VCM26400 - EIS: income tax relief: purchase of shares by company from 'no relief' member

ICTA/S303 (1) - (3); ITA/S224

The relief obtained by an individual in respect of shares of a company may fall to be reduced where, within the period of restriction (ICTA)/Period C (ITA) (see VCM20600), the company redeems or repurchases shares in it belonging to another person and that person does not suffer any withdrawal of relief under either the EIS or the CVS as a result. The logic of this is that to the extent of the capital repaid the company is not using the money raised under either scheme for an appropriate purpose.

The rule also applies where a subsidiary of the company makes such a repayment. This is so even where the subsidiary did not become a subsidiary until after the transaction had taken place.

The aggregate amount of all reductions made under this rule in respect of a particular repayment is to be equal to the amount of tax at the savings rate (20%) on the amount of the payment. Where more than one person suffers a reduction that amount of tax must be apportioned between them in proportion to the amounts they subscribed.

This rule is not applied where the amount of the payment made by the company is 'insignificant' - see VCM26420.

There are two other exceptions to this rule, dealt with in VCM26410.