Income Tax Act 2007 section 171

Persons subscribing for shares under certain arrangements

Section 171 deals with anti-avoidance rules that treat an investor as connected with a company for Enterprise Investment Scheme purposes where shares are subscribed for as part of a reciprocal or linked arrangement involving another company.

• This section applies where an individual subscribes for shares in a company with which they are not already connected under the employee/director rules (section 167) or the interest in capital rules (section 170).
• If the share subscription forms part of a wider arrangement under which another person subscribes for shares in a different company, a connection may be triggered.
• The connection arises if the individual, or any other party to the arrangement, would be connected with that other company (assuming it were the issuing company).
• Where these conditions are met, the individual is treated as connected with the company in which they subscribed for shares, which disqualifies the investment from EIS income tax relief.