In Robert Ames v HMRC [2018] UKUT 0190 the Upper Tribunal (UT) denied a CGT exemption on the sale of Enterprise Investment Scheme (EIS) shares where no claim to income tax relief had been made due to the taxpayer having only £42 of income.
Individuals who subscribe for shares in an EIS qualifying company:
- Receive tax relief of 30% on the cost of the shares. This is offset against their Income Tax liability for the year in which the investment is made.
- Benefit from no CGT on a gain on the disposal after the minimum holding period of three years where:
- “an amount of EIS relief is attributable to the shares” (s150A(2) TCGA 1992) and
- the relief is not withdrawn.
Mr Ames had invested £50,000 in an EIS qualifying company.
- He did not claim income tax relief on the investment as he had only £42 of income for the year which fell within his personal allowance. When he sold his shares for £333,200 he claimed exemption from CGT.
- HMRC denied him exemption because he had not claimed income tax relief.
- Mr Ames appealed and tried to make a late claim for income tax relief.
- The FTT denied the appeal, as well as the late claim, on the grounds it did not have jurisdiction to allow a late claim.
- Mr Ames appealed the decision and applied for judicial review on HMRC’s refusal to allow the late claim to relief.
The UT dismissed the appeal against the FTT decision:
- The use of the word “attributable” required an income tax relief claim to have been made. Eligibility for or availability of the relief was not sufficient if there was no claim.
The tribunal allowed the judicial review:
- HMRC’s decision regarding the late relief claim was quashed and remitted back to HMRC for re-consideration; the decision-making process was flawed as the decision maker misapplied HMRC guidance and did not consider whether this was an exceptional case where it might be unreasonable for HMRC to refuse a late claim despite the unusual circumstances; unlike Mr Ames, most EIS investors have income in excess of the personal allowance meaning that income tax relief claims are made by them.
Comment:
This case highlights the importance of following the requirements for reliefs such as EIS 'to the letter of the law'. Contact the Virtual Tax Partner support service if you would like assistance in making a claim for tax relief.
Links:
EIS: Enterprise Investment Scheme (subscriber guide)
SEIS & EIS: investor relief briefing
FTT decision: R Ames v HMRC [2015] TC04523
External:
Robert Ames v HMRC [2018] UKUT 0190
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