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Q: My client has a company that to date has been dormant. The shares currently in issue are 2000 £1 ordinary shares.  There is an individual looking to invest £100,000 for 25% equity stake. The value of 25% of the Share capital is only £500. Therefore, the remaining balance of £99,500 would be treated as share premium.  For EIS purposes, is the company required to issue new shares?  If so, is tax relief available on the full £100,000 or the £500 that the shares are really worth?

A: An individual receives tax relief in their income tax computation when they subscribe for shares in a qualifying EIS company.  HMRC defines ‘subscribing for shares’ when a company is issuing new shares to the investor. ITA 2007, s.158.

Tax relief is available in respect of the lower of the amount subscribed or £1 million, unless the company is a knowledge intensive company. ITA 2007, s.158(2).

So, if shares valued at £100k are subscribed for, the taxpayer will be entitled to claim tax relief on this amount. The fact that £500 will be share capital and £99,500 share premium does not affect this.

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