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HMRC internal manual

Venture Capital Schemes Manual

CVS: investors and reliefs: repayment of share capital

FA00/SCH15/PARA56 - 58

Relief which the investing company has obtained or would otherwise be entitled to claim in respect of an issue of shares may fall to be reduced where, in the period of restriction (see VCM91300) related to the issue, the issuing company repays, redeems or repurchases shares in it belonging to another person and that person does not suffer a reduction of either investment relief or relief under the EIS as a result.

The amount of the reduction is 20% of the payment made by the issuing company. However, if more than one person suffers a reduction of investment relief as a result of such a payment the reduction is to be apportioned between them in proportion to the amounts of their subscriptions for their shares.

This rule is not applied where the payment made by the issuing company is insignificant in relation to the market value of the company’s remaining issued share capital. Our view is that ‘insignificant’ must be given its normal dictionary meaning of trifling or completely unimportant.

There is one other exception to the rule. This applies where share capital has been issued equal to ‘the authorised minimum’ required for a public company to do business under Section 117 of the Companies Act 1985, the Registrar of Companies having issued the company with a certificate under that section, and the shares comprised in that share capital are redeemed within 12 months of their issue.