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HMRC internal manual

Venture Capital Schemes Manual

HM Revenue & Customs
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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. Generally such changes take effect for determining the status of a holding acquired at any date subsequent to the date when the changes take effect, but in certain cases they apply only where the money used to make the investment was originally raised by the VCT after that date. This is to recognise that investors in the VCT would have certain expectations as to how their money would be invested, based on the VCT’s investment strategy as laid out in the prospectus at the time the investors subscribed for shares in the VCT. 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 will be able to ignore these changes altogether. For example, if it realises an investment in June 2002 at a profit it can invest 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 overrides the requirement described at VCM55130.