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bigduckontax, Accountant
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Question :A question regarding capital

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Question forCustomerA question regarding capital gains tax deferral for investment into EIS qualifying company:
The manual states that the capital gains tax is brought back into charge when the shares are disposed.The question is whether the closing down of the company is deemed to be a disposal event? If the company stops to exist due to genuine commercial reasons (say the company can not achieve commercial traction and the shareholders decide to close the company, so the shares will cease to exist), will the investor be liable for paying the deferred capital gains tax?Thank you
Hello, thank you for asking for me. Yes, the deferred capital gain will crystalise when the company is closed down and the investor be liable. I do hope that helps.
Customer: replied 2 years ago.
Thank you
Apologies for insisting, but I am puzzled: the EIS scheme is supposed to help high risk companies to attract investment and capital. If the company closes down because the company is unable to find traction after years of trying, then all investors will have lost their money from their investment. Any investors who invested under the EIS will, essentially, be "double" penalised - not only they will loose their entire investment (say the chargeable capital gains they invested under the EIS), but then they will be liable for the capital gains tax they deferred?
...Maybe my question is a matter of opinion...and difficult for you to answer...Thank you
I agree, and to help finance EIS companies investors are allowed to defer gains from earlier sales. However, as Benjamin Franklin once sagely observed, in life there are but two certainties, death and taxes, and this is where one gets caught again. Remember they can offset their losses from the EIS caper against their cryatalised gain. In come cases, of course, the EIS company does not go pop, but just folds and distributes shareholders' funds. Please be so kind as to rate me before you leave the Just Answer site.
Customer: replied 2 years ago.
Hello Keith
...yes you are right about Frankli's quote...Now I have an even more important question, which is relating to what you mentioned in your last response:
"Remember they can offset their losses from the EIS caper against their crystallised gain"What does this mean?Please feel free to alert me when you think I need to start a new questions thread - I have no problem doing this
Suppose you had a gain which you deferred. On the demise of the company that gain would crystalise. However, if the EIS company went pop you would have a capital loss to offset against the deferred gain.
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