VCM25400 - EIS: income tax relief: amount of relief

ICTA/S289A (1) & (5); ITA/S23

The relief takes the form of a reduction in the individual's income tax liability. Except where it is restricted as explained below, the amount of the reduction is equal to tax at the lower rate (20% - see AP2973) on the amount of the subscription (this excludes any costs incidental to the subscription) or, if that would exceed the liability for the year, whatever amount will reduce that liability to nil.

To decide whether a reduction equal to tax at the lower rate would eliminate the tax liability, it may be necessary to decide in which order reliefs taking the form of reductions in liability should be taken. The rule now in ITA/S27 is that EIS takes priority over all others except top- slicing relief on chargeable event gains (see AP3181) and relief under the VCT scheme (see VCM64000).

The circumstances in which the amount of the reduction may be restricted are:

• where the individual has received value from the company (see VCM26300), and
• where the aggregate amounts on which the individual has claimed relief exceed the limit for the year (see VCM25430).

In the first case the amount on which the reduction is calculated is the amount of the subscription less the amount of the value, and in the second case it is the amount of the limit for the year.