VCM40350 - EIS: deferral relief: shares issued on or after 6 April 1998: receipts of insignificant value: examples

Example 1

An investor makes a subscription of £30,000 for shares in X Ltd which were issued to him on 1 June 2001. X Ltd commenced trading on 1 January 2001.

He claims and is granted deferral relief in respect of a gain of £30,000 accruing to him on 1 December 2000.

The period of restriction relating to the shares in X Ltd is the period from 1 June 2000 up to and including 31 May 2004.

The investor receives value from X Ltd as follows:

The value received on 1 October 2001 is an amount of insignificant value as it does not exceed £1,000.

The aggregate of the relevant receipt on 1 February 2002 and the earlier receipt on 1 October 2001 (which fell within the period of restriction in relation to the shares) is £450. As this amount does not exceed £1,000 the value received on 1 February 2002 is an amount of insignificant value.

The aggregate of the relevant receipt on 1 May 2003 and the earlier receipts on 1 October 2001 and 1 February 2002 (both of which fell within the period of restriction relating to the shares) is £1,100. As this amount exceeds £1,000 and is not insignificant in relation to the deferred gain, the aggregate is not an amount of insignificant value and the investor is treated as receiving value of £1,100 on 1 May 2003. Therefore the shares issued on 1 June 2001 will be treated as ceasing to be eligible shares on 1 May 2003 unless replacement value is received, see VCM40500.

Example 2

An investor makes a subscription of £20,000 for shares in Y Ltd which were issued to her on 1 September 2001. Y Ltd commenced trading on 1 October 1999.

She claims and is granted deferral relief of £20,000 in respect of a gain of £40,000 accruing to her on 1 January 2001.

The period of restriction relating to the shares issued on 1 September 2001 is the period from 1 September 2000 up to and including 31 August 2004.

She makes a further subscription of £15,000 for shares in Y Ltd which were issued to her on 1 February 2002.

She claims and is granted deferral relief in respect of a gain of £15,000 accruing to her on 1 November 2001.

The period of restriction relating to the shares issued on 1 February 2002 is the period from 1 February 2001 up to and including 31 January 2005.

The investor receives value from Y Ltd as follows:

Shares issued on 1 September 2001

The value received on 1 December 2001 is an amount of insignificant value as it does not exceed £1,000.

The aggregate of the relevant receipt on 1 June 2002 and the earlier receipt on 1 December 2001 (which fell within the period of restriction relating to the shares issued on 1 September 2001) is £600. As this amount does not exceed £1,000 the value received on 1 June 2002 is an amount of insignificant value.

The aggregate of the relevant receipt on 1 February 2003 and the earlier receipts on 1 December 2001 and 1 June 2002 (which fell within the period of restriction relating to the shares issued on 1 September 2001) is £1,050. As this amount exceeds £1,000 and is not insignificant in relation to the deferred gain, the aggregate is not an amount of insignificant value, and the investor is treated as receiving value of £1,050 on 1 February 2003. Therefore, the shares issued on 1 September 2001 will be treated as ceasing to be eligible shares on 1 February 2003 unless replacement value is received, see VCM40500.

Shares issued on 1 February 2002

The value received on 1 December 2001 is an amount of insignificant value as it does not exceed £1,000.

The aggregate of the relevant receipt on 1 June 2002 and the earlier receipt on 1 December 2001 (which fell within the period of restriction relating to the shares issued on 1 February 2002) is £600. As this amount does not exceed £1,000 the value received on 1 June 2002 is an amount of insignificant value.

The aggregate of the relevant receipt on 1 February 2003 and the earlier receipts on 1 December 2001 and 1 June 2002 (which fell within the period of restriction relating to the shares issued on 1 February 2002) is £1,050. As this amount exceeds £1,000 and is not insignificant in relation to the deferred gain, the aggregate is not an amount of insignificant value and the investor is treated as receiving value of £1,050 on 1 February 2003. Therefore, the shares issued on 1 February 2002 will be treated as ceasing to be eligible shares on 1 February 2003 unless replacement value is received, see VCM40500.

Note that, where a receipt of value falls within periods of restriction relating to more than one share issue, the rules do not provide for an apportionment of the amount received. The amount of the receipt must be considered in relation to each separate issue. If the amount received exceeds £1,000 and is not insignificant in relation to the deferred gains the investor has received an amount of value which is not insignificant in relation to each share issue.