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HMRC internal manual

Venture Capital Schemes Manual

VCT: investor CG disposal relief: shares acquired before/after approval: example

In this example the taxpayer has a holding of exempt VCT shares and a TCGA92/S104 holding of non-exempt shares. The Section 104 holding includes shares acquired before the VCT was approved and shares acquired in excess of the permitted maximum.

The facts are the same as in the example at VCM52060. In September 1997 the taxpayer has the following blocks of shares:

  • 60,000 exempt shares acquired June 1997.
  • 40,000 exempt shares acquired September 1997.
  • A Section 104 holding of 25,000 non-exempt shares, 15,000 of these shares were acquired before the company was approved, 10,000 of the shares were acquired in excess of the permitted maximum in September 1997.
  • 100,000 exempt shares acquired May 1998.
  • 50,000 non-exempt shares acquired May 1998.

In August 1998 the taxpayer disposes of 20,000 shares for £80,000. This disposal is identified as follows:

  • Does the taxpayer own any shares acquired before the company got VCT approval? Yes, 15,000 of the shares in the Section 104 holding were acquired pre-approval.
  • Were any of the shares acquired after the company got VCT approval acquired at different times? Yes, these shares are identified on a first in/first out basis. The remaining shares in the Section 104 holding were acquired in September 1997. But the taxpayer has a holding of exempt shares acquired before that date, in June 1997. Therefore the remaining 5,000 shares disposed of are identified against that acquisition.

In summary the disposal is identified:

15,000 Shares in new holding Not exempt
5,000 Shares acquired June 1997 Exempt

In computing the gain on the 15,000 shares you do not attempt to isolate the cost and indexation which applies to those shares. Use the pool value in the normal way. The computation is below.

Section 104 holding

  Number of shares   Pool of Qualifying Expenditure   Pool of Indexed Expenditure
  25,000   £30,000   £30,840
Indexation Sept 1997 - Apr 1998* (say)         £648
  25,000   £30,000   £31,488
August 1998 (15,000)   (£18,000)   (£18,893)
  10,000   £12,000   £12,595

*Indexation allowance has been frozen at April 1998, see CG17207.

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Capital gains computation

Pool of Indexed Expenditure £31,488 x 15,000 = £18,893
Pool of Qualifying Expenditure £30,000 x 15,000 = £18,000
Indexation allowance         £893
Disposal proceeds of 15,000 non-exempt shares £60,000
Less cost £18,000
Unindexed gain £42,000
Less indexation £893
Chargeable gain £41,107

For the purposes of this example assume the shares are non-business assets therefore there is no taper relief available, see CG17895 onwards.