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HMRC internal manual

Venture Capital Schemes Manual

VCT: VCT qualifying holdings: overview of requirements

The requirements which a holding has to satisfy in order to be part of the VCT’s qualifying holdings fall broadly into three groups, covering:

  • the form of the investment,
  • the type of company invested in,
  • the way in which the money raised is to be used.

Since the original enactment of the scheme in 1995, some of the requirements have been amended and some new requirements have been added.

The current law applies to all investments made on or after 6 April 2018 (or for accounting periods starting on or after 6 April 2018).

However, before 6 April 2018,  certain changes to the VCT rules applied only where the money used to make the investment was originally raised by the VCT on or after the date of the change (often known as ‘protected monies’). These cases are as follows:

* Money raised after 1 July 1997 New rules requiring a minimum equity content for the investment (see VCM55080) and outlawing guaranteed loans (see VCM55070).
   
* Money raised after 16 March 1998 Property development, farming or marketing gardening, woodlands and forestry, hotels, nursing homes and residential care homes added to the list of excluded activities (see VCM3000+).
* Money raised after 5 April 2006 Amendment to the gross assets test reducing the size of qualifying companies (see VCM55240).
* Money raised after 5 April 2007 New rules restricting the numbers of employees of a qualifying company (see VCM55250), and restriction on the amount to be raised annually through risk capital schemes (see VCM55130).
* Money raised after 5 April 2008 Shipbuilding, coal production and steel production added to the list of excluded activities (see VCM3000+).
* Money raised after 5 April 2012 Employment of the monies raised by a qualifying company (see VCM55150).

Thus a VCT which raised all its money by a share issue before 2 July 1997 would have been able to ignore these changes altogether. For example, if it realised an investment in June 2002 at a profit could have invested the entire sale proceeds without regard to the restrictions. However see VCM54180 as regards the addition to the VCT approval conditions of a further restriction on the amounts to be invested in any company in a twelve-month period, which overrode the requirement described at VCM55130.