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HMRC internal manual

Venture Capital Schemes Manual

HM Revenue & Customs
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Share Loss Relief: how to use the guidance: are there complicating factors?

There are a number of factors which, if present, may complicate technical analysis of a claim to Share Loss Relief by bringing into play particular statutory provisions which would not otherwise have to be considered.

The most significant complicating factor is the need to apply share identification rules of some description at the time of the disposal. This will be necessary in two situations:

  1. Where the shares disposed of constituted all or part of a mixed holding of shares (a mixed holding is one in which some of the shares are not capable of being qualifying shares for Share Loss Relief purposes). In these cases it is necessary to apply special rules to determine whether the shares sold from the mixed holding include any qualifying shares and, if so, to identify those shares with specific acquisitions. These special rules are at ITA07/S148 and there is guidance at VCM75440+.
  2. Where qualifying shares are disposed of and those shares form, or have in the past formed, part of a ‘section 104 holding’. A section 104 holding is a computational device created by TCGA92/S104: it is a notional single asset consisting of all shares of the same class in the same company held in a single capacity by a person. The costs allowable in respect of all shares in the holding are effectively averaged, so part of the cost of any shares which do not qualify for Share Loss Relief will be attributed to qualifying shares - and vice versa - when the gain or loss on a disposal from a section 104 holding is computed. There are special rules at ITA07/S147 to ensure that the amount of Share Loss Relief differs from the allowable loss for TCGA purposes where the latter does not represent the true loss on the qualifying shares because of this averaging. There is guidance on this at VCM75400+.

Another complicating factor is the presence of shares which qualify for other reliefs (see VCM72050). This is in fact a subset of the ‘mixed holding’ situation mentioned above: the special share identification rules normally imposed by ITA07/S148 do not apply, and alternative rules apply instead. The precise form of the alternative rules depends on the time the shares qualifying for the other relief were issued. There is detailed guidance at VCM75460+.

A third complicating factor is present when a shareholder disposes of assets (typically other shares) which are not themselves qualifying shares but which derive from, or represent, or otherwise stand in the place of, qualifying shares. This will be the case, for instance, when the issuing company gives its shareholders bonus shares for no new consideration: under the TCGA the bonus shares are usually treated as the same asset as the original shares, so if the original shares qualified for Share Loss Relief it might seem reasonable that the bonus shares should as well. (This particular situation is dealt with at VCM75330). Or a new company might acquire all of an existing company’s shares by giving the latter company’s shareholders newly-issued shares in itself: if the existing company’s shares qualified for Share Loss Relief, there may be circumstances in which the new shares issued by the acquiring company should also qualify for relief in the hands of the shareholder who subscribed for the original shares. This situation is dealt with at VCM75350+.