ACCA Advanced Taxation (ATX) Practice Exam

Which tax is primarily affected by EIS and SEIS relief?

1. Income Tax

2. Inheritance Tax

3. Capital Gains Tax

4. Corporation Tax

The correct answer is: Capital Gains Tax

The correct answer is capital gains tax. The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) are designed to promote investment in small and startup companies by offering significant tax reliefs to investors. One of the primary benefits of these schemes is the exemption from capital gains tax on any gains that arise from the disposal of shares in qualifying companies, provided that the shares were held for a minimum period and certain conditions are met. Under EIS, investors can also set off any capital gains realized against the amount invested in EIS shares, providing a further incentive. This effectively means that EIS and SEIS relief reduces the tax liability for investors on capital gains, making it a key aspect of these investment schemes. While income tax is also impacted by the reliefs in terms of initial income tax relief when investing, the most notable advantage and significant impact pertains to capital gains, making this the correct choice.