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HMRC internal manual

Venture Capital Schemes Manual

From
HM Revenue & Customs
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VCT: investor income tax reliefs: ‘front-end’ income tax relief: withdrawing relief

ITA07/S266

‘Front-end’ income tax relief should be withdrawn, in whole or in part, if the shares in respect of which relief was claimed are disposed of within:

  • five years of issue for shares acquired before 6 April 2000 or on or after 6 April 2006,
  • three years of issue for shares acquired between 6 April 2000 and 5 April 2006.

In determining whether ‘front-end’ income tax relief was given in respect of shares disposed of:

  • shares acquired on an earlier day are treated as disposed of before those acquired on a later day, and
  • between shares acquired on the same day, those in respect of which relief has been given are treated as disposed of only after any other shares acquired on the same day.

Normally the amount of relief to be withdrawn is the smaller of:

  1. the relief given on the shares disposed of, and
  2. the consideration for the shares on disposal at the lower rate for the year of assessment for which relief was given.

Example

‘A’ subscribes £100,000 for 100,000 VCT shares in 2010-2011. He claims ‘front-end’ income tax relief of £100,000 x 30% = £30,000. In 2012-2013 he sells 40,000 shares for £34,000.

The ‘front-end’ income tax relief to be withdrawn is the smaller of:

  1. relief given on shares disposed of, being £30,000 x (40,000/ 100,000) = £12,000, and
  2. consideration, £34,000 x 30% = £10,200.

The relief to be withdrawn is therefore £10,200.

However if shares are disposed of other than at arm’s length all the relief given in respect of the shares disposed of is withdrawn.

VCT loses approval

‘Front-end’ income tax relief may also be withdrawn where a VCT loses its approval.

If the VCT loses its approval then all relief given is withdrawn in the following circumstances:

  • where the VCT was provisionally approved,
  • where the VCT was fully approved, and

    • for shares issued before 6 April 2000 or on or after 6 April 2006 that approval is lost within 5 years of the shares being issued, or
    • for shares issued between 6 April 2000 and 5 April 2006 that approval is lost within 3 years of the shares being issued.

The investor is obliged to tell HMRC if relief should be withdrawn (see ‘provision of information’ below).

HMRC officers should contact CTIAA (Structure, Incentives & Reliefs team) if they need to know whether the VCT was provisionally or fully approved.

Disposals within marriage or a civil partnership

A disposal between spouses or civil partners who are living together does not give a rise to a withdrawal of ’front-end’ income tax relief. The spouse or civil partner receiving the shares is treated as having subscribed for them at the time they were originally subscribed for by the other spouse or civil partner, and as having received the ‘front-end’ income tax relief received by the other spouse or civil partner.

Any subsequent disposal, other than within marriage or a civil partnership, which gives rise to a withdrawal of ‘front-end’ income tax relief, is assessable on the spouse or civil partner disposing of the shares.

Death

Death does not give rise to a withdrawal of ‘front-end’ income tax relief, nor does any event occurring after death.

Provision of information

Individuals must tell HMRC within 60 days of coming to know of an event by reason of which ‘front-end’ income tax relief should be withdrawn. Penalties under TMA70/S98 may be charged where they do not. CTIAA (Structure, Incentives & Reliefs team) can provide further advice on this.

Assessments

Amounts of ‘front-end’ income tax to be withdrawn should be recovered by assessment for the year of assessment in which relief was given.