VCM20140 - EIS: disposal relief: identification of disposals

TCGA92/S150A (4) to (5)

The ordinary share identification rules do not apply to shares that have attracted EIS relief. There is no pooling of these shares and other matching rules do not apply. Instead the Income Tax rules in ITA07/S246(2)apply. Disposals are identified first against the earliest acquisition. For same day acquisitions the order of disposal is set out at ITA07/S246(3), see VCM16020.

Example

An investor subscribed £20,000 for 20,000 new shares in an EIS company. These shares were issued to her on 1 June 2017 and were the only shares in an EIS company issued to her in 2017-18. She claimed Income Tax relief on all £20,000.

On 1 July 2019 she bought a further 15,000 shares from a third party for £15,000. These shares did not attract any EIS reliefs.

On 1 January 2021 the taxpayer sold 25,000 shares for £50,000.

For CGT purposes the taxpayer has two separate blocks of shares in the EIS company.

• 20,000 shares acquired 1 June 2017 any gain on the disposal of which after three years is not chargeable.
• 15,000 shares acquired on 1 July 2019 which are not exempt. This is called a TCGA92/S104 holding, see CG50590 onwards.

The shares sold on 1 January 2021 are identified:

• firstly with the 20,000 shares issued on 1 June 2017. As these have been held for more than 3 years no gain arises on their disposal, and
• secondly with 5000 of the shares from the Section 104 holding.

Disposal proceeds (5,000 non-exempt shares)	£10,000
Less cost	£ 5,000
Chargeable gain	£ 5,000

An example on same day acquisitions is at VCM23170, example 1.