VCM26040 - EIS: income tax relief: consequences of disposal

ICTA/S299 (1); ITA/S209

Where an individual disposes of any shares to which relief is attributable, or of any interest in such shares, within the three year straddling period (ICTA)/ Period A (ITA) –(see VCM20600):

• if the disposal is otherwise than by way of a bargain made at arm's length, the whole of the relief attributable to those shares must be withdrawn,
• in any other case, the relief must be reduced as explained at VCM26100.

There are two exceptions to this, as explained at VCM26010.

For guidance as to whether a disposal should be regarded as being made by way of a bargain at arm's length, see CG14541 onwards. Since the capital gains consequences of a disposal will also have to be considered, a disposal regarded as not being made by way of a bargain at arm's length will need to be referred to Shares Valuation Division in the usual way (see CG59560 onwards).

The report to Shares Valuation Division should indicate that the question of whether the disposal is an arm's length transaction is at issue for the purposes of income tax relief under the EIS and give any necessary background information.

An individual who disposes of shares to which relief is attributable is obliged by ICTA/S310 (1) and ITA/S240 to make a report to HMRC within 60 days. Failure to give a notice attracts a penalty under TMA70/S98.