How is SEIS re-investment relief restricted when total subscriptions exceed £200,000?

When an investor's total SEIS subscriptions for a tax year exceed £200,000, the qualifying expenditure for re-investment relief is proportionally reduced using a formula. The specific SEIS expenditure is divided by total SEIS subscriptions for the year and multiplied by £200,000, scaling down the relief to reflect only the portion within the annual cap.

What happens to SEIS re-investment relief when SEIS income tax relief has been reduced?

Where SEIS income tax relief attributable to the relevant shares has been reduced — for example under the value-received rules in Chapter 6 of Part 5A of ITA 2007 — the qualifying expenditure for re-investment relief is scaled down by the same proportion. The exception is where the reduction arises solely because bonus shares were issued.

In what order are the two SEIS re-investment relief restrictions applied?

When both restrictions apply simultaneously, the £200,000 annual subscription cap restriction is applied first to reduce the qualifying expenditure proportionally. The resulting figure is then further adjusted by the SEIS relief reduction fraction. This prescribed order prevents any unintended double counting or inflation of the available re-investment relief.

What is the purpose of the restrictions in Schedule 5BB paragraph 2 TCGA 1992?

The restrictions ensure that the capital gains tax SEIS re-investment relief never exceeds the amount on which SEIS income tax relief has actually been given. They align the CGT relief with the capped and potentially reduced income tax relief, preventing investors from claiming re-investment relief on amounts beyond their effective SEIS income tax entitlement.

Taxation of Chargeable Gains Act 1992 Schedule 5BB paragraph 2

Restrictions on relief under paragraph 1

Section 2 of Schedule 5BB deals with two circumstances in which the amount of SEIS re-investment relief available under paragraph 1 is restricted, and the order in which those restrictions are applied when both apply.

Where an investor's total SEIS subscriptions for a tax year exceed the £200,000 annual limit for income tax relief, the SEIS re-investment relief is proportionally capped using a formula that scales the qualifying expenditure down to reflect only the portion within the £200,000 ceiling.
Where SEIS income tax relief attributable to the relevant shares has already been reduced (for example, under the value-received rules in Chapter 6 of Part 5A of ITA 2007, but not merely because bonus shares were issued), the qualifying expenditure for re-investment relief is scaled down by the same proportion as the reduction in SEIS relief.
If both restrictions apply in the same case, the £200,000 cap restriction is applied first, and the result is then further reduced by the SEIS relief reduction restriction.
These restrictions ensure that the capital gains tax re-investment relief never exceeds the amount on which SEIS income tax relief has actually been given.

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