How does section 150F reduce the CGT exemption on SEIS shares?

Section 150F uses a fraction (A divided by B) where A is the amount of SEIS income tax relief reduced because the investor received value from the company, and B is the original unreduced SEIS relief attributable to the shares. The gain multiplied by this fraction becomes chargeable to capital gains tax rather than remaining exempt.

What happens if SEIS shares were only partly acquired with qualifying funds?

Where shares were only partly acquired using SEIS-qualifying money, the gain is first apportioned so that only the part attributable to the SEIS investment is considered. The reduction fraction is then applied solely to that apportioned part of the gain, not to the entire gain on the disposal of the shares.

How are multiple reductions in SEIS relief handled for CGT purposes?

If the investor received value on more than one occasion causing multiple reductions in SEIS income tax relief, all individual reduction amounts are aggregated to form the numerator of the fraction. The denominator always remains the original full amount of unreduced SEIS relief attributable to the shares.

Can you give an example of how the section 150F reduction fraction works?

If original SEIS relief of £25,000 was reduced by £5,000 due to the investor receiving value, the fraction is £5,000 divided by £25,000, equalling one fifth. On a £30,000 gain, one fifth (£6,000) becomes chargeable to CGT while the remaining £24,000 stays exempt under the SEIS rules.

Taxation of Chargeable Gains Act 1992 section 150F

Seed enterprise investment scheme: reduction of relief

Section 150F deals with how the capital gains tax exemption on SEIS shares is reduced when the investor has received value from the company before disposing of the shares, causing a reduction in their income tax relief.

Where SEIS income tax relief has been reduced because the investor received value from the company, the capital gains tax exemption on disposal of those shares is proportionately restricted.
The proportion of the gain that loses its CGT exemption is calculated as the amount of SEIS relief reduced divided by the original total SEIS relief attributable to the shares.
Where the shares were only partly acquired with SEIS-qualifying funds, a further adjustment is made so that only the SEIS-attributable portion of the gain is considered before applying the reduction fraction.
If SEIS relief has been reduced on more than one occasion, the individual reduction amounts are aggregated to determine the total reduction, and the original unreduced relief figure is always used as the denominator in the fraction.

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