Withdrawal of EIS Income Tax Relief

Introduction

Withdrawal of EIS Income Tax Relief.

It is not sufficient simply for the investment and investor to satisfy the qualifying conditions at the outset. Instead, one must continue to satisfy the various conditions until the termination date of the shares which is usually a three-year period.

Where this does not happen then relief may be withdrawn either partly or in full.

References to the withdrawal of EIS income tax relief also applies to CGT disposal/exemption relief as well.

Circumstances where withdrawal of EIS income tax relief might occur

EIS income tax relief may be withdrawn in full, or there may be a reduction in the amount of relief, where either the following occurs:

• The shares are sold before the termination date. This is generally three years following the issue of the shares but could be up to 5 years where the shares were issued during a pre-trading period; or
• There is a disqualifying event that takes place prior to the termination date.

Examples of disqualifying events might include:

• Where the investor becomes connected with the investee Company;
• Where the investee Company ceases to be a qualifying company;
• Where value is received by the investor; and/or
• There is a breach of the linked loans requirement.

Where there is a disqualifying event, then the investor has 60 days to notify HMRC of the event.

If you have any queries about EIS, whether as a potential investee company or investor, then please do get in touch.

 Albeit, we can’t give you investment advice as we are not regulated by the Financial Conduct Authority – so please get that type of advice from someone who is!