What is the purpose of section 161 of the Income Tax Act 2007?

Section 161 does not itself create any tax relief. It acts as a signpost directing taxpayers and advisers to various other reliefs scattered across United Kingdom tax legislation that relate to Enterprise Investment Scheme investments, bringing together the key cross-references needed when considering the full tax consequences of EIS.

Can an allowable loss on EIS shares be set against income instead of capital gains?

Yes. Under Chapter 6 of Part 4 of the Income Tax Act 2007, if you dispose of EIS shares and make an allowable capital gains tax loss, you may elect to set that loss against your income for the tax year of disposal or the preceding tax year, rather than carrying it forward solely as a capital loss.

Can you claim both EIS income tax relief and loan interest relief under section 392 on the same shares?

No. If you or your spouse or civil partner claim EIS relief on shares acquired in a close company, income tax relief on loan interest under section 392(2)(a) of the Income Tax Act 2007 is not available for a loan used to acquire those same shares. The two reliefs cannot apply simultaneously.

How does EIS deferral relief work under Schedule 5B of TCGA 1992?

Schedule 5B to the Taxation of Chargeable Gains Act 1992 allows you to defer a chargeable gain by reinvesting disposal proceeds into EIS-qualifying shares. The deferred gain is not immediately taxed but is brought back into charge when the EIS shares are subsequently disposed of or certain other specified events occur.

Income Tax Act 2007 section 161

Other tax reliefs relating to EIS

Section 161 acts as a signpost to other tax reliefs and provisions found elsewhere in the legislation that are connected with the Enterprise Investment Scheme (EIS).

Individuals who make an allowable capital gains tax loss on disposing of EIS shares may claim income tax relief under Chapter 6 of Part 4 of the Income Tax Act 2007
Where an individual or their spouse or civil partner claims EIS relief on shares acquired in a close company, the interest relief rules in section 392 for loans to buy an interest in that company are restricted
Section 150A of the Taxation of Chargeable Gains Act 1992 governs the capital gains tax treatment of gains or losses arising when EIS shares are disposed of
Schedule 5B to the Taxation of Chargeable Gains Act 1992 provides capital gains tax deferral relief where the proceeds from a disposal that would otherwise give rise to a chargeable gain are reinvested into EIS-qualifying shares

Access full legislation.And much more.

By becoming a member, your team gets full access to Tax World research tools and source-backed tax resources.

Become a member