VCM23160 - EIS: deferral relief: shares issued on or after 6 April 1998: identification of disposals
TCGA92/SCH5B/PARA4 (3) & (4)
A disposal is the most common type of chargeable event. The usual share identification rules, see CG/APP10, do not apply where shares have been issued and deferral relief is obtained in respect of those shares. There was no pooling of shares acquired before 6 April 1998 and the last in first out and other rules introduced by FA98 do not apply. Each acquisition is treated separately.
A shareholder who has made a qualifying investment may possess other shares in the company which are of the same class. Also, qualifying investments may have been made at various times and at different prices. Consequently, where a shareholder makes a disposal, we need rules to identify the particular shares disposed of to determine whether the shares disposed of result in any deferred gains coming back into charge.
TCGA92/SCH5B/PARA4 (3)
If the shareholder has acquired shares of the same class on different days and disposes of some but not all of his shares the disposals are identified first against the earliest acquisition.
Disposals of shares acquired on same day
TCGA92/SCH5B/PARA4 (4)
Please note that the share identification rules have been amended for shares acquired on or after 6 April 1998.
If a shareholder disposes of some but not all of the shares he or she acquired on the same day it is necessary to determine which shares are disposed of. This is done by separating the shares into four categories depending on whether deferral relief alone is attributable to them, EIS Income Tax relief alone is attributable, both or neither. In making this decision, bear in mind that:
- EIS reliefs cannot be attributable to shares if the shareholder did not acquire them by subscription unless the investor acquired them on a disposal within marriage (see below) and the reliefs were already attributable to the shares;
- where an amount of deferral relief or EIS Income Tax relief is attributable to an issue of shares - that is, to all the shares of a particular class of shares which are issued to the investor on the same day - it is attributable to the whole of that share issue, and a proportionate amount is attributable to each share.
The shares are treated as disposed of in the order (a) - (d) as below.
| Order | Disposal order | Shares to which EIS IT relief attributable | Shares to which deferral relief attributable |
|---|---|---|---|
| (a) | Disposed of first | X | X |
| (b) | Next | X | Y |
| (c) | Next | Y | X |
| (d) | Finally | Y | Y |
X indicates that the relief is not attributable.
Y indicates that the relief is attributable.
Under the EIS Income Tax rules some shares may have been treated as issued in the tax year prior to that in which they were actually issued, see VCM10530. Where there is a disposal of shares which includes such shares, and not all of the shares in categories (c) or (d) are treated as disposed of, shares in that category treated for Income Tax relief purposes as issued in the previous tax year are treated as disposed of before those which were not.
For the purposes of these rules, if either relief is attributable to shares disposed of which were acquired by the investor on a disposal within marriage, the investor is treated as having acquired them on the date they were issued.