What does section 257QM of the Income Tax Act 2007 do?

Section 257QM apportions the withdrawal of Social Investment tax relief among multiple individuals when a single repayment of share capital affects shares held by two or more people. It modifies the calculation in section 257QJ so that each person's relief is reduced proportionally using the fraction I / T, preventing the full repayment from being applied against each individual separately.

How is the I / T fraction calculated under section 257QM?

In the fraction I / T, I represents the amount on which the particular individual obtained SI relief for the relevant shares. T is the total of that individual's amount plus the equivalent amounts for all other individuals who obtained SI relief on shares affected by the same repayment. The fraction represents each person's proportionate share of total SI relief claimed.

Why is section 257QM necessary for Social Investment relief?

Without section 257QM, when a social enterprise repays share capital affecting multiple individuals, the full repayment amount could be applied against each person separately under section 257QJ. This would produce an unfair and excessive clawback of relief. Section 257QM ensures each individual bears only their fair proportionate share of the withdrawal.

Can you give an example of how section 257QM works in practice?

If a social enterprise repays £10,000 of share capital affecting Alice (SI relief on £6,000) and Bob (SI relief on £4,000), Alice's amount A becomes £10,000 × (£6,000 / £10,000) = £6,000 and Bob's becomes £10,000 × (£4,000 / £10,000) = £4,000. Each person's relief is reduced only in proportion to their share.

Income Tax Act 2007 section 257QM

Single issue affecting more than one individual

Section 257QM deals with how a reduction in Social Investment (SI) tax relief is shared among multiple individuals when a repayment of share capital affects shares held by two or more people.

This section applies when a single repayment of share capital triggers a withdrawal of SI relief on shares held by two or more individuals
The amount subject to relief withdrawal (amount A) is reduced for each individual by applying the fraction I / T, ensuring a fair apportionment
I represents the amount on which the particular individual obtained SI relief for the relevant shares
T represents the total of I plus the corresponding amounts on which all other affected individuals obtained SI relief for the same shares

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