The Treasury has said it will exclude share loss relief on holdings in enterprise investment schemes (EISs) from its cap on income tax relief announced in the 2012 Budget.
In its response to a consultation on the measures, it said respondents had argued applying the cap to EISs would act deter investors from placing money in the schemes, and that they had pointed to the limits already in place for EISs.
'In the light of the arguments made, the government has decided that share loss relief for shares qualifying for EIS/seed enterprise investment schemes (SEIS) should be excluded from the cap. Share loss relief on shares not within EIS/SEIS will remain within the cap,' it said.
Susan McDonald, chairman of EIS fund manager Calculus Capital, welcomed the move. 'This is a sensible move by the Government, which has clearly listened to the arguments that applying the income tax relief cap to EIS loss relief could damage investor confidence in EIS funds,' he said. 'This would have been counter-productive at a time when the Government is trying to encourage investment in small and medium-sized UK companies to help stimulate economic growth.'
The Treasury will also exclude relief attributable to overlap profits from the cap. Overlap profits occur when profits are assessed for tax purposes twice, usually when businesses decide to change their accounting period.
'The government agrees with the respondents that applying the cap in these circumstances may cause the unintended consequence of denying overlap relief,' it said.
'Therefore, the government will make a technical adjustment and remove trade loss relief and early trade losses relief attributable to overlap relief from the scope of the cap. Overlap relief will now align with the other computational reliefs originally excluded from the cap.'
The government announced its plans to introduce a cap on income tax relief on anyone claiming more than £50,000 a year in the 2012 budget to 25% of income. It was then subjected to a backlash from charities who claimed the move could hit donations.