VCM26330 - EIS: income tax relief: value received: sale of shares to person connected with company

ICTA/S300 (5); ITA/S216 (6); ITA/S217

An individual is also regarded as receiving value if a person connected with the company (see VCM25050 onwards):

• purchases any of the share capital or securities of the company which belong to that individual or an associate of his,

or

• makes any payment to him or his associate for giving up any right in relation to such share capital or securities.

The value received is the amount received or, if greater, the market value of the shares or securities.

Example

A subscribes £2000 for eligible shares in a company and £1100 for loan stock of the same company. A obtains income tax relief on £2000. B, a paid director of the company, then buys the loan stock, which has a market value of £1100, for £1000, thus in effect obtaining a share of A's tax relief.

The rule in ICTA/S300 (5), ITA/S216 (6) and ITA/S217 reduce the amount on which relief is available to A by £1100.

It should be noted that the rule applies whether the sale of shares precedes or follows the subscription for the shares on which relief is claimed, and applies to any types of share capital or securities, for example, preference shares or debentures.