EIS—deferred gain becomes chargeable to CGT

The following Tax practice note provides comprehensive and up to date legal information covering:

  • EIS—deferred gain becomes chargeable to CGT
  • Chargeable events
  • EIS shares deemed to cease to be eligible shares
  • Notification obligations
  • Assessment of deferred gain
  • Interaction with business asset disposal relief (BADR)
  • To whom does the deferred gain accrue?
  • Company reorganisations and reconstructions
  • Acquisition of EIS company by a new holding company

EIS—deferred gain becomes chargeable to CGT

Coronavirus (COVID-19): In response to the coronavirus (COVID-19) pandemic, the government introduced a Future Fund, under which innovative companies can access government funding, subject to a commitment of equal funding from private investors in the form of a convertible loan note that can either be redeemed or converted into shares. Section 110 of Finance Act 2020 ensures that such investments do not jeopardise the Enterprise Investment Scheme or Seed Enterprise Investment Scheme reliefs on existing shareholdings. For more information, see Practice Note: Coronavirus (COVID-19)—tax implications—Future Fund: EIS and SEIS relief.

The EIS is designed to encourage investment in smaller, higher-risk trading companies by offering a range of tax reliefs to individual investors purchasing newly issued shares in those companies.

One of the principal EIS tax reliefs available to qualifying individual investors is CGT deferral relief allowing an investor to defer tax on capital gains realised on a disposal of assets to the extent that gains are reinvested in EIS qualifying shares. Deferred gains are effectively 'frozen' and held over until the occurrence of specified future chargeable events.

For further details of the EIS regime and the various tax reliefs available (including CGT deferral relief), see Practice Note: EIS—introduction to regime and description of tax reliefs.

This Practice Note explains the circumstances in which deferred gains subsequently become chargeable to CGT and how such

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