Taxation of Chargeable Gains Act 1992 Schedule 5B paragraph 13B

Receipt of replacement value

Paragraph 13B provides a mechanism under the Enterprise Investment Scheme re-investment relief rules whereby a receipt of value that would otherwise disqualify shares from being eligible shares can be disregarded if the original supplier receives adequate replacement value back from the original recipient.

• Where an investor receives value from a company during the period of restriction (the "original value"), which would normally cause shares to lose their eligible status, that receipt is disregarded if the original supplier receives replacement value of at least the same amount back from the original recipient
• The replacement value must arise from a "qualifying receipt", which includes the original recipient making a direct payment, acquiring an asset at above market value, disposing of an asset at below market value or for nothing, reversing the event that gave rise to the original value, or repurchasing shares, securities or rights for at least the amount of the original value
• Certain routine commercial payments are excluded from counting as qualifying receipts, including reasonable payments for goods, services or facilities, reasonable commercial interest on loans, payments for assets at no more than market value, reasonable commercial rent, ordinary trade debt payments, and payments for shares or securities at market value or below
• The amount of the replacement value is calculated according to the type of qualifying receipt: for direct payments and asset transactions it is the aggregate of payments made and any excess over market value; for reversals of the original event it equals the original value; and for repurchases of shares, securities or rights it is the consideration received by the original supplier