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HMRC internal manual

Venture Capital Schemes Manual

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HM Revenue & Customs
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Share Loss Relief: individual and corporate claimants: individual claimants: a simple case without complications: are other criteria for qualifying shares met?

The shares disposed of must be ‘qualifying shares’. The simplest type of qualifying share is one to which EIS relief is attributable. Note that shares to which SEIS relief is attributable (see VCM30000+) are not automatically ‘qualifying shares’. If the shares were not EIS shares then in order to be qualifying shares they must be shares in a qualifying trading company which were subscribed for by the claimant.

The ‘qualifying trading company’ condition is complex. It consists of a number of subsidiary conditions and requirements which must be met at various times and throughout specified periods preceding the disposal. Most important to know is the time at which the shares were issued, but it will also be necessary to consider the nature and activities of the company after and quite possibly before that time and at the date of disposal. There is detailed guidance on the meaning of ‘qualifying trading company’ at VCM74300+. When considering a claim to Share Loss Relief you should ask the office dealing with the corporation tax affairs of the company for the information necessary to form a view as to whether the company was a qualifying trading company, or whether the question has been addressed previously (but bear in mind that a company may cease to be a qualifying trading company due to a change in its activities). Bear in mind also that many of the requirements have been amended over time, so you must be sure you are using the appropriate version: usually this is determined by reference to the time the shares were issued.

Here is a list of the main subsidiary conditions and requirements with links to the relevant guidance.

The trading requirement (qualifying trades and excluded activities) VCM74610 to VCM74790
   
The control and independence requirement VCM74900 to VCM74910
The qualifying subsidiaries requirement VCM74920 to VCM74940
The property managing subsidiaries requirement VCM74950 to VCM74970
The time at which these four requirements must be met VCM74990
The extended period throughout which they must be met VCM75000
The size of the company and it must not be a quoted company VCM75100
The relationship of the company to the United Kingdom VCM75120

The other condition, that the shares disposed of should have been subscribed for by the claimant, is more straightforward. In essence, it means that the claimant must have given the issuing company cash or other new consideration in return for shares being issued to them. This strict requirement may be relaxed in some limited circumstances, such as where shares have been transferred by the actual subscriber to a spouse or civil partner who then disposes of them: see VCM74060.