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HMRC internal manual

Venture Capital Schemes Manual

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HM Revenue & Customs
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VCT: VCT approval: 70% qualifying holdings condition: disregard of disposals

ITA07/S280A

Disposals from 6 April 2007 onwards

Although the 70% qualifying holdings condition must be satisfied throughout each relevant accounting period, the application of the rule is modified where a VCT disposes of an investment that has been part of its qualifying holdings throughout the previous six months.

These modifications do not apply if the disposal consideration is made up entirely of assets that themselves form part of the VCT’s qualifying holdings at the time it acquires them (such assets are termed ‘new qualifying holdings’ - VCM54110).

But in other cases, if a relevant disposal is made, for the following six months the 70% qualifying holdings condition is applied as follows:

  • S280A(2)(a) the VCT’s qualifying holdings and total investments are treated as still including a proportion of the holding disposed of, and
  • S280A(2)(b) the VCT’s total investments are treated as reduced by the amount of the monetary consideration received.

Proportion of holding treated as retained

If the disposal proceeds do not include any new qualifying holdings the proportion of the holding that is treated as retained under S280A(a) is 100%. See example at VCM54100.

If the disposal proceeds do include any new qualifying holdings the proportion of the holding that is treated as retained is restricted - see VCM54110.

Restriction of reduction in total investments S280A(6)

If the reduction in the total investments as a result of S280A(2)(b) (the reduction for monetary consideration) results in the value of the deemed total investments being an amount less than the value of the qualifying holdings after any adjustment by virtue of S280A(2)(a), then the value of the deemed total investments is to be treated as equal to the value of the deemed qualifying holdings. An example of this is shown in the Multiple Disposal example at VCM54120.

Interaction with further share issue disregard

When a VCT issues further shares after its original share issue, the 70% qualifying holding condition does not apply to the funds raised by the further issue for any AP accounting period ending before 3 years after the further issue was made (S280(2)- VCM54120).

If the holding that was disposed of was wholly or partly acquired out of funds disregarded under the further share issue rules then the modifications provided for by S280A do not apply to the part so acquired for so long as the S280(2) disregard period applies, see VCM54120.