ACCA Advanced Taxation (ATX) Practice Exam

How is the maximum SEIS exemption on SEIS reinvestment relief calculated?

1. 50% × Subscription cost of new SEIS shares

2. 50% × Amount of gain on old asset

3. 50% × Lower of: amount of gain on old asset or subscription cost of new SEIS shares on which IT relief is claimed

4. 100% × Total investment amount

The correct answer is: 50% × Lower of: amount of gain on old asset or subscription cost of new SEIS shares on which IT relief is claimed

The maximum SEIS (Seed Enterprise Investment Scheme) exemption on SEIS reinvestment relief is computed as 50% of the lower of the amount of gain on the old asset or the subscription cost of the new SEIS shares on which income tax relief is claimed. This calculation is designed to ensure that the relief is aligned with the gains made on the previous investment while limiting it to the actual amount re-invested into qualifying SEIS shares. This approach reflects the purpose of SEIS, which is to encourage investment in small, high-risk companies by providing tax relief. The reinvestment relief acts as an incentive, allowing investors to defer tax liabilities realized from previous gains when they reinvest into new qualifying businesses. For example, if an investor has a gain of £100,000 from an old asset and invests £30,000 in SEIS shares, the relief calculation would take the lower of these two amounts. The maximum exemption would thus be 50% of £30,000 (the subscription cost of new SEIS shares) since it is less than the gain realized. This method effectively controls the amount of tax relief available, ensuring it is proportional to the actual amount at risk in new investments, encouraging ongoing investment in new ventures while providing