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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 of shares or securities for shares or securities in the same company

SI2661/2002 Regulations 4 & 7

These Regulations cover the situation where a company issues new shares or securities to a VCT, in respect of and in proportion to the VCT’s existing qualifying holdings of shares or securities in the company. Providing that the exchange is not an exchange of convertibles for shares (which is covered at VCM55300) and:

  • any new shares are issued in respect of old shares or old securities,
  • any new securities are issued only in respect of old securities, and
  • the old shares or securities are cancelled or otherwise extinguished immediately after the exchange,

the new shares or securities can continue to be qualifying holdings of the VCT.

Specifically, the Regulations allow that:

  • If the company is still within the five year period after becoming quoted when the reorganisation takes place, the company is deemed to continue to satisfy the requirements of ITA07/S295(6) in relation to the new shares and securities for the same five year period.
  • If the requirements at ITA07/S293 regarding employment of money raised and those at ITA07/S297 regarding the assets of the company were satisfied immediately before the exchange, then those requirements are deemed to be satisfied after the exchange in relation to the new shares or securities.
  • For the purpose of the requirements at ITA07/S287 regarding the maximum investment in a company which a VCT can make in the relevant period, any new shares or securities are deemed to have been issued at the same time as the old shares and securities were issued (or have been deemed to have been issued), and to have raised the same amount of money as the old shares or securities raised (or have been deemed to have raised).
  • If, during the period of giving effect to the exchange the company fails to meet the requirements regarding control at ITA07/S296 - see VCM55190 - that failure is disregarded. For this purpose the period of giving effect to the exchange begins on the day when the first shareholder ceases to possess shares or securities as a consequence of the exchange (or series of exchanges) and ends on the earlier of:

    • the date on which the last of the new shares or securities under the terms of the exchange(s) is issued, or,
    • the day six months after the exchange or exchanges commenced (or such later date as HMRC may by notice in writing allow).

For the valuation consequences of the exchange, see VCM54190.