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bigduckontax
bigduckontax, Accountant
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Question : Keith I am starting a new

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Question forCustomerHello Keith
I am starting a new thread of questions about the EIS and capital gains deferral relief:
1. The fact is that the investor has been (and continues to be) a Director in the company and the investor owns 25% of the shares.
2. The questions are only about capital gains deferral: the investor understands that since he is a connected person, there is no income tax relief.Questions:
1. If the investor receives remuneration, the deferral is not brought back into charge. Is this correct? (always talking about the capital gains deferral - not income tax relief, for the latter the investor understands he is not eligible due to the connection with the company)
2. Could you please elaborate on the time that the shares have to be held for the deferral to continue? Is there an lower time limit after which the investor can dispose of the shares without the relief brought back into charge? If you can please elaborate on the time limits, duration the investment must be held, etc, it would be great
Many thanks
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, thank you for asking for me and here is my response. Again HMRC Help Sheet 297 covers this: 'There is no disposal relief on any gain arising on a disposal within three years of the date the EIS shares were issued to you. You can find the actual date of issue on the EIS certificate which the company sent you. If you sell EIS shares within three years of the date they were issued (and the sale is not to your spouse or civil partner): • Income Tax relief for those you sell will be wholly or partly withdrawn • if you make a gain on the disposal, it will be chargeable to Capital Gains Tax. Disposal relief is not available against a deferred gain which is revived on a disposal of the EIS shares or some other event. If you make a loss on a disposal of your EIS shares at any time you can set this loss against your chargeable gains or you may be able to set it against your income. In computing the loss, you must reduce the cost of your shares by the amount of any Income Tax relief given and not withdrawn.'' If you are remunerated by the company it is only your EIS IT reliefs which are lost. I do hope I have helped.
Customer: replied 1 year ago.
Thank you Keith,Does this mean that the investor has to hold the shares for 3 years (minimum) to enjoy the capital gains tax deferral and that after the 3 year period, the company is no longer obliged to inform the HMRC as to how the money of the investor is used? And then after the 3 year period the investor can essentially "close" or "forget" about the capital gains tax liability? In simpler words, after 3 years, (assuming that all conditions are satisfied, the investor keep the shares, the company continues to be eligible for EIS, the shares continue to be eligible for EIS, etc) the investor can close the particular case with the capital gains tax?
Many thanks
Expert:  bigduckontax replied 1 year ago.
You are correct that in general terms, to take advantage of the deferral provided by an EIS scheme you must hold the shares for 3 years. However, it is only a deferral, CGT will get you in the long term ie when you sell those EIS shares.
Customer: replied 1 year ago.
Ok many thanks. Just one final question and then I will start a new thread of questions, if I need to ask something more:You mention that "it is only a deferral and when the shares are sold CGT will be payable", which I fully understand. My question is what happens if the company ceases to trade due to commercial reasons, such as that it can not get commercial traction, i.e. it can not find any customers. In such an event (company closing down), will the CGT be brought back into charge?
many thanks
Expert:  bigduckontax replied 1 year ago.
Help Sheet 297 again: '• the shares cease or are treated as ceasing to be eligible shares, for example, because the company is prevented from being a qualifying company.' So at the point the company ceased to trade the deferred gain would crystalise and be taxable. Please be so kind as to rate me before you leave the Just Answer site.
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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