ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is in taxpayers’ favour in principle and may benefit some in practice. But the numbers affected are likely to be small. Change 37: EIS: limit is on the amount of relief in a year: section 158
This change provides that the limit on EIS relief for a tax year is a limit on the amount by which the individual’s income tax liability may be reduced. It is not a limit on the amount of subscriptions in respect of which the individual is eligible for relief, and which may be included in a claim, for the tax year.
Section 290(2) of ICTA says that for a tax year an individual shall:
“…not be eligible for relief… in respect of any amount… exceeding £400,000…”
From those words it might be thought that an individual may not make a claim in respect of shares, whether relating to an issue by one company or several companies, for an amount in excess of £400,000.
Paragraphs 25430 and 26020 of HMRC’s Venture Capital Schemes Manual show that this is not the practice. A claim may be made in respect of amounts over £400,000 but any income tax reduction is capped at £400,000 multiplied by the lower tax rate.
Other provisions that proceed on the basis that section 290(2) of ICTA caps the relief (rather than the amounts on which a claim may be made) also support this practice. Those provisions include section 299(4) of ICTA (although that provision also caters for cases where a claim has been made in respect of an amount below £400,000) and section 150A(3) of TCGA.
Section 158(2)(b) of this Act places a cap on the amount of entitlement to EIS relief rather than on the amount of subscriptions in respect of which claims may be made.