ACCA Advanced Taxation (ATX) Practice Exam

How long must shares in EIS and SEIS be held to avoid withdrawal of income tax relief?

1. 2 years

2. 5 years

3. 3 years

4. 4 years

The correct answer is: 3 years

To retain the income tax relief associated with investments in the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), shares must be held for a minimum period of three years. This holding period is crucial because if shares are disposed of or if the investor ceases to be eligible for relief within this time frame, they may have to repay the income tax relief they received during the initial investment. The three-year requirement supports the purpose of these schemes, which is to encourage long-term investment in small and high-risk companies by providing tax incentives. Investors are motivated to keep their investments over this period, which helps provide the necessary funding to the companies and supports their growth. Understanding this time frame is key for investors considering the financial implications of engaging with EIS and SEIS, as well as for tax planning purposes. It's important to maintain compliance with these rules to fully benefit from the intended tax relief and avoid any potential penalties.