ACCA Advanced Taxation (ATX) Practice Exam

When can investment relief be withdrawn if shares are sold at a loss in EIS, SEIS, or VCT?

1. Immediately

2. After 2 years

3. At the time of the gain calculation

4. Not applicable

The correct answer is: Immediately

Investment relief under the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS), or Venture Capital Trusts (VCT) is designed to provide tax relief to investors who take a risk on certain types of small or growing companies. However, this relief is contingent upon certain conditions being met, including how the investments are maintained over time. The correct understanding is that if shares are sold at a loss, investment relief can be withdrawn immediately upon the disposal of those shares. This is because the tax relief provided is contingent on the investor maintaining their investment in the qualifying entity for a certain period, typically three years for EIS and SEIS. If the shares are sold before the required holding period or at a loss, this triggers a reduction or withdrawal of the relief. The immediate withdrawal reflects the principle that tax incentives are designed to encourage retention of investment in eligible companies. If that investment condition is not met—such as selling the shares at a loss—then the relief is revoked without any waiting period. Therefore, the central rationale behind the answer is the structure of investment relief plans linked to holding periods and the nature of the investment's performance.