Occasions resulting in withdrawal of income tax relief

Produced by Tolley

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Occasions resulting in withdrawal of income tax relief
  • Income tax relief withdrawn
  • Receipt of value
  • Repayment or repurchase of share capital
  • Shares cease to be eligible shares
  • Notification
  • Penalties

The enterprise investment scheme (EIS) is a scheme that encourages individuals to invest money in shares issued by qualifying unquoted companies with a permanent establishment in the UK.

A subscription for eligible shares of a qualifying EIS company is a tax efficient investment for the individual. He can benefit from the following tax reliefs:

  1. •

    income tax relief for the investor of up to 30% of the amount invested (see the Enterprise investment scheme tax relief guidance note)

  2. •

    disposals of EIS shares after three years may be free from CGT (see the Venture capital scheme shares guidance note)

  3. •

    capital gains deferral relief allows investors disposing of any asset to defer gains against subscriptions in EIS shares (see the Enterprise investment scheme deferral relief guidance note)

  4. •

    losses on EIS shares may be offset against taxable income (see the Losses on shares set against income guidance note)

  5. •

    EIS investments should qualify for IHT business property relief after two years’ ownership (see the BPR overview guidance note)

This guidance note discusses the occasions that may result in the income tax relief being withdrawn or reduced. For the mechanism of calculating the withdrawal or reduction of relief, see the How to calculate the clawback of relief guidance note.

Income tax relief withdrawn

Broadly, income tax relief is withdrawn if within three years of subscription (or three years from the commencement of the trade, if later):

  1. •

    the shares are gifted or sold to someone other than the spouse / civil partner

  2. •

    the investor is granted an option binding the

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