What does Schedule 7C paragraph 7 of the Taxation of Chargeable Gains Act 1992 do?

Paragraph 7 prevents replacement shares transferred to an approved share plan from benefiting from both Enterprise Investment Scheme income tax relief and Schedule 7C roll-over relief. Where EIS relief is claimed, the shares are treated as non-chargeable assets, removing the basis for roll-over relief to apply.

What happens if EIS relief is claimed before share plan transfer relief is applied?

If EIS income tax relief is claimed before the share plan transfer relief falls to be applied, the replacement shares are treated as non-chargeable assets from the time of acquisition. Because roll-over relief requires a chargeable asset to attach to, the Schedule 7C relief simply does not apply in this scenario.

What happens if EIS relief is claimed after roll-over relief has already been given?

If EIS relief is claimed after Schedule 7C roll-over relief has already been applied, the shares are retrospectively treated as never having been chargeable assets. The roll-over relief must be unwound, and the original chargeable gain becomes taxable again, ensuring both reliefs cannot apply to the same shares.

Why can the same shares not benefit from both EIS relief and Schedule 7C roll-over relief?

EIS income tax relief renders shares non-chargeable for capital gains purposes, while roll-over relief works by adjusting the base cost of a chargeable asset. Since EIS relief removes chargeable asset status, there is no base cost for roll-over relief to reduce, making the two reliefs mutually exclusive on the same shares.

Taxation of Chargeable Gains Act 1992 Schedule 7C paragraph 7

Shares: special provision

Schedule 7C paragraph 7 deals with the interaction between relief for transfers to approved share plans and Enterprise Investment Scheme (EIS) income tax relief, where the replacement asset consists of shares.

Where replacement shares qualify for EIS income tax relief, they lose their status as chargeable assets for capital gains purposes, which prevents roll-over relief from applying.
If EIS relief is claimed on the shares before the share plan transfer relief is applied, the shares are treated as non-chargeable from the moment of acquisition.
If EIS relief is claimed after the share plan transfer relief has already been applied, the shares are retrospectively treated as non-chargeable from acquisition, and any relief previously given must be adjusted accordingly.
The provision ensures that the same shares cannot benefit from both EIS income tax relief and roll-over relief for transfers to approved share plans.

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