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bigduckontax, Accountant
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Question about Enterprise Investment Scheme:I have a

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Question about Enterprise Investment Scheme:I have a question regarding EIS and capital gains tax deferral:1. We have sold a property and we have a chargeable gain (capital tax).
2. I am shareholder in one technology company - I own 25% of the shares.
3. I have been (and still am) a Director in the company and in the last I received remuneration (not currently).My understanding from reading the HMRC guidelines is that even though I am a "connected" person, for capital gains tax deferral, it does not matter. Thus, I am eligible for tax deferral if I invest the gain into the company. Could you please confirm that this is the case (assuming that the company qualifies for EIS).Many thanks
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Here is the HMRC advice from Help Sheet 29: 'When you dispose of an asset and make a gain you usually pay Capital Gains Tax for the tax year in which you dispose of the asset. Deferral relief lets you treat the gain as not arising until some future date if you acquire EIS shares. If you make a claim to defer a gain, the gain may be charged to Capital Gains Tax in a later tax year, usually when you dispose of the EIS shares. If you get Income Tax relief on an acquisition of shares, then you can claim deferral relief as well. You do not have to get Income Tax relief to claim deferral relief. To get full deferral relief you must invest an amount at least equal to the chargeable gain.' Thus providing that you have invested the full amount of the chargeable gain in an EIS company then you can defer the gain you have made from the sale of your property to some future indeterminable date through this relief. There are, however, time limits viz [same source]: 'The EIS shares you subscribe for must be issued to you in the period beginning 12 months before, and ending 36 months after, the date of the disposal for which you wish to claim relief' Your surmise as to your tax position in this matter is correct. I do hope that you have found my reply useful.
Customer: replied 1 year ago.
Thank you KeithTwo follow up questions:
Am I correct in assuming that the fact that I am a "connected" person with the company does mean that I will not be able to get any income tax relief?
It is only the capital gains tax deferral that I am legible to claim, right?
Expert:  bigduckontax replied 1 year ago.
Firstly I should have said Help sheet 297; I have a dodgy '7' key! Connected persons do not receive EIS Income Tax (IT) reliefs if [source: HMRC Help Sheet 341] : 'You are connected with a company:at any time when you, or an associate of yours, is an employee, partner or ‘paid director’ of the company (or of any subsidiary of the company)at any time when you, and/or your associate, control the company or possess more than 30% of the ordinary share capital or voting power in the company, or would be entitled to more than 30% of the assets of the company in a winding-up'So if you breach these conditions the favourable tax treatment is in respect of CGT only. Please be so kind as to rate me before you leave the Just Answer site.
Customer: replied 1 year ago.
Thank you
One more follow up question if I may:
I have read that the deferred gain is brought back into charge, if the investor receives value from the company. However, the investor can be remunerated and this is considered a qualified payment, thus the investor can continue to enjoy the deferred gain. Can you please confirm if my understanding is correct?
Many thanks
Expert:  bigduckontax replied 1 year ago.
The gain remains deferred as long as you hold the shares in the EIS company. It is the IT relief which may be in doubt. Beware though of the sting in the tail, it's only a deferral, a classic Alice Through the Looking Glass situation, ;Jam tomorrow, jam yesterday, never jam today!'
Customer: replied 1 year ago.
Thank you
Yes I understand it is only a deferral.
Can you please though confirm that if the investor received remuneration from the company, the deferral is not brought back into charge?Many thanks
Expert:  bigduckontax replied 1 year ago.
The two taxes are separate, for so long as the EIS shares are held the deferral continues.
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Expert:  bigduckontax replied 1 year ago.
Thank you ofr your excellent support.