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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

Remittance Basis: Exemptions: Business investment relief: Potentially chargeable events - ceasing to be an eligible company

A potentially chargeable event occurs if, at any point, the company in which the investment was made is no longer an:

The foreign income or gains that were used to make the investment will be treated as having been remitted to the UK unless the investor takes the appropriate mitigation steps [see RDRM34440].

It is possible for a target company [see RDRM34340] to change its status, yet remain a qualifying company. For example, as a consequence of a share reorganisation, a company changes from being an eligible trading company, eligible stakeholder company, or a eligible holding company, to being one of the other qualifying types of company (e.g. stops being an eligible trading company and starts being an eligible stakeholder company). The investment will be viewed as having been a qualifying investment throughout therefore there is no potentially chargeable event. (s809VH(1)(a) ITA2007)

Example 1

Eva invests £1 million of her foreign income on 15 April 2013 in a qualifying eligible company and receives 50,000 shares. The company trades successfully expanding their business to an international level.

At a board meeting four years after Eva’s original investment the directors of the company decide to float the company on the London Stock Exchange.

The floatation takes place on 30 June 2017. As there are no lock-ups in place current shareholders are able to sell their share holding without restriction.

Eva needs to take the appropriate mitigation steps if she wants to avoid being taxed on the £1 million foreign income she originally invested as the company is not an eligible trading company after 30 June 2017. Eva will need to dispose of her share holding within 45 days of the company ceasing to be a private limited company and take the appropriate mitigation steps with the proceeds.

Any gain Eva makes on the sale of her share holding will have to be declared on her Self Assessment return for 2017-18.  

For insolvency see RDRM34390.