 x 2 / 3 = £400,000 leaving a chargeable gain at this point of £200,000.The TCGA92/S150A (3) formula is:
The exemption is further reduced by the following amount:
Exempt gain X Reduction in relief
Relief attributable to shares before the reduction
£400,000 X 40,000 = £53,333
£300,000
The exempt gain becomes £346,667 and the chargeable gain £253,333 (£200,000 + £53,333).