EIS reinvestment relief

In this lesson

1. 0:00 EIS reinvestment relief explained
2. 0:26 How reinvestment relief works
3. 1:04 Deferral mechanism and base cost treatment
4. 2:03 Maximum deferral and claim flexibility
5. 2:26 Chargeable events and disposal outcomes

About this lesson

months before and three years after disposal). The core mechanism is straightforward. You sell an asset and calculate the gain. Instead of paying tax on that gain immediately, you defer it by investing the proceeds into EIS shares. The deferred gain is frozen and doesn't form part of the base cost of the new shares—this matters because EIS shares are potentially exempt, so if the gain were added to base cost, it would never crystallise. The maximum deferral is the lower of the original asset gain or the cost of the EIS shares you buy, but you have flexibility: you can defer any amount up to that maximum, allowing you to preserve your annual exemption or use losses brought forward. When you eventually sell the EIS shares, the frozen gain becomes chargeable again. However, if you've held the shares for three years or more, any gain on the shares themselves is exempt. If the original asset qualified for business asset disposal relief, that relief can also apply to the deferred gain. Understanding this timing and the three-year holding period is essential for maximising the tax efficiency of this relief.

Duration: 3m