Income Tax Bill

House of Commons

Session 2006 - 07
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Income Tax Bill

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 2 — VCT relief
140

260
Other tax reliefs relating to VCTs
(1)
Chapter 5 of Part 6 of ITTOIA 2005 (venture capital trust dividends) provides
that, if conditions are met, no liability to income tax arises in respect of
dividends paid in respect of shares in a VCT.
(2)
Section 100 of TCGA 1992 (exemption for venture capital trusts etc) provides
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that gains accruing to a VCT are not to be chargeable gains.
(3)
Section 151A of TCGA 1992 (venture capital trusts: reliefs) provides that a gain
or loss accruing to an individual on a qualifying disposal of any ordinary
shares in a company which—
(a)
was a VCT at the time when the individual acquired the shares, and
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(b)
is still a VCT at the time of the disposal,

is not to be a chargeable gain or, as the case may be, an allowable loss.
(4)
Schedule 5C to TCGA 1992 (venture capital trusts: deferred charge on re-
investment, but only in relation to shares issued before 6 April 2004) provides
that, if conditions are met, an individual’s unused qualifying expenditure on
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shares in a VCT may be set against what would otherwise be chargeable gains.
Chapter 2
VCT relief
Entitlement to relief
261
Eligibility for relief
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(1)
An individual (“A”) is eligible for VCT relief for a tax year if—
(a)
a VCT issues eligible shares to A in that year,
(b)
the VCT issues the shares for raising money, and
(c)
A subscribes for the shares on A’s own behalf.
(2)
The amount in respect of which A is eligible for VCT relief for the tax year by
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reference to any shares is the amount subscribed by A for the shares.
(3)
A is eligible for VCT relief by reference to any shares only if—
(a)
the shares are both subscribed for and issued—
(i)
for genuine commercial reasons, and
(ii)
not as part of a scheme or arrangement the main purpose or one
30
of the main purposes of which is the avoidance of tax, and
(b)
A is at least 18 years old when the shares are issued.
(4)
A is not eligible for VCT relief by reference to any shares if they are treated as
issued to A by virtue of section 195(8) of FA 2003 (tax treatment of disposal by
company of its own shares).
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See section 271(4) for provision requiring the giving of notices about the effect
of this subsection.
262
Entitlement to claim relief
(1)
An individual (“A”) who is eligible for VCT relief by reference to shares issued
in a tax year is entitled to claim VCT relief for that year.
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Income Tax Bill
Part 6 — Venture capital trusts
Chapter 2 — VCT relief
141

(2)
A is entitled to claim VCT relief in respect of the amount on which A is eligible
for VCT relief by reference to all or some of the shares.

This is subject to subsection (3).
(3)
A is not entitled to claim VCT relief for any tax year on an amount of more than
£200,000.
5
263
Form and amount of relief
(1)
An individual who—
(a)
is entitled to claim VCT relief for a tax year, and
(b)
claims such relief for the year on any amount,

is entitled to a tax reduction for the year.
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(2)
The tax reduction is equal to 30% of the amount in respect of which the claim
is made.
(3)
The tax reduction is given effect at Step 6 of the calculation in section 23.
264
No entitlement to relief if there is a linked loan
(1)
An individual is not entitled to VCT relief by reference to any shares (“the
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relevant shares”) if a linked loan is made by any person, at any time in the
relevant period, to the individual or an associate of the individual.
(2)
References in this section to the making by any person of a loan to an
individual or any associate of the individual include references—
(a)
to the giving by that person of any credit to the individual or any
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associate of the individual, and
(b)
to the assignment to that person of any debt due from the individual or
any associate of the individual.
(3)
In this section—
“linked loan” means a loan which—
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(a)
would not have been made, or
(b)
would not have been made on the same terms,
if the individual had not subscribed for the relevant shares or had not
been proposing to do so,
“the relevant period”, in relation to VCT relief in respect of any shares in
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a company which is a VCT, means the period—
(a)
beginning with—
(i)
the incorporation of the company, or
(ii)
if later, the date two years before the issue of the shares,
and
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(b)
ending immediately before the fifth anniversary of that issue.
265
No entitlement to relief which would have been lost if it had already been
obtained
An individual is not entitled to VCT relief by reference to any shares if
circumstances have arisen which would have resulted in the withdrawal or
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reduction of the relief, if that relief had already been obtained.

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 2 — VCT relief
142

Loss of relief
266
Loss of relief if shares disposed of within 5 years
(1)
This section applies, subject to section 267 (spouses or civil partners), if an
individual—
(a)
obtains VCT relief in respect of eligible shares in a VCT, and
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(b)
makes a disposal of those shares within 5 years of their issue to the
individual.
(2)
In the case of a disposal that is made otherwise than by way of a bargain made
at arm’s length, any VCT relief obtained by reference to the shares which are
disposed of is to be withdrawn.
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(3)
In the case of a disposal that is made by way of a bargain made at arm’s length,
any VCT relief obtained by reference to the shares disposed of must—
(a)
if it is greater than A, be reduced by A, and
(b)
in any other case, be withdrawn.
(4)
A is 30% of the amount or value of the consideration which the individual
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receives for the shares.
(5)
The rules in subsections (6) and (7) are for determining which eligible shares of
any class are treated as disposed of for the purposes of—
(a)
this section, and
(b)
section 267,
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if a person disposes of some but not all of the eligible shares of that class which
the person holds in a company.
(6)
Shares acquired on an earlier day are treated as disposed of before shares
acquired on a later day.
(7)
Shares acquired on the same day are treated as disposed of in the following
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order—
(a)
shares by reference to which VCT relief has not been obtained, and
(b)
shares by reference to which VCT relief has been obtained.
267
Transfers of shares between spouses or civil partners
(1)
Section 266 does not apply in the case of any disposal of shares made by an
30
individual to the individual’s spouse or civil partner, if it is made at a time
when they are living together.
(2)
Subsection (3) applies if any eligible shares which—
(a)
have been issued to any individual (“the transferor”), and
(b)
are shares by reference to which any VCT relief has been obtained,
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are transferred to the transferor’s spouse or civil partner (“the transferee”) by
a disposal such as is mentioned in subsection (1).
(3)
If this subsection applies, section 266 and subsection (2) have effect, in relation
to any subsequent disposal or other event, as if—
(a)
the transferee were the person who had subscribed for the shares,
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(b)
the shares had been issued to the transferee at the time when they were
issued to the transferor,

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 2 — VCT relief
143

(c)
there had been, in relation to the transferred shares, such a reduction by
way of VCT relief in the transferee’s liability to income tax as is equal
to the actual reduction in respect of those shares of the transferor’s
liability, and
(d)
that deemed reduction were (despite the transfer) to be treated for the
5
purposes of section 266 as an amount of VCT relief obtained by
reference to the shares transferred.
(4)
Any assessment for withdrawing or reducing VCT relief because of a disposal
or other event falling within subsection (3) is to be made on the transferee.
268
Loss of relief if VCT approval withdrawn
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(1)
This section applies if—
(a)
the approval of any company as a VCT is withdrawn, and
(b)
the withdrawal of the approval is not one to which section 281(3) (VCT
approval treated as never having been given) applies.
(2)
Any person who, at the time when the withdrawal takes effect, is holding any
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shares issued by the company by reference to which VCT relief has been
obtained is treated for the purposes of section 266 as having disposed of those
shares—
(a)
immediately before that time, and
(b)
otherwise than by way of a bargain made at arm’s length.
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269
Loss of relief which is subsequently found not to have been due
Any VCT relief obtained which is subsequently found not to have been due is
to be withdrawn.
270
Assessment on withdrawal or reduction of relief
(1)
An assessment for withdrawing or reducing VCT relief under any of sections
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266 to 269 must be made for the tax year for which the relief was obtained.
(2)
No assessment for withdrawing or reducing VCT relief obtained by reference
to shares issued to any individual may be made because of any event occurring
after the individual’s death.
Supplementary
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271
Provision of information
(1)
If an event occurs that results in any VCT relief falling to be withdrawn or
reduced, the individual by whom the relief was obtained must, within 60 days
of coming to know of the event, give notice to an officer of Revenue and
Customs containing particulars of the event.
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(2)
If an officer of Revenue and Customs has reason to believe that a person has
not given a notice which the person is required to give under subsection (1), the
officer may by notice require the person to provide the officer, within such time
as may be specified in the notice, with such information relating to the event as
the officer may reasonably require for the purposes of the provisions of this
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Chapter.

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 2 — VCT relief
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(3)
The period specified in a notice under subsection (2) must be at least 60 days.
(4)
If a company which is a VCT issues to any individual eligible shares to which
section 261(4) applies, it must—
(a)
at the time of the issue of those shares, give the individual a notice
stating that the individual is not eligible for VCT relief by reference to
5
those shares, and
(b)
not later than 3 months after the issue of those shares, give a copy of
that notice to an officer of Revenue and Customs.
(5)
No obligation as to secrecy imposed by statute or otherwise prevents an officer
of Revenue and Customs from disclosing to a VCT that VCT relief has been
10
obtained by reference to a particular number or proportion of its shares.
272
Regulations as to procedure etc
(1)
This section applies to VCT relief and relief for which the following provide—
(a)
section 151A of TCGA 1992 (VCTs: reliefs),
(b)
Schedule 5C to TCGA 1992 (VCTs: deferred charge on re-investment),
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(c)
Chapter 5 of Part 6 of ITTOIA 2005 (VCT dividends), and
(d)
regulations under Chapter 5 of this Part.
(2)
The Treasury may by regulations make such provision as they consider
appropriate for—
(a)
giving effect to relief to which this section applies, and
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(b)
preventing such relief from being given unless a claim is made in
accordance with the regulations and such other requirements as may be
imposed by the regulations have been met.
(3)
Regulations under this section may make provision as to the manner in which,
and the persons by whom, relief to which this section applies is to be claimed.
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273
Interpretation of Chapter
(1)
In this Chapter “eligible shares”, in relation to a company which is a VCT,
means ordinary shares in the VCT which, throughout the period of 5 years
beginning on the date on which they are issued, carry—
(a)
no present or future preferential right to dividends or to a company’s
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assets on its winding up, and
(b)
no present or future right to be redeemed.
(2)
In this Chapter references to a disposal of shares include references to a
disposal of an interest or right in or over shares.

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 3 — VCT approvals
145

Chapter 3
VCT approvals
Giving of approval
274
Requirements for the giving of approval
(1)
Subject to section 275, the Commissioners for Her Majesty’s Revenue and
5
Customs must not approve a company for the purposes of this Part unless it is
shown to their satisfaction that the conditions mentioned in subsection (2)—
(a)
are met in relation to the most recent complete accounting period of the
company, and
(b)
will be met in relation to the accounting period of the company which
10
is current when the application for approval is made.
(2)
The conditions applied by subsection (1) (which are also applied by section
275(1) and other provisions of this Chapter) are set out in column 2 of the
following table together with, in column 1 of the table, the descriptions by
which they are referred to.
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In each of those conditions “the relevant period” means the accounting period
that is relevant for the purposes of the particular provision by which the
condition is applied.

Description
Condition

The listing condition
The shares making up the company’s

20

ordinary share capital (or, if there are such

shares of more than one class, those of each

class) have been or will be listed

throughout the relevant period in the

Official List of the Stock Exchange

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The nature of income
The company’s income in the relevant

condition
period has been or will be derived wholly

or mainly from shares or securities

The income retention
The company has not retained or will not

condition
retain an amount which is greater than

30

15% of the income it derived or will derive

in the relevant period from shares or

securities

The 15% holding limit
No holding in any company, other than a

condition
VCT or a company that would qualify as a

35

VCT but for the listing condition, has

represented or will represent at any time

during the relevant period more than 15%

by value of the company’s investments

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 3 — VCT approvals
146

Description
Condition

The 70% qualifying
At least 70% by value of the company’s

holdings condition
investments has been or will be

represented throughout the relevant

period by shares or securities included in

5

qualifying holdings of the company

The 30% eligible shares
At least 30% by value of the company’s

condition
qualifying holdings has been or will be

represented throughout the relevant

period by holdings of eligible shares

10

(3)
The conditions mentioned in subsection (2) are supplemented as follows—
(a)
the nature of income condition and the income retention condition by
section 276,
(b)
the 15% holding limit condition by section 277,
(c)
the 15% holding limit condition, the 70% qualifying holdings condition
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and the 30% eligible shares condition by sections 278 and 279, and
(d)
the 70% qualifying holdings condition and the 30% eligible shares
condition by section 280.
275
Alternative requirements for the giving of approval
(1)
This section applies if one or more of the conditions mentioned in section
20
274(2) are not met with respect to a company in relation to its most recent
complete accounting period.
(2)
The Commissioners for Her Majesty’s Revenue and Customs may still approve
the company for the purposes of this Part if they are satisfied that the condition
or conditions in question—
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(a)
will be met in relation to the period mentioned in subsection (3), and
(b)
will continue to be met in relation to accounting periods following that
period.
(3)
The period is—
(a)
in relation to the listing condition, the nature of income condition, the
30
income retention condition and the 15% holding limit condition, the
accounting period of the company which is current when the
application for approval is made, or its next accounting period,
(b)
in relation to the 70% qualifying holdings condition and the 30%
eligible shares condition, an accounting period of the company
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beginning no more than 3 years after the time when the approval is
given or, if earlier, when the approval takes effect.
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Conditions relating to income
(1)
Subsections (2) and (3) apply in determining for the purposes of the nature of
income condition and the income retention condition—
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(a)
the amount of a company’s income, or
(b)
the amount of income which a company derives from shares or
securities.