Helpsheet 286

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If the shares were issued to you on or after 6 April 1998, companies carrying on the following trades do not qualify. • Those consisting wholly or mainly of dealing in land, in commodities or futures or in shares, securities or other financial instruments. • Those that are not qualifying trades for the purposes of the Enterprise Investment Scheme. Go to hmrc.gov.uk/eis/part2/2-4.htm • Those not pursued on a commercial basis and in such a way that they would be reasonably expected to make a profit. In addition, there is no relief for losses on shares in the holding company of a non-trading group. How long must the company have been a trading company? If the company was a trading company when you disposed of the shares, it must satisfy either of the following conditions. • It was a trading company throughout the six years to the date of disposal. • It was a trading company throughout its active existence if that is less than six years. If your shares are in the holding company of a trading group, the group business as a whole must satisfy these conditions. What if the company has stopped trading? You will still qualify for relief if the company has stopped trading when you dispose of the shares as long as all the following conditions are satisfied. • The company stopped trading no more than three years before the disposal. • The company has not started a non-qualifying activity such as investment or a non-qualifying trade. • At the date it stopped trading it satisfied the conditions set out in the previous paragraph headed ‘How long must the company have been a trading company?’. What if there has been a share reorganisation or a takeover? If, as a result of a share exchange, the company in which you subscribed for shares becomes a wholly owned subsidiary of another company, the availability of loss relief against income will not be jeopardised, provided that the ownership of the new company is exactly the same as that of the old company. In such a case, the two companies will be treated as if they were one and the same company for the purpose of determining whether relief is available on the disposal of your shares in the new company. In any other case, if the shares you dispose of were issued in exchange for shares in another company, there are only limited circumstances in which relief against income may be available. You may also hold shares that were acquired following a share reorganisation in a company. <strong>Helpsheet</strong> 285 Share reorganisations, company takeovers and Capital Gains Tax describes the general rules for Capital Gains Tax where there is a share reorganisation. You may dispose of bonus shares which were issued to you without payment and for other shares you held in a company, being of the same class and carrying the same rights as those other shares. If so, then the bonus shares are treated as having been issued to you when the other shares were issued to you. Page 4
A Contacts Please phone: • the number printed on page TR 1 of your tax return • the SA Helpline on 0845 9000 444 • the SA Orderline on 0845 9000 404 for helpsheets or go to hmrc.gov.uk/sa Where you acquire shares as part of a rights issue, the shares are acquired when they are issued to you. The time you acquired the shares is important for working out whether loss relief against income is due (for example, the gross assets rule). If you have incurred an allowable capital loss on the disposal of shares which were issued to you in a reorganisation or in exchange for shares in another company, ask us or your tax adviser if you need more detailed information about the availability of relief against income. Which shares qualify? The shares must not be fixed rate dividend preference shares and you must have subscribed for them individually (including subscriptions made jointly or through a nominee). You will also be treated as having subscribed for any shares your spouse or civil partner subscribed for and transferred to you during their lifetime. You will have subscribed for shares if they were issued to you by the company for money or money’s worth. Which disposals qualify? The loss must have been made on a disposal by way of: • a negligible value claim, or • an arm’s length bargain, or • a distribution made in the course of winding up the company, or • the dissolution of the company. How is the allowable loss calculated? If you claimed EIS Income Tax relief when you subscribed for the shares, the amount of Income Tax relief must be deducted from your loss. Example 2 In 2003 you subscribed £10,000 for shares and claimed EIS Income Tax relief of £2,000 (£10,000 at 20%). In 2012 the company fails and you make a negligible value claim. You can claim loss relief of £8,000 (£10,000 less £2,000). Otherwise, you calculate the loss in exactly the same way as other allowable capital losses. If you subscribed for all the shares disposed of, all of the allowable loss is available for relief. You may have a holding of shares some of which you subscribed for and some of which you bought or acquired by gift or inheritance. Only the shares you subscribed for will qualify for relief. There are rules for determining what proportion of the allowable loss qualifies for relief. Ask your tax adviser or us for details. Any part of the allowable loss that is not set against income remains an allowable loss to be deducted from chargeable gains. Any loss you use against your income is not available to use against capital gains. If you claimed deferral relief when you subscribed for EIS shares, the deferred gain is revived when you dispose of your EIS shares. <strong>Helpsheet</strong> 297 Enterprise Investment Scheme and Capital Gain Tax explains deferral relief and when deferred gains are revived. Page 5
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Helpsheet 286

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