VCM26110 - EIS: income tax relief: part disposals
ICTA/S299 (3) & (4); ITA/S209 (2) & (3)
If the disposal is of part only of the holding of shares we need
to decide how much of the relief attributable to the holding
relates to the shares disposed of. If the shares are disposed of
for the same amount or more than the individual paid for them, the
relief withdrawn will be a proportionate amount of the relief
originally given. If they are disposed of for less than the
individual paid for them, (providing the disposal was by way of a
bargain at arms length), only relief equal to tax at the savings
rate (20%) on the amount of consideration received is withdrawn.
The following examples (which assume that disposals are at arms
length) illustrate how the amount of relief to be withdrawn is
calculated.
Example 1
Mr Larkin subscribed £100,000 for 100,000 shares in
Sussex Crafts Ltd and obtained relief of £20,000. Two years
later he disposes of 25,000 shares for a consideration of
£30,000. The relief is apportioned across the 100,000 shares
so that £5,000 is attributable to the 25,000 shares sold,
leaving £15,000 attributable to the 75,000 shares retained.
Since the relief of £5,000 is less than 20% of the
consideration of £30,000, it is withdrawn in full.
Example 2
Suppose that Mr Larkin receives only £10,000 for the
25,000 shares that he sells. The apportioned relief of £5,000
exceeds 20% of the consideration of £10,000, so only
£2,000 of the relief attributable to those shares is
withdrawn. As before, the relief apportioned to the remaining
75,000 shares is £15,000; if those shares are later disposed
of at a profit no part of the remaining £3,000 of relief
relating to the shares already disposed of can be withdrawn on
account of the later disposal.
Example 3
Suppose that Mr Larkin had subscribed £200,000 for his
100,000 shares, obtaining the then maximum relief of an amount
equal to tax at the lower rate on £150,000 (see
VCM25430). Two years later he disposes
of 25,000 shares for a consideration of £30,000.
The relief of £30,000 is apportioned between the shares,
so that £7500 is apportioned to the 25,000 shares and
£22,500 to the 75,000 shares. So the comparison is between the
apportioned amount of the relief, that is, £7,500, and 20% of
£30,000, being £6,000, and the amount to be withdrawn is
the lesser of the two, £6,000. The remaining £1,500 of
relief related to the shares disposed of cannot be withdrawn as a
result of any later disposal of the other shares at a profit.
