Cross Oak Inns plc - The Tax Shelter Report

Part VI – Information on EIS taxation reliefs
Introduction
To obtain the tax reliefs described below it is necessary to subscribe for ordinary shares in a qualifying
company and claim the relief. The summary below gives only a brief outline of how the tax reliefs are
given assuming the investor is a 40 per cent taxpayer. It does not set out all the rules which must be
met for periods of between three and five years by the Company and the investor. The tax reliefs will
only be relevant to investors who pay income tax and/or wish to defer a capital gain. This summary is
not a substitute for the investor obtaining professional advice before applying for Shares.
EIS Relief
EIS relief has four elements: -
1. Income Tax Relief
Individuals can obtain income tax relief on the amount subscribed for Shares (up to £200,000 in each
tax year) in one or more qualifying companies provided they are not connected with the issuing
company. Husbands and wives can each subscribe up to £200,000. However, when considering
whether an individual’s shareholding exceeds the maximum proportion of the Company allowed under
the EIS (30%), that individual’s shareholdings will be aggregated with shares held by his spouse, lineal
ancestors and lineal descendants. To calculate the relief, the lower rate of tax (currently 20 per cent.)
is multiplied by the amount subscribed. The relief, is given against and cannot exceed the individual’s
income tax liability for the tax year in which the Shares are issued unless the individual makes a carry
back claim.
Example
£
Gross investment in Shares 10,000
Less income tax relief at 20 per cent. (2,000)
Net cost of investment 8,000
2. Exemption from Capital Gains Tax
Any capital gains realised on disposal after the Three Year Period of the Shares on which EIS income
tax relief has been given and not withdrawn, are tax-free.
Example
£
Realised value of Shares after the Three
Year Period 20,000
less original gross investment in Shares (10,000)
Tax free gain 10,000
This relief is in addition to the initial income tax relief of £2,000 described in 1 above
3. Loss Relief against Income or Gains
Tax relief is available where there is a loss on a disposal at any time of Shares on which EIS income
tax relief (see 1 above) or CGT deferral relief (see 4 below) has been given. The amount of the loss
(after taking account of any income tax relief initially obtained) can be set against the individual’s gains
or taxable income in the tax year in which disposal occurs.
Example
£
Realised value of Shares
Nil
Gross investment in Shares (10,000)
Less income tax relief at 20 per cent. 2,000
Deemed net cost of investment and also loss
before tax relief (8,000)
Tax relief at 40 per cent. maximum 3,200
Net cash loss (4,800)
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