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HMRC internal manual

Venture Capital Schemes Manual

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HM Revenue & Customs
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VCT: VCT qualifying holdings: exchange for shares in new holding company

ITA07/S326

Where a VCT exchanges shares in a company for shares issued to it by another company - which might occur, for example, in the case of a take-over - the new shares cannot form part of the VCT’s qualifying holdings. However, there is one exception. There may be a commercial need for a company to create a new holding company, all its issued share capital being transferred to the new company in exchange for new shares issued by that company. Where the arrangements for the share exchange are made on or after 16 June 1999, the VCT’s holding in the new company is treated as qualifying to the extent that its holding in the old company qualified, provided certain conditions are satisfied.

These conditions are as follows:

  • The consideration received in exchange for the old shares consists entirely of an equal number of new shares.
  • The new shares are shares in a company in which the only issued shares, immediately before the exchange, were the original subscriber shares.
  • The old shares and the new shares are of the same description.
  • HMRC stated in advance that they were satisfied that the exchange would be effected for commercial reasons and would not form part of a scheme or arrangement to which TGCA92/S137 (1) would apply - in other words they gave a clearance under TCGA/S138 (1) (see CG52623).

Where the arrangements extend to the exchange of securities as well as shares, this too is covered by S326. But where the VCT has securities in the old company and they are not exchanged for securities in the new company they cease to qualify because the company concerned is now a subsidiary.