EIS deferral

EIS deferral

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I am looking at an individual who is director/shareholder of a company which has been trading for 4 months. He is 'connected', so no EIS income tax relief/CGT exemption.

However, I am wondering about the chances of deferring a gain which he realised last year by reinvesting into the shares in the new company.

Is there still time to establish an EIS to cover the shares issued?

Many thanks in advance.
Lawrence McAulay

Replies (5)

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By nick farrow
12th Jan 2007 14:37

retrospective?
can an investment already made qualify for EIS?

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By gbuckell
12th Jan 2007 13:42

It can be done
An EIS is not established as such. Having made a share investment, it is open to the individual to claim EIS relief (in this case just deferral relief) on his investment. However, in order to do so, the company must first apply to HMRC using a form EIS1. The company must be trading for at least 4 months before this can be done.

The claim by the individual can be made any time up to the 5th anniversary of 31 January following the year of investment (see s360 ICTA 1988 and para 6, Sch 5B TCGA 1992).

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By gbuckell
12th Jan 2007 16:52

Not retrospective
There is no requirement that an investment must be "approved" for EIS purposes prior to being made. It is possible for a company to get an approval from HMRC that it is a qualifying company prior to a share issue but this is not a requirement. This is usually done to help reassure potential investors that they will get the relief.

Thus, subject to satisfying the various conditions, it is quite possible to subscribe for shares in blissful ignorance of EIS, realise later that EIS is possible, persuade the company to submit an EIS 1 and then make a claim - whether for income tax relief or for CGT deferral.

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By barryhallam
12th Jan 2007 18:12

Time limit

I believe there is a two year time limit (from the issue of the shares - I think) for the company to claim EIS status. HMRC are very strict on this time limit and will not enterrtain late claims.

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By nick farrow
13th Jan 2007 10:24

many thanks Graham & Barry for this useful information

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