EIS—deferred gain becomes chargeable to CGT
EIS—deferred gain becomes chargeable to CGT

The following Tax guidance 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 Entrepreneurs' relief
  • To whom does the deferred gain accrue?
  • Company reorganisations and reconstructions
  • Acquisition of EIS company by a new holding company

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 CGT is computed.

Chargeable events

The following are chargeable events for CGT purposes:

  1. disposal (by way of sale or gift) of the EIS shares, unless the disposal is to the individual investor’s spouse or civil partner

  2. disposal of the EIS shares by the spouse or civil partner where the shares have previously been transferred by the individual investor

  3. the individual investor becomes non-UK resident while holding the shares and within three years of the issue of the shares or, if later, commencement of the trade (unless the investor goes abroad