Draft Finance Bill 2019/20: Changes to Income Tax Share Loss Relief
The Government published draft clauses to be included in the Finance Bill 2019/20, together with related consultations and response documents, on 11 July.
Income tax share loss relief applies where an individual who has subscribed for newly issued shares in unlisted small or medium-sized trading companies disposes of those shares at a loss.
Such losses can be offset against the individual’s income of the same or previous tax year. Given the ability to offset income which is typically taxed at a higher rate than capital gains, the ability to claim income tax relief is particularly valuable in these instances and may provide an additional incentive for would be investors weighing the potential investment risks of subscribing for shares in a small unlisted company.
To qualify for the relief the shares must be qualifying shares being either:
- Shares to which the Enterprise Investment Scheme (EIS) relief is attributable;
- Shares in a qualifying trading company.
Under the current legislation, for the purposes of the latter test, a company will be a trading company if:
- It carried on a trading activity which was not an excluded activity, for which the legislation provides an exhaustive list of excluded activities;
- Its gross assets did not exceed a limit immediately before and immediately after the subscription;
- It was unlisted;
- It carried on its business wholly or mainly in the UK.
A similar relief is available for corporation tax purposes and applies where an investment company subscribes for shares and broadly mirrors the relief for income tax.
The relief will be extended so that it applies to companies located anywhere in the world rather than companies that carry on businesses wholly or mainly in the UK.
Claimants of the relief will be required to report to HMRC the tax residence of the company that issued the shares.
For more info on EIS and Loss relief contact a member of our help tax advice team. You can also read more about the Finance Bill below…