LAM03610 - Calculation of ‘I’ Income and chargeable gains: Chargeable gains from venture capital limited partnerships (VCIPs) TCGA92/SCH7AD: Acquisition cost of the deemed single asset
If the partnership does not invest in any Qualifying Corporate Bonds ‘QCBs’ then the acquisition cost of the single asset is simply the amount of capital contributed by the company on becoming a member of the partnership TCGA92/SCH7AD/PARA4(1).
Where the investments of the partnership include QCBs, the acquisition cost is reduced by the fraction:
(A-B)/A,
Where:
- A is the book value of all shares and securities held by the partnership at the end of the partnership accounting period in which the contribution is fully invested, and
- B is the book value of the QCBs held by the partnership at the end of that period – paragraph 4(4) Schedule 7AD.
Making the test apply for the period in which the contribution is fully invested avoids anomalies if, for instance, the contribution was not invested until a later period. In practice, there is not usually a problem in identifying the period in which the contribution is fully invested as contributions from partners are normally invested fairly soon after they are made.
Any further contributions of capital are also treated as acquisition cost, subject again to the pro-rata reduction in respect of QCBs TCGA92/SCH7AD/PARA4(2).
Meaning of ‘book value’ and ‘accounts’
Book value is the value shown in the partnership’s accounts at the end of the period of account. Accounts are accounts drawn up in accordance with generally accepted accountancy practice TCGA92/SCH7AD/PARA10(2).
If no such accounts have been drawn up then the values to be taken are what would have appeared in such accounts, if they had been drawn up.
Contributions of capital by the company to the partnership
Contributions of capital include certain interest-free loans which are required to be made by all the limited partners, and which are accounted for as partners’ capital or partners’ equity in the accounts of the partnership TCGA92/SCH7AD/PARA10(3).
This recognises the commercial reality that a substantial amount of what is essentially capital funding is made by the limited partners investing in this way. Some limited partners (such as founder partners) may not make contributions by way of interest-free loans because they are not investing partners. In such circumstances the requirement that all limited partners make interest free loans is regarded as met.