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An exchange of shares, whether or not it constitutes a disposal for the purposes of tax on capital gains is considered to be a disposal for the purposes of EIS income tax relief (see E3.167), so such an exchange within period B (see E3.104) gives rise to a withdrawal or reduction of EIS relief (see E3.166).

However, if the necessary conditions are satisfied, a new company can acquire, by way of a share exchange, a company that has issued EIS shares without causing a loss of EIS income tax relief to the subscribers to the issuing company¹. Such an arrangement is an approved share exchange.

If the conditions are met then the new shares are effectively treated as being a continuation of the old holding. Any EIS relief attributable to the old shares is treated as being attributable the new shares. The new shares are treated as having been issued when the old shares were issued and the original qualification periods continue to run². The exchange of shares is