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HMRC internal manual

Venture Capital Schemes Manual

From
HM Revenue & Customs
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Annual limit on risk finance investments

The annual investment limit is £5 million, taken over a rolling 12 month period ending with the date that the risk finance investment is made.

The relevant investments that are to be taken into account for determining if the annual investment limit is breached are:

  • Relevant investments in a company before it became a 51% subsidiary of the issuing or relevant company
  • Relevant investments in a company where the money was used by a subsidiary of that company, and that subsidiary company subsequently became a subsidiary of the issuing or relevant company
  • Investments in a relevant transferred trade.

However if a subsidiary left the group before the end of the year, any relevant investments made in it after it left the group are not taken into account.

A transferred trade is one that has been transferred to the investee company, or one of its subsidiaries, in the year up to the date of the investment where money raised through risk finance investments was employed in that transferred trade.

Where only part of a relevant investment is used for a relevant transferred trade - for example, where the money from a relevant investment is shared between two subsidiary companies and the business of one of those companies is transferred to the issuing or relevant company - only the money used in the trade that was transferred counts towards the £5 million annual limit.

A trade includes part of a trade and a trade includes any business or profession, including where the activities are preparatory to carrying out a trade.

Example 1

Company A acquired the total issued share capital of company B from Company Z on 1 September 2015. Company A does not have any other subsidiaries. Both company A and company B are less than 7 years old, and their business activities were started from scratch after they were incorporated.

Company A wishes to raise money from EIS investors on 1 January 2016 to employ in Company B’s qualifying activities. Company A has not received any risk finance investments in 2015.

Company Z had received £3 million of loans from a VCT on 1 April 2015, all of which were employed in Company B.

The maximum amount of risk finance investments Company A can raise on 1 January 2016 is £2 million.

Example 2

The facts are the same as for Example 1 except that Company Z had employed only £1 million of its £3 million investment in Company B’s activities. It employed the remaining £2 million in its other subsidiary, Company Y.

 

In this case only the £1 million employed in Company B would count towards Company A’s annual investment limit. Company A would be able to raise up to £4 million on 1 January 2016.