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HMRC internal manual

Venture Capital Schemes Manual

VCT: VCT approval: 30% or 70% eligible shares condition

ITA07/S274(2)

A minimum percentage of a VCT’s qualifying holdings must be in ‘eligible shares’ (VCM54150) throughout its most recent accounting period.

For accounting periods ending on or after 6 April 2018, the minimum percentage is 70% in all cases.

However, holdings acquired before 6 April 2018 using certain ‘protected monies’ – holdings acquired using monies raised, or derived from monies raised, by the VCT before 6 April 2011 – are ignored when determining whether the VCT meets the 70% eligible shares condition. See example below.

Accounting periods ending before 6 April 2018

The minimum percentage holding in eligible shares increased from 30% to 70% for accounting periods ending on or after 6 April 2011. However the 30% eligible shares condition continued to apply to certain ‘protected monies’ – holdings acquired using monies raised, or derived from monies raised, by the VCT before 6 April 2011.

For accounting periods ending before 6 April 2018, a VCT needs to show its compliance with the eligible shares condition by reference to separate pools of:

  • protected monies meeting the 30% eligible shares condition and
  • other monies meeting the 70% eligible shares condition.

The 30% eligible shares condition, as it was originally enacted, does not apply for accounting periods ending on or after 6 April 2018, as provided for by FA18/Schedule 2/paragraph 11.

Example

A VCT with an accounting period ending on 31 March had the following investments on 31 March 2018:

  • Value of shares acquired using protected monies:            £3.5 million
  • Value of loans made using protected monies:                     £6.5 million
  • Value of other shares:                                                                      £8 million
  • Value of other loans:                                                                         £2 million

The company met the eligible shares condition because the 30% eligible shares condition was met for investments made using protected monies and the 70% eligible shares condition was met for the other investments.

In the next accounting period, ending on 31 March 2019, the VCT sells shares in companies which it had acquired using protected monies. The value of the shares as at 31 March 2018 was £1 million.  The VCT reinvests the disposal proceeds of £1.5 million in shares in a new qualifying company.

If these were the only transactions carried out by the VCT in the accounting period, it would meet the 70% eligible shares condition because it would have shares to the value of £9.5 million and loans to the value of £2 million.

The 30% eligible shares condition does not apply for the accounting period ending on 31 March 2019, so it is irrelevant that the proportion of eligible shares acquired using protected monies fell to below 30%.

Note that where provisional approval is given, this rule is relaxed - see VCM54340