Depending upon whether you are an individual or a corporate investor the procedure for claiming loss relief on any shares that qualify for SEIS or EIS varies slightly.
There may be additional complexities which aren’t taken into account in this blog, for example bonus issues, a transfer of shares between spouses and mixed holdings of shares of which some qualify for SEIS/EIS and some don’t. However here we provide information on how to claim SEIS/EIS loss relief in a simple case without complications.
Please note that when computing your loss, you must reduce the amount you invested in the company by the amount of any previously claimed income tax relief. To qualify for loss relief the investment value must be less than this figure.
1) Individual claimants
The claims procedure
If you are an individual claimant, a claim for loss relief on SEIS/EIS related shares (otherwise known as Share Loss Relief) must be made on or before the first anniversary of the normal self-assessment filing date for the year of the loss. Loss relief allows investors to offset the loss made against either capital gains tax or income tax, depending on whichever is better for you.
If you complete a self-assessment tax return, you can claim SEIS/EIS losses against either income tax or capital gains tax by completing the SA108 form.
Against income tax
Share Loss Relief may be given as a deduction in calculating the claimant’s net income for either the year of the loss, or the previous tax year, or both years. The claim must specify the year or years in which relief is to be given, and if both years are involved then it must specify the year for which deduction is to be made first.
Against capital gains tax
You can also offset your SEIS/EIS losses against a capital gains tax bill for the current or future tax years.
2) Corporate Claimants
As a corporate claimant, there are three conditions that a company must meet in order to be eligible for Share Loss Relief.
Condition A – investment company
The first condition is that the company must be an investment company on the date of the disposal of the shares.
Condition B – period for which a company has been an investment company
The company must also have been an investment company for a specified continuous period immediately preceding the disposal date. The period is either
- six years; or
- a shorter continuous period provided that the company was neither a trading company nor an excluded company before the beginning of that shorter period.
Condition C – relationship to the company invested in
The company must not be associated with, or be a member of the same group as, the company whose shares it subscribed for and has disposed of. This must have been so at all times during the period between subscription for the shares and disposal of the shares.
The claim and how relief is given
A company must claim Share Loss Relief before the expiry of two years after the end of its accounting period in which the allowable loss is incurred.
Relief is always given, in the first instance, as a deduction in computing the company’s income for corporation tax purposes for the accounting period in which the loss on the shares is incurred. It is not open to the company to waive relief in this period if there is income from which it could be deducted. Subject to this, the company may also claim for any surplus relief to be deducted from its income in previous accounting periods, so far as they fall wholly or partly within the 12 months immediately before the period in which the loss is incurred. However, where the company claims relief in an earlier accounting period it must have been an investment company throughout that earlier period.
Where relief is claimed for an accounting period only part of which falls within the 12 months preceding the period of loss, the amount of relief is limited to the amount of the company’s income attributable to the period within the 12 months computed on a time-apportionment basis.
Once the amount of Share Loss Relief due to a company has been established the company will need to determine how and in what accounting periods it is to be given.
Deduct relief from the company’s income for the accounting period in which the loss is incurred.
Applies if the company claims relief for an earlier accounting period also, and there is relief remaining after step 1. The remaining loss is deducted in calculating the company’s income for any accounting period falling wholly or partly within the 12-month period immediately preceding the period of loss. Where there is more than one such earlier period, relief is given in a later period before an earlier period.
Relief is given at step 2 only after relief has been given for the period in question in respect of Share Loss Relief on an earlier loss.