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Where Taxpayers and Advisers Meet

eis/loss on disposal

ad
Posts:66
Joined:Wed Aug 06, 2008 3:14 pm

Postby ad » Wed Jan 19, 2005 2:37 am

subscribe for shares in an eis company. 150k gain is deferred against the investment, and 30k of income tax relief received.

My question relates to the disposal of the shares. They are now worthless. They have been held for more than the 5 yr period required.

Is the loss on disposal 150k less 30k of relief ie 120k. And at the same time the 150k brought back into charge, meaning a net gain of 30k ?

Or as the 5 yrs is up is the loss 150k leaving this to offset against the deferred gain of 150k now becoming chargeable.

Any comments appreciated.

Instinctive
Posts:1797
Joined:Wed Aug 06, 2008 3:15 pm

Postby Instinctive » Wed Jan 19, 2005 8:56 am

Please refer to Inland Revenue leaflet IR137 for full details.

Paragraph 4.6 deals with losses and states that you will be able to claim loss relief against income or gains of the year of loss or the previous year. Any loss remaining unused can be carried forward against gains of later years.

Paragraph 4.7 states that you don't have to sell shares to claim relief. You can make a claim on the basis of negligible value.

The loss relief will be due on your actual loss of £150,000 less £30,000 income tax relief not clawed back = £120,000 net loss.

As they have been held for more than 5 years, there is no clawback of any reliefs.

RP

ian.wright@beechams.
Posts:47
Joined:Wed Aug 06, 2008 3:11 pm

Postby ian.wright@beechams. » Wed Jan 19, 2005 9:03 am

Since the shares are of neglible value you do not have to wait for the relevant period (3 or 5 years depending on when you aquired them).

The loss is 150k - 30k = 120k.

It must also be noted as since the share are under eis, relief can be given against gains or under election against income.

You should also carefully consider when the share became worthless and in what tax year so that you gain maximum relief for the loss.

ad
Posts:66
Joined:Wed Aug 06, 2008 3:14 pm

Postby ad » Wed Jan 19, 2005 9:06 am

thankyou for your comments. However can I just clarify you last sentance.

If held for over 5 years there is no clawback of any reliefs.

How does this relate to the loss being reduced by the income tax relief originally given of 30k. Isnt that in effect clawed back ? or am I missunderstanding this and the 30k is not clawed back if 5 years has lapsed.

Thank you.

Instinctive
Posts:1797
Joined:Wed Aug 06, 2008 3:15 pm

Postby Instinctive » Wed Jan 19, 2005 9:26 am

You retain the £30,000 tax refund and this is no longer clawed back.

However, you are actually out of pocket by £150,000 less £30,000 = £120,000. This is therefore your real loss. Or would you rather prefer to pay back the £30,000 and then be allowed to claim loss relief on £150,000 instead of only £120,000?

Also, some would argue that you are lucky to be allowed to claim any loss relief at all because you would not have been taxed on any gains on these shares. The taking of any risks is already reflected in the original income tax and capital gains tax incentives.

RP

ad
Posts:66
Joined:Wed Aug 06, 2008 3:14 pm

Postby ad » Thu Jan 20, 2005 2:09 am

Thanks very much for your help.

Instinctive
Posts:1797
Joined:Wed Aug 06, 2008 3:15 pm

Postby Instinctive » Thu Jan 20, 2005 12:27 pm

And thank you for acknowledging our efforts. You will see that most querists don't even make any effort to even acknowledge our reply, let alone thanking us for the free advice given.

RP


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