Enterprise investment scheme re-investment relief

By Tolley

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Enterprise investment scheme re-investment relief
  • Conditions for relief
  • How deferral relief operates
  • Amount of deferral relief
  • Crystallisation of deferred gain
  • Future changes

Re-investment relief, also known as deferral relief, is one of the tax reliefs available under the enterprise investment scheme (EIS). If an individual sells an asset and re-invests the sale proceeds in subscribing for qualifying EIS shares, he can defer the capital gains tax liability on the asset by claiming EIS re-investment relief.

The conditions to be met for deferral relief are less strict than for income tax relief; many investors will qualify for deferral relief without qualifying for income tax relief.

There is no minimum amount of investment required to qualify for EIS deferral relief and the maximum is only limited by the overall risk finance investments annual permitted maximum. The cap is £5m per annum total relevant investments in the issuing company (ie investments under EIS, seed enterprise investment scheme (SEIS), venture capital trusts (VCTs) and investments in social enterprises). Note that the increased annual permitted maximum for knowledge-intensive companies (£10m per year) and the other investment caps in ITA 2007, ss 173AA, 173AB that apply for income tax relief purposes do not apply for deferral relief.

TCGA 1992, Sch 5B, para 1(2)(da)

This is in contrast to EIS income tax relief, where subscription per individual is capped at £1m per tax year (up to £2m per year where the investments are in knowledge-intensive companies) and additional risk finance investment permitted maximums apply. See the Enterprise investment scheme income tax relief guidance note.

EIS re-investment relief is more flexible than rollover relief and gift relief, as it allows the gain on any asset to be deferred (rather than just business assets) as long as the proceeds are re-invested in qualifying EIS shares.

There is extensive discussion of EIS deferral relief in the HMRC Venture Capital Schemes Manual at VCM23000 onwards.

The Government is planning to introduce a new EIS fund for knowledge-intensive companies from 6 April 2020. This is

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