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HMRC internal manual

Venture Capital Schemes Manual

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VCT: VCT qualifying holdings: exchange of shares or securities for shares or securities in another company

SI2661/2002 Regulations 5 & 8

Note that where such an exchange takes place because a new holding company has been formed, that is covered by ITA07/S326- see VCM55290.

Otherwise, where a company - Company B - issues shares or securities to a VCT in exchange for shares or securities held by the VCT in another company - Company A - providing that new shares are issued in exchange for old shares or securities, and new securities are issued only in exchange for old securities and either:

  • after the exchange, B holds more than 50% of the ordinary share capital of A, or
  • B issues the shares or securities to the VCT as part of a general offer made to the members of A, made on condition that if it were satisfied B would have control of A,

then the new shares and securities can, if other requirements of ITA07/Part 6 Chapter 4 regarding the qualifying trade etc are satisfied, continue to be treated as qualifying holdings of the VCT.

Specifically, the Regulations allow that:

  • During the period of giving effect to the exchange, the new shares or securities issued to the VCT are treated as meeting all the requirements of Part 6 Chapter 4. For this purpose the period of giving effect to the exchange begins on the date when any shareholder or holder of securities ceases to possess those shares or securities as a consequence of the exchange, and ends when the last of the shares and securities in Company B (excluding any shares issued in pursuance of an earn-out right - seeVCM54230) are issued.
  • After the period of giving effect to the exchange the new shares or securities are treated as meeting the requirements at ITA/S293 regarding the use of money raised - see VCM55150, and the requirements at ITA/S287 regarding the maximum qualifying investment by a VCT - see VCM55060.
  • If B is a quoted company and therefore the holdings no longer meet the requirement that they must be holdings in an unquoted company (see VCM55180) they are nevertheless treated as qualifying holdings for a certain period. That period begins on the day the new shares or securities were issued to the VCT (or, if later, the date when all those new shares or securities held by the VCT become fully tradeable - see VCM55350) and ends immediately after the second anniversary of that date or when the VCT disposes of the shares or securities, whichever is the earlier. The same period applies where the company is quoted and fails other requirements of ITA07/Part 6 Chapter 4, other than the requirements covered above.
  • If, after the end of the period of giving effect to the exchange, the new shares or securities do not meet the requirements of Chapter 4 other than S283, S287 and S293, they are nevertheless treated as meeting them for a certain period. That period begins on the date the new shares or securities were first issued to the VCT, and ends, (subject to the variation immediately below) in the case of shares, three years after the issue date, and, in the case of securities, five years after the issue date, or the date when the VCT disposes of the shares or securities if that is earlier.
  • The three and five year periods referred to above are varied if, before they expire, the new shares or securities are marketed to the general public. In that case, the end of the period is the second anniversary of the date they were marketed, or, if later, the second anniversary of the date they became fully tradeable (see VCM55350).

For the valuation consequences of this type of exchange, see VCM54190.