Taxation of Chargeable Gains Act 1992 section 150B

Enterprise investment scheme: reduction of relief

Section 150B deals with the restriction of the capital gains tax exemption on EIS shares where the investor's income tax relief under the Enterprise Investment Scheme has been partially reduced before the shares are disposed of.

• Where EIS income tax relief has been reduced because the investor received value from the company, or because the company repaid, redeemed or repurchased share capital, the CGT exemption on disposal of those shares must be proportionately restricted.
• The restriction is calculated by multiplying the gain (or the exempt part of the gain) by a fraction: the total reduction in EIS income tax relief divided by the original total EIS relief attributable to the shares before any reduction.
• If there have been multiple reductions in EIS relief, all the reduction amounts are added together to form the numerator of the fraction; the denominator always uses the original unreduced relief figure.
• Where only part of the gain would have been exempt (because the disposal proceeds exceed the original subscription cost), the restriction fraction is applied only to that exempt portion, and the non-exempt portion remains chargeable in the normal way.