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HMRC internal manual

Venture Capital Schemes Manual

VCT: VCT approval: 70% qualifying holdings condition: disregard of disposals: example

Example of disposal of qualifying holding - no new qualifying holdings included in consideration received

A VCT with full approval has qualifying holdings of £1.5m and total investments of £2m. Its qualifying holdings are therefore 75% by value of its total investments

On 10 April 2007 it disposes of a qualifying holding that it has held for more than 6 months. The holding was previously valued at £200,000 and is sold for £350,000 comprising £250,000 in cash and £100,000 in loan notes.

  Qualifying Holdings(QI) Total Investments(TI) QI/TI x 100%
Before disposal £1.5m £2.0 75%

Disposal: 10 April 2007

Original cost: £200,000

Total Proceeds: £350,000

Proceeds comprise:

  • £250,000 in cash (monetary), and
  • £100,000 in loan notes (non-monetary)

After disposal

Before the application of S280A

  £1.3m £2.15m 60%

Applying S280A(2)(a)

The VCT is treated as retaining 100% of the qualifying holding disposed of. It is therefore treated as retaining £200,000 (being the original cost) in addition to the actual qualifying holdings of £1.3m, making a total of £1.5m qualifying holdings.

It is also treated as retaining £200k for the purpose of its total investments, making total investments before the application of S280A(2)(b) of £2.35m.

Applying S280A(2)(b)

The VCT’s total investments are then treated as reduced by the monetary consideration received, £250,000. VCT’s total investments are therefore (£2.35M less £25O,OOO) £2.1m.

  Qualifying Holdings(QI) Total Investments (TI) QI/TI x 100%
After the application of S280A      
  £1.5m £2.1m 71%

The calculation for the purpose of the 70% qualifying holdings condition will include the deemed retained holding, valued at £200,000, and the deemed reduction in the investments of £250,000 for 6 months following the date of the disposal of the investment.

These adjustments apply for the full 6 months whether or not the VCT invests or otherwise disposes of the consideration received in that period.