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SEIS and CGT deferral: can you mix? (Yes and no)

A subscription for shares which qualifies for Enterprise Investment Scheme (EIS) Income Tax relief may also rank for Capital Gains Tax (CGT) relief under TCGA 1992 Schedule 5B. A subscription which qualifies for SEIS Income Tax relief may also rank for CGT relief under TCGA 1992 Schedule 5BB. But the CGT reliefs available under Sch 5B and Sch 5BB are subtly different: and circumstances may sometimes arise in which the maximum tax benefit would come from “mixing and matching” the reliefs. Specifically, the question which arises is – can you claim both Seed Investment Scheme (SEIS) Income Tax relief and Schedule 5B (rather than Sch 5BB) CGT relief on the same expenditure?

HMRC say absolutely unquestionably not.  They are obdurate that the two regimes are mutually exclusive: claim SEIS and Sch 5BB relief, or claim EIS and Sch 5B relief: no other combinations are permissible.  They point out that section 257DK(1)(a) ITA 2007 provides that an issue of shares made on any particular day cannot qualify under SEIS if an EIS compliance statement is provided (at any time) in respect of any issue of shares made on that day. Given that the company would have to submit such a compliance statement in respect of the issue itself in order to obtain Sch 5B Relief the relevant share issue would thereby be disqualified from SEIS relief.

But what about Sch 5BB para 1(7)(a)? This tells you that you can in principle claim Sch 5BB relief in respect of “unused available SEIS expenditure”. Available SEIS expenditure is defined by the legislation to be “unused” to the extent that it has not already been set against a chargeable gain either under Sch 5BB para 1(5) or under Sch 5B para 2(1). The rather obvious question is – if you really can’t use SEIS expenditure under Sch 5B, why on earth would the legislation set out the consequences of doing exactly that? Maybe s257DK must be read as meaning not “any” issue but “any other” issue.

HMRC seem to put the “confusing” wording of para 1(7)(a) down to “belt and braces” and stick to their guns.  They might be right and they might be wrong.  But if you want to find out which, you will need to go the First-tier Tribunal and beyond.

For more information, please get in touch with your usual BKL contact or use our enquiry form.

This article has also been published in Tax Journal.

David Whiscombe

Consultant

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