Draft Finance Bill 2013: A cap on share loss relief is a boost for small businesses, says Alex Henderson, Tax Partner

December 11, 2012

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Draft Finance Bill 2013 has placed a cap on share loss relief for losses arising after 5 April 2013. But the Government has also provided a carve-out for shares on which Enterprise Investment Scheme (EIS) or Seed EIS relief has been claimed and retained.  In these cases, relief on the full loss on these types of share can be claimed against income.

The Government was intending to restrict EIS and Seed EIS schemes but has listened to representations that this would be damaging to the reliefs. Thousands of small businesses will be boosted by the decision. The availability of loss relief is part of the risk/reward balance that investors weigh up before financing high-growth companies.

Access to capital for high-growth companies can be incredibly hard to come by in the current financial conditions and while no one plans for it, the prospect of loss relief is a major factor in assisting with the attractiveness of funding small to medium-sized enterprises. To have that taken away could have severely reduced the amount of money being pumped in by investors so this is good news.

But the Government could have gone further. The proposals don’t help non-EIS investors in the same small companies. And the same applies to investors who are only eligible to claim EIS capital gains deferral relief rather than the full income tax relief.