In May 2015 Nick subscribes £100,000 for EIS qualifying shares in Electric Bananas Limited, a software development company. Five years later Electric Bananas is taken over and Nick receives £250,000 for his shares.
In the 2014/15 tax year, Nick had paid income tax of £25,000, which he was able to reclaim in full with EIS relief on his investment. And there was a balance of £5,000 available to offset against Nick’s 2015/16 tax. EIS tax relief meant that the net cost of Nick’s investment was £70,000.
Nick’s gain on selling his shares is entirely tax free.