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HMRC internal manual

Venture Capital Schemes Manual

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VCT: investor CG disposal relief: shares acquired in excess of permitted maximum: example

In this example the taxpayer has separate holdings of exempt shares and a TCGA92/S104 holding of non-exempt shares. All the shares in the Section 104 holding were acquired in excess of the permitted maximum. These acquisitions were made at different times. The facts are as follows.

The taxpayer makes the following acquisitions of ordinary shares in A plc, an approved VCT.

  • May 1996 buys 50,000 shares cost £50,000.
  • September 1996 buys 60,000 shares cost £60,000.
  • May 1997 buys 40,000 shares cost £40,000. The taxpayer has already purchased 100,000 worth of shares in another VCT earlier in the month.
  • May 1998 buys 30,000 shares cost £30,000.

£10,000 worth of the shares bought in September 1996 were acquired in excess of the permitted maximum. All the shares acquired in May 1997 were acquired in excess of the permitted maximum.

The taxpayer has the following blocks of shares in A plc:

  • 50,000 exempt shares acquired May 1996,
  • 50,000 exempt shares acquired September 1996,
  • 30,000 exempt shares acquired May 1998,
  • a Section 104 holding of 50,000 shares which includes 10,000 shares acquired September 1996 and 40,000 shares acquired May 1997.

In September 1999 the taxpayer sells 140,000 shares in A plc for £280,000. The taxpayer does not own any shares acquired before the company was approved as a VCT. Therefore the rule in TCGA92/S151A (4)(a) applies. The shares are identified on a first in/first out basis as follows:

50,000 acquired May 1996 Exempt
   
10,000 acquired September 1996 not exempt
50,000 acquired September 1996 Exempt
30,000 acquired May 1997 not exempt

When computing the chargeable gain you do not attempt to identify the cost and indexation attributable to specific blocks of shares included in the Section 104 holding. The normal pooling rules apply. The computation is below.

Section 104 holding

  Number of Shares   Pool of Qualifying Expenditure   Pool of Indexed Expenditure
           
September 1996 10,000   £10,000   £10,000
Indexation Sept 96 - May 97         £200
  10,000   £10,000   £10,200
May 1997 40,000   £40,000   £40,000
  50,000   £50,000   £50,200
Indexation May 97 - Apr 98*         £1,808
  50,000   £50,000   £52,008
  • Indexation allowance has been frozen at April 1998, see CG17207.

Capital gains computation

Pool of Indexed Expenditure £52,008 x 40,000 = £41,607
           
      50,000    
Pool of Qualifying Expenditure £50,000 x 40,000 = £40,000
      50,000    
Indexation Allowance         £1,607
Disposal proceeds of 40,000 non-exempt shares £80,000        
Less Cost £40,000        
Unindexed Gain £40,000        
Less Indexation £1,607        
Chargeable Gain £38,393        

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