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HMRC internal manual

Venture Capital Schemes Manual

CVS: deferral relief: qualifying investment


A qualifying investment is an investment in shares on which the investing company obtains investment relief. The investment relief need not be obtained in full (for example, if the investing company’s CT liability is not high enough to enable it to benefit from the full amount due), but at least some investment relief must be obtained. The shares will be issued by a ‘qualifying issuing company’ (see VCM90170 to VCM90260).

Where the gain to be deferred arises on the disposal of shares in a company (company A), the new investment must not be in company A or any company which is a member of the same group as company A either when the gain arises or when the new shares are issued. Similarly, if the gain to be deferred is a previously deferred gain which is revived on the occurrence of a chargeable event in relation to shares in company A, and the original gain that was deferred arose on the disposal of shares in company B, the new investment must not be in company A. Nor must it be in any company in the same group as company A either when the gain is revived or when the new shares are issued.

The new shares must be issued in the period that runs from one year before to three years after the time the gain arises (‘the accrual time’). For example, if the gain arises on 2 September 2001 the period begins on 2 September 2000 and ends on 1 September 2004. If the shares are issued before the accrual time, they must have been held continuously by the investing company since they were issued until then, and must still have investment relief attributable to them. It does not matter if some of the shares have been disposed of before the accrual time, but it is only those shares that are still held at the accrual time which can be comprised in the qualifying investment. There is no statutory power to extend the time limit for investing.

Note that shares cannot be treated as issued by reason only of being comprised in a letter of allotment (the specific provision in TCGA92/S288 (5) does not apply here). They are treated as issued when the subscriber’s title to them becomes complete, and this will usually happen when the relevant entry is made on the company’s share register.

In this guidance, the expression ‘the qualifying shares’ means the shares comprised in the qualifying investment together with any corresponding bonus shares issued to the investing company in respect of them. ‘Corresponding bonus shares’ are bonus shares (that is, shares issued for no consideration) that are issued in respect of the qualifying shares, and are in the same company, of the same class and carry the same rights as those shares.