ACCA Advanced Taxation (ATX) Practice Exam

What is a requirement for losses from EIS or SEIS shares?

1. Must be claimed in the year incurred

2. Can be offset against dividends

3. Can affect capital gains or income in the prior year

4. Must be carried forward indefinitely

The correct answer is: Can affect capital gains or income in the prior year

The correct choice indicates that losses from Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) shares can affect capital gains or income in the prior year. This is significant because, under the EIS and SEIS reliefs, investors are allowed to relieve losses in a strategic manner. When losses are incurred from qualifying shares, they can be utilized to offset capital gains or even income in the tax year preceding the year of the loss. This is particularly beneficial for investors as it potentially enhances tax efficiency and allows them to recoup some of their investments against other taxable income or gains, thus minimizing their overall tax liability. This aspect underlines the flexibility provided by the tax reliefs for EIS and SEIS investments, encouraging investment into start-up and growth-focused businesses while also providing a safety net for investors should the investment not perform as expected. In contrast, the other options present limitations or requirements that do not align with the provisions provided under the EIS and SEIS schemes. For instance, losses cannot be claimed simply in the year they are incurred alone, nor can they be claimed against dividends, nor are they carried forward indefinitely. This understanding enriches the investor's perspective on how to strategically manage potential losses from such investments