Cast study 4 - Relief on Losses

Lynne (a higher rate tax payer) invests £50,000 into an EIS. She receives income tax relief on investment of £10,000. The company she has invested in fails and she receives no proceeds from her shares. She is now entitled to claim loss relief on the net investment into shares (£40,000).

Loss relief is granted at Lynne’s highest rate of tax and consequently her tax liability is reduced by a further £16,000. Lynne’s total loss has been reduced from £50,000 to £24,000.

Loss relief is claimed at the investor’s highest rate of tax. It is possible for the loss to be offset against the previous year’s liabilities, and carried forward if sufficient tax hasn’t been paid. Loss relief can also be offset against capital gains liabilities.