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HMRC internal manual

Venture Capital Schemes Manual

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HM Revenue & Customs
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CVS: loss relief: overview

FA00/SCH15/PARA67 to PARA72

Where a qualifying investing company disposes of shares to which investment relief is attributable, and an allowable loss is incurred on the disposal, the company may claim to set that loss against income provided:

  • the investment relief is not withdrawn in full as a result of the disposal, and
  • the company held the shares continuously from the date the shares were issued until the disposal, and
  • the disposal is:

    • by way of a bargain made at arm’s length for full consideration, or
    • by way of a distribution in the course of dissolving or winding up the issuing company, or
    • a disposal within TCGA92/S24(1) (such as occurs when the issuing company is struck off the Register of Companies and dissolved), or
    • a deemed disposal following a negligible value claim under TCGA92/S24(2), see CG13123 onwards, and
  • relief is not denied by the anti-avoidance provision in FA00/SCH15/PARA71, see VCM92030.

If the shareholding is covered by the substantial shareholding exemption then no allowable loss will be incurred on the disposal and no loss relief will therefore be due. The substantial shareholding exemption will normally apply to investments in trading companies where the shareholding is 10% or more of the investee company’s ordinary share capital and the investment is held for at least 12 months. The full qualifying conditions can be found at CG53000onwards.

In determining the amount of chargeable gain or allowable loss on a disposal where investment relief remains attributable to the shares immediately afterwards, the amount of that relief is deducted from the consideration given for the shares. If a gain arises by virtue of this deduction it is not a chargeable gain.

Example

June 2001 a qualifying investing company subscribes £100,000 for 50,000 shares in a qualifying issuing company. The investing company claims investment relief of £20,000 for its accounting period ending on 31 December 2001.

In January 2004 the investing company sells all 50,000 shares for £60,000. (The shareholding is less than 10% of the investee company’s ordinary share capital and the substantial shareholding exemption does not apply.) Investment relief of £12,000 is withdrawn (£60,000 x 20%), in accordance with FA00/SCH15/PARA46. £8,000 investment relief is not withdrawn and remains attributable to the shares sold. The allowable loss is calculated as follows:

Disposal proceeds     £60,000
       
Less cost £100,000    
Reduced by investment relief not withdrawn £8,000   £92,000
Allowable loss     (£32,000)