In R Ames v HMRC [2015] TC04523 an Enterprise Investment Scheme (EIS) investor failed to secure CGT relief: he had failed to make an income tax relief claim, having no taxable income in the year in which he had made his investment.

  • Mr Ames invested £50,000 for shares in Skyventure UK Ltd, a company which qualified for the EIS scheme. He was subsequently issued with an EIS certificate; however he did not make a claim for income tax relief as he had no taxable income in the year of investment.
  • The company was very successful and in 2011, Mr Ames sold his shares for £333,200.
  • He did not disclose the gain on his tax return, believing that it was exempt from Capital Gains Tax (CGT) under EIS. He did however make a disclosure in the additional information section.
  • HMRC enquired into the return and amended it to include the gain, fully taxable. They stated that CGT exemption is only available where a claim to income tax has been made under ITA 2007 S150A(2). Mr Ames appealed to the First Tier Tribunal.

The Tribunal dismissed the appeal, stating that the only reasonable interpretation of the relevant section is that CGT disposal relief is only available where an amount of income tax relief is attributable to the shares. The meaning of that term was to be found in ICTA s 289B, being a reference “to any reduction made in the individual's liability to income tax which is attributed to those shares.”

  • This would appear to preclude CGT exemption applying unless there is some income tax to mitigate; and so it seems a person with no taxable income to relieve will pay full CGT, whereas a person with £1 of taxable income will pay nothing. A point Mr Ames referred to as an ‘absurdity’. The possibility that he could have chosen not to claim his personal allowance to facilitate a claim was discussed briefly. 
  • This point was however irrelevant, as no claim to EIS income tax relief had been made within the requisite time limit for doing so, and HMRC had subsequently refused to accept a late claim as it felt Mr Ames did not have a reasonable excuse.

UPDATE: The Upper tribunal upheld the FTT decision but allowed Mr Ames claim to judicial review in respect of his later claim to income tax relief, remitting this back to HMRC to decide. 

Link: R Ames v HMRC 

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