Other beneficiaries and EIS

Other beneficiaries and EIS shares

Understanding the tax implications when the recipient of EIS shares isn’t married to the original investor.

When shares are gifted

When investors gift shares to beneficiaries that aren’t spouses, it’s considered a sale of shares for tax purposes.

	Tax implications of the gift for the original investor	Tax implications for the recipient
Income tax relief	Where shares are transferred within three years of investment, income tax relief claimed is repayable.	No implications after gift.
Capital gains tax relief	Where shares are transferred within three years of investment, growth will be subject to capital gains tax.	Any growth in value after transfer is no longer from from capital gains tax.
Loss relief	If the shares have fallen in value between investment and gift, loss relief can be claimed against income or gains.	Loss relief is available against capital gains only. The loss is based on the fall in value between the date of gift to the date of sale.
Capital gains deferral relief	Deferred gains become chargeable immediately.	No implications after transfer.
Inheritance tax relief via BPR	If the investor dies within seven years of making the gift, inheritance tax may be payable. However, if the investor held the shares for at least two years before making the gift and the recipient still owns them when the investor dies, no inheritance tax is due.	The shares will need to be held for a further two years to be free from inheritance tax as part of the recipient’s estate.

Tax implications of transferring shares when the original investor dies.

	Tax implications for the original investor on death	Tax implications for the recipient
Income tax relief	No implications – income tax relief remains even if death is within three years.	No implications after transfer.
Capital gains tax relief	No implications – growth to the date of death is tax-free, even if the death is within three years of investment.	Any growth in value after the transfer is no longer free from capital gains tax.
Loss relief	No implications.	Loss relief is available against capital gains only. The loss is based on the fall in value between the date of death and the date of sale.
Capital gains deferral relief	No implications – deferred gains are eliminated on death.	No implications after transfer.
Inheritance tax relief via BPR	The shares will be free from inheritance tax provided the shares have been held for two years on death.	The shares will need to be held for a further two years to be free from inheritance tax as part of the recipient’s estate.